Proposed taxreturn preparer requilrements

Proposed New Requirements for Tax Return Preparers: Frequently Asked Questions

Posted 2/2/2010

If an employee of a business prepares the business’ tax returns as part of their job responsibilities, will the recommendations affect them?

No. An employee who prepares his employer’s returns is not required to sign as a paid preparer. Accordingly, unless the employee prepares other federal tax returns for compensation, he or she will not be required to register and obtain a PTIN.

Will Accredited Council of Accountancy for Taxation (ACAT) credential holders have to pass the IRS return preparer examination and complete continuing professional education to prepare returns?

Yes, ACAT credential holders will need to pass the IRS exam unless they are also attorneys, certified public accountants, or enrolled agents. As for continuing professional education, they will be subject to the new requirements unless they are also attorneys, CPAs, enrolled agents, enrolled actuaries or enrolled retirement plan agents.

Only attorneys, certified public accountants and enrolled agents will be exempt from testing. Attorneys, certified public accountants, enrolled agents, enrolled actuaries and enrolled retirement plan agents are exempt from the return preparer continuing education requirements.

Will the competency test be available in any other languages such as Spanish?
At least initially, the test will only be available in English.

Because a Preparer Tax Identification Number (PTIN) is going to be mandatory in the future, can I go ahead and get one now?

Yes, you may obtain a PTIN if you do not already have one and begin using it now. However, once the new online preparer registration system becomes available, you will still need to register. The system will ask if you already have a PTIN and it will reassign you the same number.

To apply for a PTIN now, you can apply by using e-Services – Online Tools for Tax Professionals or by filing Form W-7P, Application for Preparer Tax Identification Number. Online applications are processed faster, and return preparers are encouraged to apply online.

Enrolled agents currently pay $125 for enrollment and renewal. Attorneys and certified public accountants pay similar fees to their oversight organizations. Will the new IRS registration fee be applicable to all enrolled agents, attorneys, and CPAs in addition to their other fees?

Yes. All signing paid tax return preparers will have to pay a fee to register (and renew) as return preparers and to obtain PTINs. This fee is in addition to any fee paid tax return preparers must pay for any other certifications or licenses they hold. Because they are exempt from testing, attorneys, CPAs, and enrolled agents would not be required to pay the separate testing fee.

Posted 1/22/2010
What is the best estimate for when the new regulations will be implemented?
Sept. 1, 2010, is the current target date for an on-line registration system and Jan. 1, 2011, is the current target date for requiring all paid signing preparers to be registered and to use a Preparer Tax Identification Number (PTIN). Final determination of these dates is dependent on many factors and will be widely publicized as soon as available.
Testing will not be implemented until after registration and mandatory PTIN usage are in place.
How will the new regulations affect registered or licensed public accountants? Would they have to test?
In many states, a registered or licensed public accountant (LPA) has the same rights and privileges as a certified public accountant. Thus, an LPA in those states is eligible to practice before the IRS by virtue of their public accountant’s license and these individuals will not be required to pass the IRS' return preparer examination or satisfy the CPE requirements for tax return preparers.
The following is a non-exclusive list of states where a LPA has the same rights and privileges as a CPA: Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Maine, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, and West Virginia
LPAs in the following states do not have the same rights and privileges as a certified public accountant and, therefore, will be required to pass the IRS' return preparer examination and satisfy the CPE requirements for tax return preparers to prepare any federal tax return for compensation (unless the LPA is an attorney or enrolled agent): Delaware, Illinois, Iowa, Kansas, Michigan, Oregon, and South Carolina
LPAs in other states should review the laws of the state in which they are licensed to determine whether they have the same rights and privileges as a certified public accountant.
In Minnesota we have Registered Public Accountants. These individuals are governed by the Minnesota Board of Accountancy, must register with the Board, pay a fee, and have continuing education requirements and ethics requirements. Will they have to test?
In general, a registered (or licensed) public accountant may practice before the IRS if the registered (or licensed) public accountant has the same rights and privileges as a certified public accountant under state law. Although the IRS has reviewed the laws of 29 states to determine if the registered (or licensed) public accountants in those states have the same rights and privileges as a CPA, Minnesota is not one of those 29 states. Accordingly, the registered public accountants in Minnesota should review their own state laws to determine whether they have the same rights and privileges as a CPA. until the Office of Professional Responsibility has an opportunity to formally consider whether Minnesota’s registered public accountants are qualified to practice as CPAs.
Will there be a distinction between enrolled agents and the new category of preparers who will be required to take the new competency test?
Yes. The practice of enrolled agents before the IRS will not be limited. The practice of the new category of preparers will be limited to preparing tax returns for compensation and representing taxpayers in Examination when the return under examination was a return that they prepared.

How will the conditions to practice before the IRS be changed by the new regulations? Currently tax practitioners that are not attorneys, certified public accountants, or enrolled agents have limited practice before the IRS.

The new category of preparers who pass the competency test will have the same limited practice rights that an unenrolled preparer currently has.
Will there be a new designation for preparers who pass the competency test?
Yes, more information regarding this new designation will be made available at a future date.

Will the testing be done by the same firm that administers the enrolled agent exam? Or will IRS be doing the testing?
The testing likely will be done by an external vendor(s). The vendor(s) is unknown at this time.
Will a CPA who keeps his or her license current but is considered inactive be subject to testing?
Yes. Only attorneys, certified public accountants, or enrolled agents who are active and in good standing with their respective licensing agencies are exempt from competency testing.
Will the tests be open book or resource assisted?
This has not been determined. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.
The two competency tests are described as covering: 1) Wage & non business 1040 and 2) Wage and Small Business 1040. What does small business include? And how would this impact those who prepare other business returns?
For competency testing purposes, small business will include Form 1040 Schedules C, E, and F and various other 1040 related forms. Appendix I of the Return Preparer Review report contains a detailed list.
Even if they do not prepare 1040 returns, preparers of business returns who are not attorneys, certified public accountants, or enrolled agents will be required to pass the Wage and Small Business 1040 test.
The IRS plans to add a third test with regard to business tax rules after the three-year implementation phase is completed.
Will the recommendations apply to individuals who only prepare payroll or other non-1040 series returns?
All paid signing tax return preparers will be required to register. If the preparer is not an attorney, certified public accountant, or enrolled agent, the preparer will need to satisfy the competency test and continuing education requirements. The preparer will need to pass the complex test if they prepare business returns.
What is the required percentage to pass the competency test?
This has not been determined. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.
Attorneys and certified public accountants in some states are not subject to continuing education requirements. Will this impact the application of the proposed IRS rules for those individuals?
No. The lack of continuing education requirements for attorneys or certified public accountants in a specific state will not impact the exception. All attorneys and certified public accountants will be exempt from IRS CE requirements.
However, as stated in the Return Preparer Review report, the IRS believes that all tax return preparers have an obligation to stay current on the tax laws and continuing education serves to help individuals remain current and to expand their knowledge within their field of expertise. Such courses are important to tax administration given the complexity of the tax laws and the frequent changes made to the Internal Revenue Code and the rules and regulations implemented to assist in the administration of the Code.
The IRS will consider requiring continuing professional education from additional individuals if data is collected in the future that identifies such a need. Additionally, the IRS plans to reach out to licensing authorities to encourage them to support annual continuing professional education that includes federal tax law topics and updates and ethics for those individuals who are licensed by them and who prepare federal tax returns.
Will individuals who are active attorneys, certified public accountants, or enrolled agents be required to register if they do not prepare or sign any tax returns?
Not unless they prepare for compensation and sign one or more federal tax returns.

Will Electronic Return Originators (EROs) who only transmit tax returns and do not prepare returns be subject to the new review recommendations?

Although individuals who assist in the transmission of tax returns electronically are subject to other IRS rules and regulations currently, individuals who assist in the transmission of tax returns electronically, but do not prepare returns for compensation, are not the focus of the recommendations in the report.
Will preparers who are registered by the states of California or Oregon (California Tax Return Preparers and Oregon Licensed Tax Preparers/Consultants) be exempt from testing and continuing education requirements?
Only attorneys, certified public accountants, and enrolled agents will be exempt from testing and continuing education requirements.
Who will be included in the public database of return preparers?
At a minimum, it will include the preparers who have passed the competency exam. Other information about who would be included is not yet available. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.

What will happen to an unenrolled return preparer who registers with the IRS as a part of the initial registration of return preparers but does not pass the competency test within three years from the implementation date?

The IRS will contact them proposing to deactivate their PTIN and remove them from the list of registered preparers, as well as, explaining the appeals process.
Check back frequently for additional questions and answers to be posted.


IRS Proposes New Registration, Testing and Continuing Education Requirements for Tax Return Preparers Not Already Subject to Oversight

Higher Standards to Boost Protections and Service for Taxpayers,
Increase Confidence in System, Yield Greater Compliance with Tax Laws
IR-2010-1, Jan. 4, 2010

WASHINGTON –– The Internal Revenue Service kicked off the 2010 tax filing season today by issuing the results of a landmark six-month study that proposes new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

To bring immediate help to taxpayers this filing season, the IRS also announced a sweeping new effort to reach tax return preparers with enforcement and education. As part of the outreach effort, the IRS is providing tips to taxpayers to ensure they are working with a reputable tax return preparer.

"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers," said IRS Commissioner Doug Shulman. "Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Based on the results of the Return Preparer Review released today, the IRS recommends a number of steps that it plans to implement for future filing seasons, including:
• Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.
• Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.
• Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.
• Extending the ethical rules found in Treasury Department Circular 230 -- which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.
Other measures the IRS anticipates taking are highlighted in the full report.

Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.
First Step: Letters to 10,000 Preparers
The initiatives announced today will take several years to fully implement and will not be in effect for the current 2010 tax season. In the meantime, the IRS is taking immediate action to step up oversight of preparers for the 2010 filing season.

Beginning this week, the IRS is sending letters to approximately 10,000 paid tax return preparers nationwide. These preparers are among those with large volumes of specific tax returns where the IRS typically sees frequent errors. The letters are intended to remind preparers to be vigilant in areas where the errors are frequently found, including Schedule C income and expenses, Schedule A deductions, the Earned Income Tax Credit and the First Time Homebuyer Credit.

Thousands of the preparers who receive these letters will also be visited by IRS Revenue Agents in the coming weeks to discuss their obligations and responsibilities to prepare accurate tax returns. This is part of a broader initiative by the IRS to step up its efforts to ensure paid tax return preparers are assisting clients appropriately. Separately, the IRS will be conducting other compliance and education visits with return preparers on a variety of issues.

In addition, the IRS will more widely use investigative tools during this filing season aimed at determining tax return preparer non-compliance. One of those tools will include visits to return preparers by IRS agents posing as a taxpayer.

During this effort, the IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.

Steps Taxpayers Can Take Now to Find a Preparer
In addition to the stepped-up oversight of preparers, Shulman also announced a new outreach effort to help make sure taxpayers choose a reputable preparer this filing season. That’s particularly important because taxpayers are legally responsible for what is on their tax returns -- even if those returns are prepared by someone else.

“Taxpayers should protect themselves from unscrupulous preparers,” Shulman said. “There are some simple steps people can take to choose a reputable tax preparer.”

Most tax return preparers are professional, honest and provide excellent service to their clients. Shulman offered the following points for taxpayers to keep in mind when selecting a tax return preparer:
• Be wary of tax preparers who claim they can obtain larger refunds than others.
• Avoid tax preparers who base their fees on a percentage of the refund.
• Use a reputable tax professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
• Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
• Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.
More information about choosing a tax return preparer and avoiding fraud can be found in IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.