CRA’s Proposed Registration of Tax Preparers: A Summary of the Issues

On January 17, 2014, the CRA released its consultation paper on the proposed registration of tax preparers program (RTPP). The consultation process ended on May 31, 2014. This article summarizes the RTPP as described by the CRA in the consultation paper, and outlines some of the concerns that were raised by tax practitioners during and after the consultation process.

Under the RTPP, persons who prepare T1 and T2 returns for a fee will be required to register with the CRA. Upon registration, such persons will be assigned a personal information number (PIN). Firms in the business of preparing tax returns and firms that employ more than one registered tax preparer will also be given an entity identification number (EIN).

It is important to note that not every employee of a firm that prepares tax returns will be required to register under the RTPP. The persons who are required to register are the tax preparers who review the work of other tax preparers and provide final approval of tax returns. At a large public accounting firm, these persons will typically be senior managers and partners.

It is also important to note that registration is not required for individuals who prepare the tax returns of their employers (such as internal accounting department employees), persons who prepare tax returns free of charge (such as the volunteers in the free CPA tax clinics program), and persons who are not held accountable by their employers for the accuracy and completeness of tax returns (such as associates at an accounting firm who do not approve tax returns).

Once the RTPP is in effect, both PINs and EINs will be required on all tax returns. The CRA claims that by using PINs and EINs it will be able to associate (1) errors in a tax return with a particular tax preparer and (2) a particular tax preparer with his or her employer. The CRA hopes that the RTPP will allow it to identify tax preparers and firms that make recurring errors so that it can work with those persons and firms to prevent such occurrences, thereby improving the accuracy and completeness of tax returns generally. Fewer errors in tax returns will result in fewer follow-up interactions (such as audits) between the CRA and taxpayers. In turn, business owners will be able to spend more time running their businesses and less time dealing with the CRA.

Once the CRA has identified a recurring error, it will be able to take a variety of approaches such as education, follow-up visits, development of action plans, and audits of the tax preparer’s clients if non-compliance persists. Sanctions could be imposed on tax preparers who either fail to take reasonable care and exercise proper due diligence to correct errors or are deliberately non-compliant. Possible sanctions include assessing a penalty, introducing a period of monitoring, and reporting the tax preparer to a provincially regulated accounting or legal body. The CRA states in the consultation paper that a robust redress process will be available; the first level of redress would be an appeals process within the CRA itself.

A number of issues and concerns were raised in the consultation process:

  1. The proposal aims to reduce recurring errors by identifying errors made by a particular tax preparer, informing the tax preparer of the errors, and showing him or her how to correct the errors. Presumably, an occasional transposition of digits would not be a concern for the RTPP, and intentional misrepresentation or omission would be targeted by existing CRA programs. What type of error is intended to be addressed? The concern is that “error” can be defined differently by the taxpayer, the tax preparer, and the CRA. In addition, since tax preparers do not audit the information provided to them for tax preparation, any missing or inaccurate information is usually the fault of the taxpayer. It would be unfair to shift the responsibility from the taxpayer to the tax preparer under the RTPP.

  2. The requirement for both a PIN and an EIN will increase the administrative burden for tax preparers. Also, the CRA already has an existing system for registering e-filers. Some tax preparers suggest that existing elements of the registration system, such as e-filer numbers, should be incorporated into the RTPP so that new registration processes and numbers are not needed.

  3. Currently, the redress process that is contemplated is a panel within the CRA itself. It would be preferable to have a review panel that is unbiased and independent of the CRA. If a tax preparer is found non-compliant under the RTPP, it is unclear how long the non-compliance characterization will remain attached to the preparer’s record.

  4. A tax preparer who is sanctioned under the RTPP may find his or her ability to obtain professional liability insurance affected. Many individuals and firms registered with public accounting bodies must provide proof of liability insurance. In extreme situations, severe sanctions imposed under the RTPP may result in a person or firm being unable to obtain insurance and thus unable to continue to provide services. At the very least, sanctions may result in an increase in insurance premiums.

  5. The CRA stated that it is giving consideration to publishing a list of registered tax preparers. Taxpayers may misconstrue a published list as conferring official approval or recognition of accounting skills and experience. It is not advisable to publish such a list when the CRA will not refuse a registration—anyone can apply and register. Some tax preparers suggest that certification should be required to ensure that tax preparers are qualified to practise; others suggest that only provincially regulated tax preparers such as CPAs should be allowed to register under the RTPP.

  6. It is unclear whether “tax preparation” includes amending and/or disputing previously filed returns. Therefore, it remains to be seen whether the proposals will apply to firms that engage only in tax dispute resolution.

  7. Many tax practitioners are concerned that the RTPP may be the first step toward government regulation of the tax profession. Some say that any intervention from the government is unnecessary, given that the accounting and legal professions are already self-regulated. Some research on disciplinary action taken by the professions’ self-regulatory bodies against practitioners who have been subject to the more severe sanctions under the Act (such as the third-party penalties in section 163.2) might help to resolve this issue.

Jin Wen
Grant Thornton LLP, Markham
Jin.Wen@ca.gt.com

Canadian Tax Focus
Volume 5, Number 1, February 2015
©2015, Canadian Tax Foundation