Point/counterpoint: tax specialization accreditation.

The AICPA's proposal to accredit tax specialists is highly controversial, yet it just might come to pass. Even as this article is being readied for publication, the AICPA's Tax Division is preparing a questionnaire to send to selected members of the Tax Division to ascertain their attitudes toward accrediting a tax specialization. Numerous studies, task forces, committees and organizations have scrutinized the subject of specialization in the last 20 years, and in nearly all of them tax specialization has played a major role. The AICPA, state CP societies, private organizations, state organizations and organizations related to other professions have considered this subject. Each study begins with the simple statement that "specialization is here," but the relevant question is, Do we or don't we want to accredit the specialists? And if so, who, how and what specialties?

After a long history of analyzing this issue, the AICPA's Council authorized establishing a Specialization Accreditation Board (SAB) to set standards for accreditation of specialities, decide what specialties to recognize (with the approval of the Board of Directors) and monitor the resulting programs. At first, only personal financial specialists were accredited by the AICPA. Recently, a program was begun to accredit business valuators. The topic of accrediting tax specialists was given to the Tax Division's Tax Executive Committee, which established a Tax Specialization Task Force under the Tax Practice Management Committee. The Task Force's September 1992 report recommended instituting an educational program on the subject, to be followed by a survey. That survey is the questionnaire about to be distributed. Following the survey, the Tax Executive Committee will decide whether to recommend accreditation of tax specialists to the SAB.

The Tax Specialization Task Force has proposed a model tax specialty program based on a broad general tax specialty. Although the Task Force concluded that broad and narrow tax specialties were not necessarily mutually exclusive, it recommended that the AICPA should first consider accrediting a broad specialty, which would be more representative of the average CPA's tax practice.

The Task Force's model itemizes specific requirements for initial accreditation, mainly three years of 500 hours per year devoted to tax matters, and thereafter passing an examination. The model also specifies requirements for annual reaccreditation, mainly a total of 1,500 hours experience in tax matters and 60 hours of tax continuing professional education (CPE) during the three preceding years. The Task Force recommended that the type of experience needed to meet the practice requirement would be set by the SAB in consultation with the Tax Division Executive Committee. However, it was recommended that full-time educators at four-year degree-granting institutions would be allowed to substitute teaching-related hours in satisfying the practice requirement.

The Task Force's report listed a number of arguments favoring the Task Force Model and a number of arguments for opposing the Task Force Model. This article will discuss the pros and cons of accrediting a tax specialty and - by presenting both sides of the issue - outline the controversy that has arisen.

It wasn't so long ago that the typical CPA provided services to clients in a wide range of practice areas, including audit, tax, financial planning and business consulting services. Not unlike physicians, lawyers and other professionals, most CPAs were once considered to be general practitioners. However, over the years the accounting profession has changed dramatically. In response to legislative and regulatory changes and to competitive pressures from other service providers, specialization within the accounting profession has now become the norm, not the exception.

The various service disciplines in which CPAs now practice have become so complex that many CPAs by necessity concentrate their practices in specific areas. Their expertise in these practice areas generally is communicated to most of the public by reputation and word of mouth. However, in recent years, various private certification programs in such practice areas as financial planning and business valuation have allowed CPAs to obtain formal recognition of their specialized competence.

Nowhere in the profession is specialization currently more evident than in tax practice. Largely due to the legislative and regulatory changes enacted over the past two decades, many CPA firms, particularly the larger firms, have established tax departments that generally are exclusively responsible for providing tax services to their firms' clients. The professionals in these departments are held out to both clients and prospective clients as tax specialists. Often, their special expertise is supported only by a designation that the professional is the holder of an advanced tax or law degree, or by membership in the AICPA Tax Division.

The legal profession began developing specialty accreditation programs more than 20 years ago. Presently, more than a dozen states have adopted certification programs, several of which include certification in tax law. These programs recognize that de facto specialization in taxation already existed within the legal profession and that formal accreditation of this specialization would not only help consumers in selecting qualified lawyers, it also would enhance professional competence in taxation.

The issue is no longer whether the accounting profession should also have specialization in tax practice, but how the profession should respond to it. De facto specialization clearly exists today, and should be properly regulated and recognized.

An accredited specialization program in taxation will benefit both CPAs and the public. A specialization designation will enhance the marketing efforts of CPAs competing for the services of the same client with a tax attorney or non-CPA accredited tax specialist, such as an enrolled agent. The specialty designation will denote to users of tax services the CPA's additional education and experience. Accrediting tax specialization will be particularly beneficial to CPAs in smaller firms in competing for clients with professionals in larger firms whose self-designation of expertise may have greater public credibility.

Opponents of accrediting specialization have expressed concern that formal recognition of specialties may increase a CPA's exposure to malpractice. To date, there is little, if any, evidence that specialization will increase legal liability. Rather, accreditation, by imposing initial qualifications, recertification and CPE requirements, should have the beneficial effect of ensuring that CPAs will remain current and continue to update and enhance their technical competence in their specialty area.

Some CPAs have opposed formal recognition of specialization on the grounds that CPAs who are not accredited may be precluded from practicing in the specialty area, and that the CPA designation should be sufficient evidence of tax expertise. Although it is expected that tax specialist accreditation would indicate greater tax competence than the CPA designation alone, nonaccredited CPAs would not be prevented from engaging in tax practice.

An accreditation program also benefits consumers by offering them objective criteria in evaluating and selecting a CPA. Today, when a consumer needs a tax adviser, he must often rely on the advice of other consumers or yellow pages advertising in choosing that Adviser. Accreditation will better allow a consumer to both identify a tax specialist and to substantiate that specialist's claim of expertise.

Recently, the Florida Institute of CPAs (FICPA) approved specialization programs in taxation and five other practice areas. It is likely that other state societies may soon consider and adopt similar programs. If specialization programs are adopted on a state-by-state basis, there will inevitably be a lack of uniformity among the various programs. Only AICPA sponsorship of a tax specialization accreditation program would assure the adoption of uniform standards of competency. Moreover, an AICPA-sponsored program would make the specialty designation more portable. It also would facilitate multijurisdictional referrals by assuring that professionals have the same minimum level of education and experience.

Tax specialization is clearly a fact of life in the accounting profession; not to recognize and regulate it in today's competitive environment would be irresponsible. Accrediting a tax specialty would serve both societal and professional interests by certifying that professionals possess the necessary education and experience to competently provide these services.

The AICPA needs to take a leadership position in accrediting a tax specialty. The tax specialization program approved in Florida is likely to be the first of many efforts by state boards of accounting to regulate tax specialty designations and advertising. If the AICPA fails to act to preempt state-by-state action, there will surely be a proliferation of state programs with conflicting provisions and requirements. An AICPA-sponsored program would also have the additional benefit of lessening the burdens and development costs that individual states would otherwise have to bear.

The AICPA Council has already approved the minimum requirements for accrediting specialties. The Tax Division has now developed a specific model for a tax specialty accreditation program that would benefit and be available to CPAs who devote a significant part of their professional time to tax practice. The broad tax specialty recommended in the model plan would best balance the interests of small and large firms. The Tax Division Executive Committee should recommend its adoption to the SAB and to the AICPA Board of Directors.

The first problem that should be considered is whether the subject of taxation can be treated as a single specialty. In today's environment an individual who is a specialist in taxation is more a generalist than a specialist. Neither the AICPA nor any other respected organization that has studied the question is proposing to accredit specialists without requiring them to pass an exam. Assuming the exam covered all areas of taxation, many of the true tax specialists would not be equipped to pass it. A tax-practice-wide exam should cover income taxes (personal, corporate, partnership, limited liability companies, fiduciaries, international, various states and cities), estate taxes, excise taxes, sales taxes, etc. A practitioner who devotes most of his time to any one of these areas would likely be excluded from the tax specialist designation because he lacks experience in the wide range of general taxation. Furthermore, those practitioners with practices devoted largely to taxation in a single industry, such as oil and gas, would likewise have difficulty in meeting the test.

Another question to be considered is how widespread would the AICPA want the title of tax specialist to be? This, of course, can be controlled by the difficulty level of the tests. Should any CPA who spends a normal amount of time in the area of taxation (and I don't believe that 500 hours per year - the minimum level of practice recommended in the report - is an abnormally large amount of tax work) be able to pass the exam and be labeled a tax specialists? Or should the questions be so esoteric that only those who devote nearly all their working hours to tax research could earn a passing grade? Would the questions be confined to Federal income taxes, or would a substantial portion of them deal with other areas, such as state and local taxes, property taxes, sales taxes or excise taxes? Could a national test be devised to cover the local items a tax specialist should be aware of, or would a section of each exam have to be written separately in each of the 50 states and tacked onto the general test?

Depending on the exam's level of complexity, consideration has to given to the likelihood that many long-term tax practitioners might avoid taking the test because they might not think it is worth the effort to study for it, or because of the possible embarrassment they might suffer if they did not pass.

From the preceding discussion, it should be obvious that the cost of preparing and administering new tests annually (or semiannually?) would be substantial, and would have to be weighed against the benefits the AICPA would hope to gain. If it were decided to adopt a substantial number of narrow tax specialties for accreditation (rather than taxation in general), the cost of compiling and grading the exams would soar beyond belief, and each of the exams would be taken by a relatively small number of specialists.

Should a tax specialist exam be based solely on the specialist's knowledge, or would an open-book type exam be a better test of tax skills? The ability to recognize a question and look up the appropriate answer to reach a correct conclusion may be more important in judging who is entitled to be called a tax specialist than the number of answers retained in the specalist's mind. The level of the test would, of course, have to be raised if research is to be permitted. In the near future, the tests might even include findings and supporting answers through computer research. This speculation is based on the assumption that giving the tests in order to turn out accredited specialists in taxation is a worthwhile project.

One argument that has been made in favor of the AICPA adopting a tax specialist accreditation program is that it will create a uniform standard for designated specialists rather than having a multiplicity of organizations, each with its own tests and other measurements, bestowing the title of tax specialist on CPAs and others. While initially there appears to be a ring of truth to this argument, a more deeply reasoned analysis leads to the opposite conclusion. The AICPA program certainly would not stop other recognizations from coming up with their own programs. It might even encourage additional entities to develop more tax specialization designations in order to accommodate those CPAs and others who could not meet the standards set by the AICPA. In fact, once CPAs start advertising their AICPA accreditation, it is likely many will seek credentials from more than one source. The AICPA program could, in effect, legitimatize the others. If, however, the AICPA does not put its blessing on tax specialist status, the credentials granted by various entities may receive less recognition.

Incidentally, if the AICPA were to decide to accredit numerous narrow fields (not just one general field), the possibility of an individual qualifying in more than one field should be considered. Can a person be a multispecialist in taxes? He would have to meet the required number of practice hours in each specialty, and would have to attend sufficient CPE in each field, but it would seem possible then to advertise double (or triple) tax designation, even though the claim would be contrary to the usual understanding of specialization.

In Peel v. Attorney Registration and Disciplinary Commission of Illinois, 469 US 91 (1992), the U.S. Supreme Court made it clear that factual advertising by a professional of accreditation by an organization was protected by the First Amendment. While the Court indicated that the states could impose some limitations on the certifying bodies or require an explanatory disclaimer claimer the advertisement, it is fair to state that the decision will help proliferate the number of organizations granting tax specialization certificates. The AICPA would be best served by not joining the group.

Small or local accounting firms have been behind much of the oppositon to accreditation. They are concerned that clients will be overwhelmed by claims of tax specialty (backed by AICPA accreditation) from the large firms. Many small firms will not be able to employ specialists who have met the AICPA's requirements. This will be particularly true if the AICPA adopts the narrow definition of tax specialization, and even more so if that narrow definition includes industry tax specializations. In today's environment, it does not seem fair for the AICPA to adopt a position favoring the larger firms.

Most of the remaining arguments against adoption of tax specialty accreditation outlined in the Task Force's report are:

1. The CPA certificate, in the public's mind, is at present an indication that the practitioner is competent in taxation. For the AICPA to designate certain CPAs as tax specialists could only lead to confusion, and there is already sufficient confusion in the public's mind with existing tax specialists titles. The AICPA should not add to the confusion.

2. Accreditation would water down the CPA designation. For a CPA who does not obtain a specialist designation (either because of the nature of his practice or because he chooses to forgo the title), something will have been taken away when a comparison is made with those approved for specialization by the AICPA. Respect for the CPA license itself (without a designated specialty) may erode. The public will look for a specialist before looking for a CPA. Once specialization supersedes the importance of the CPA license, many non-CPAs with specialist titles from other organizations may become more appealing to the public than a CPA who has not sought specialization accreditation.

3. Practitioners advertising as specialists probably will be held by the courts to a greater degree of expertise than others, thereby increasing their malpractice liability (and eventually their insurance costs). (The medical profession certainly has learned this from bitter experience.) Clients expect more from a specialist and will look for greater recompense if they are given incorrect advice. Insurance companies could raise even more problems. For example, could they refuse to cover the work of a CPA in an area in which a specialty license exists if the individual was not accredited in that area? While such a position does not seem imminent, it may not be so farfetched once the profession is forced to become a group of narrow specialists.

4. There may be a campaign by CPAs with years of experience in taxation to be grandfathered for accreditation without being required to take a test. If consideration is to be given for such a designation (and it appears that an argument for this position could be fairly made), further confusion could result from distinctions between those tested and those not tested. Once having established a route by which to achieve accreditation without examination, it is likely that other groups will be lobbying for similar treatment in the future.

5. The Task Force has pointed to the unsettled question of whether specialization should be on a broad-based scale or on a narrow basis. Will the public understand that an accredited taxation specialist may know little or nothing about estate planning? This argument should be considered a major obstacle to adopting the model plan for accreditation.

6. The Task Force has also indicated that there is some doubt about whether the IRS Director of Practice, in enforcing Treasury Circular 230, would permit CPAs authorized to practice before the IRS to advertise their accreditation as tax specialists. Questions have also been raised about whether some state boards might take a cue from the Peel case and require lengthy disclaimers in advertisements proclaiming tax specialization.

7. While the Task Force recommends, at the least, starting out with a broad-based tax specialty definition, it realizes that various sectors of the economy have a need for narrow specialists, particularly by industry specialization. And the costs of accreditation by industry could be prohibitive. If specialization on a narrow industry basis is a foreseeable consequence, it probably is best for the AICPA not to initiate any accreditation program. If a program starting out to accredit "general" tax specialists is likely to result in an irresistible demand from certain quarters for establishment of a long list of narrow specialties, the AICPA should be looking down the road at the problems it will face before undertaking a journey toward accreditation.

8. Finally, the Task Force admits that, at present, there is a gross lack of public understanding of what being a tax specialist entails, and that lack of understanding is pervasive both inside and outside the profession. Is the key dependent on whether the individual devotes a majority of his time to general tax matters? Or does such designation require a narrow focus on a specialty area? "The distinction between a person who is a tax specialist and one who is not is difficult, if not impossible, to make. An accreditation program in taxation should not be implemented before members of the profession are thoroughly educated about how the accreditation may be used for practice development and how it could impede growth."