Frequently Asked Questions
What is the Minnesota Debt Settlement Statute?
Minnesota has enacted Statute 332B regulating Debt Settlement Services. The statute exempts some attorneys doing only a small amount of representation work before the IRS, but NOT CPAs and enrolled agents. Debt settlement services are defined as “offering to provide advice or offering to act or acting as an intermediary between a debtor and the federal government, state government, or their political subdivisions to delay payment of delinquent taxes owed, establish a payment plan for delinquent taxes owed, or obtain a settlement for less than the full amount of delinquent taxes owed.” It does not apply to tax preparation yet, unless, of course, the tax preparation work involves a non-filer with a balance due debt and a substitute-for-return. Under those circumstances, assisting the taxpayer will likely trigger an enforcement action by Minnesota.
Why is the Minnesota Debt Settlement Law a problem for your professional credential?
The enrolled agent credential is a national credential, not subject to conflicting or overlapping rules from state legislatures. Passing the Special Enrollment Exam, undergoing a tax compliance background check, complying with the federal continuing education requirements and honoring the uniform ethics requirements of Circular 230 allows enrolled agents to represent taxpayers from any state. This federal pre-emption is based on the Supremacy Clause of the U.S. Constitution, which establishes that federal laws pursuant to enumerated U.S. Constitutional powers, such as the administration of the federal tax system, are the supreme law of the land. The Minnesota statute, on the other hand, effectively repeals the nationwide reach of the enrolled agent to practice before the Internal Revenue Service.
What is the monetary cost to comply with the law?
The Minnesota law would require any enrolled agent in the country representing a single taxpayer from Minnesota before the IRS to register and pay a $1,000 initial registration fee and $250 annual renewal fee. Similarly, the Debt Settlement Services Act requires an enrolled agent to incur the expense of posting a $5,000 security bond.
How does it affect the fees I charge?
The state statute empowers the state Department of Commerce to set the level and means for payment of enrolled agent fees. For instance, the Debt Settlement Services Act does not allow for the payment of any upfront fees and forces the tax practitioner to list all provided services ahead of time before an enrolled agent is able to file a power of attorney in order to speak with the IRS or obtain a tax transcript. We assume this will include assisting a taxpayer for filing a tax return in the case of a substitute-for-return as well.
How does the law potential conflict with the Internal Revenue Code and circular 230?
The Debt Settlement Services Act requires enrolled agents to provide the state Department of Commerce with detailed taxpayer information contrary to circular 230 and the Internal Revenue Code.
What are the penalties for not complying with the law?
Failure to comply with the statute subjects EAs to fines and penalties of up to $5,000 per incident, injunctions and potential civil damages.
I only do tax return preparation, should I be concerned about the Minnesota law?
Yes, you may find yourself in noncompliance if you assist a non-filer in the case of a substitute-for-return. Additionally, the legal reasoning raised by Minnesota can and has been used to allow states to regulate tax return preparation as well. If we lose here, we are extremely worried that other states will enact copy-cat legislation. Finally, one of the greatest values of your enrolled agent credential is that it is a national credential, not subject to state-by-state regulation.
