New IRS Rules for Tax Preparers

The IRS has issued new rules amending section 1-6109-2, requiring paid tax preparers to be registered with the IRS. The final regulations provide that for tax returns or refund claims filed after December 31, 2010, tax return preparers must obtain and use a preparer tax identification number (PTIN), rather than a social security number (SSN), as the identifying number to be included with the tax return preparer’s signature on a tax return or claim for refund.

For some practitioners, a significant change created by this regulation is the requirement that the term “ tax return preparer” now means any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax.

This change means that those who do not sign a tax return and prepare the return under supervision of someone who does sign the return, will, nonetheless, need to provide a PITN if they prepare all or substantially all of the return.

During the rulemaking process, numerous comments were filed by various groups requesting exemptions from this requirement. The Service adopted the purposed regulations with few changes and no exemptions.

The new regulations have additional requirements. In mid-2011, the second phase of the paid preparer oversight program is scheduled to begin. The IRS will require that paid preparers must pass an exam to demonstrate their competency to prepare federal tax returns. Once you pass the exam, you will become an IRS Registered Tax Return Preparer. This requirement has an exception for attorneys, CPAs or Enrolled Agents.

In response to the comments, the IRS notes, “These final regulations are intended to address two overarching objectives. The first overarching objective is to provide some assurance to taxpayers that a tax return was prepared by an individual who has passed a minimum competency examination to practice before the IRS as a tax return preparer, has undergone certain suitability checks, and is subject to enforceable rules of practice.

The second overarching objective is to further the interests of tax administration by improving the accuracy of tax returns and claims for refund and by increasing overall tax compliance.”

The Service expects “[t]he requirement to use a PTIN will allow the IRS to better identify tax return preparers, centralize information, and effectively administer the rules relating to tax return preparers.”

A third phase of the program will begin at a date that remains to be decided. In this phase, IRS Registered Tax Return Preparers will need to take continuing education classes annually. The Service promises to provide PTIN account holders more guidance once it is available. Attorneys, CPAs and Enrolled Agents are exempt from this requirement, as is it presumed their professions continuing education requirements makes this unnecessary. Anyone with questions about the new regulation should contact an experienced tax law attorney.