The New IRS National Tax Preparer Registration Program
Right now, any person may prepare a federal tax return for any other person for a fee. There are no licensing requirements. Some tax return preparers, like lawyers and accountants, are licensed by their states and some are enrolled to practice before the IRS. However a very large share of tax return preparers do not pass any government or professionally mandated competency requirements before they prepare a federal tax return.
In June 2009 the IRS announced its intention to begin regulating tax return preparers. In January 2010 the IRS released a report proposing the following recommendations for its regulation of tax return preparers:
• All paid tax return preparers must have or obtain a preparer tax identification number (PTIN) and register.
• Other than those exempted, all paid tax return preparers will be tested for competency.
Who will have to obtain a PTIN and register? According to the IRS proposed regulations, by December 31, 2010, all individuals who are compensated for preparing, or assisting in the preparation of, all or substantially all of a federal tax return or claim for refund or who sign, or are required to sign, a federal tax return or claim for refund as paid tax return preparer must obtain a (PTIN) and, if applicable, successfully pass an examination.
Staff members who do not sign returns but assist in their preparation are considered to be tax return preparers and will have to get a PTIN.
As currently understood, only the signing tax return preparer will be required to put a preparer PTIN on a tax return under the proposed PTIN regulations, and the IRS is not expecting signing preparers to check on PTINs from other individuals who are involved in preparing a return. However, the requirement that only the signer put a PTIN on a return does not mean the IRS will not go after tax return preparers other than the signer if there are problems on a return. If another preparer is found to have provided false or insufficient information that was included in the return, the signer will have the ability to point the finger at the other individuals who worked on a return.
All federal tax return preparers, even those who already have a PTIN, will need to register in the new system which will be available on September 1, 2010. Any tax return preparer who presently has a PTIN or gets a PTIN before September 1, 2010, will still need to register and pay a fee once the new online preparer registration system becomes available. The system will ask if you already have a PTIN; and, if so, it will reassign you the same number. The fee is not waived even if you have been assigned a PTIN prior to registering.
During the tax return preparer registration process, the IRS will check to make sure that each applicant does not have a criminal background and actually pays his own taxes. Registration is good for three years. Everyone must be registered by the 2011 tax season. That means the IRS only has a few months to certify more than a million tax return preparers.
The proposed regulations as drafted allow anyone registering prior to January 1, 2011, to obtain a PTIN. However, anyone registering thereafter would first have to pass the competency examination unless he or she is exempted from taking the exam. Because the examination is not expected to be available until April 2011 at the earliest, there will be a substantial period of time during which no one will be able to get a PTIN. This provision is expected to be changed.
The IRS announced on June 15, 2010, that management consulting and outsourcing company Accenture PLC has been awarded a five-year contract to design and operate the return preparer registration program for the IRS. The company will work with the IRS to develop a system for online registration and renewal, collection of user fees and assignment of identification numbers for paid tax return preparers.
Who will be Required to Take the Competency Tests?
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. There will be no grandfathering of paid tax return preparers who are not in the exempt category. The tests are expected to be ready in the spring of 2011. They will be available online and will be open book. Each tax return preparer will have to pay a fee to take the tests. It is expected that preparers will be able to take and pass the exam over the three-year transition period.
What are the Competency Tests?
There are two competency tests, but only one has to be passed to be licensed. One will cover Wage and Non-business form 1040. The second will cover Wage and Small Business form 1040. Small business will include Schedules C, E and F and various other 1040 related forms. Even if they do not prepare 1040 returns, preparers of business tax 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.