The Internal Revenue Service has taken its first step in a long-discussed project to extend its oversight of tax return preparers by issuing proposed regulations requiring them to register with the agency.
The IRS Return Preparer Review - a study of the tax prep industry that was announced in July 2009 and completed in December - has generated proposed regulations requiring tax preparers to register for Preparer Tax Identification Numbers to identify themselves on all tax returns and tax refund claims that they prepare. At press time the comment period for the proposal was still open, but was due to close in late April. PTIN registration will be effective for three-year periods and require renewal every three years.
"These regulations allow the IRS to better identify and match tax return preparers with the tax forms and claims they prepare," said IRS Commissioner Doug Shulman. "This proposed PTIN system will help us ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of our tax system."
The review recommendations, under which the IRS will require registration, testing and continuing education of tax preparers, have generally been met with praise from most industry stakeholders. CPAs, attorneys and enrolled agents will be exempted from the testing and continuing education requirements, but still must register and obtain a PTIN.
"We fully support the commissioner's goals of raising the professional ethics standards of the preparer community," said Benson Goldstein, senior technical manager of taxation at the American Institute of CPAs. "And we support the concept of a uniform identification number for each preparer, and making newly registered PTIN holders subject to Circular 230. We think the PTIN process will enable the IRS to better track preparers and help identify those who have a pattern of abuse or negligence in preparation."
"The goal is to open the registration process for the PTIN by September 1 this year," said Goldstein. "The next goal is to have an examination out by April or May of 2011, so that anyone who is not a CPA, attorney or enrolled agent and wants to prepare taxes in 2012 will have to be registered and take an examination."
Under the registration system, all preparers will be required to register, including those who already have a PTIN. Preparers who already have a PTIN will have the number revalidated and re-assigned to them through the new system. As part of the process, some preparers would also be subject to a tax compliance check, which could include a review of the preparer's history of compliance with personal and business tax filing and payment obligations.
The IRS said that it would consider expanding the registration requirement to include non-signing preparers in the future.
It will initially offer two competency examinations: One will cover wage and non-business income on the Form 1040 series returns, while the second will cover wage and small-business income on the Form 1040 series. A third test on business tax rules will be added after the three-year implementation phase is completed, and continuing education will be required of registered preparers.
The possible expansion of the registration and examination requirement to include non-signing preparers is a concern for the AICPA, according to Goldstein.
"As a general principle, non-CPAs who are working for a CPA firm should not be subject to the preparer requirements," he said. "The review process by the signing preparer, coupled with the oversight by state boards accountancy, should be sufficient."
"That's where there is some dispute," agreed Roger Harris, president of Padgett Business Services. "If you have a one-man shop, you have to have a license, but if there are 15 people who contribute to the return, you have to decide who needs to register. They want to eliminate situations where one registered preparer has 50 people working for him, but at the same time they don't want to go overboard and make everyone take the test and CPE when they don't significantly contribute or make decisions in the preparation of the return."
"The PTIN regulations are the first in a series of proposed regulations we'll be seeing on preparer registration," said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents. "The time frame is quite ambitious, but it allows for the reality that the preparer world needs a transition period."
The wording of the designation for preparers who register and pass the tests is open, noted Goldstein, but might be something akin to "authorized tax return preparer." "Whatever they're called, marketing is an important issue," he said. "It should be promoted in such a way that it respects and explains the different types of preparers, and it should identify and explain the types on its database of preparers."
Meanwhile, the IRS has stepped up its efforts to combat unscrupulous preparers. In January, it sent more than 10,000 letters to preparers, reminding them of their obligation to prepare accurate returns. The letters went to preparers with large volumes of specific tax returns where the IRS typically sees frequent errors, although simply receiving a letter was not an indication that the preparer had problems.
The agency followed up with field visits to about 2,400 preparers who received these letters to discuss many of the issues mentioned in the letter. Separately, the IRS conducted other compliance and educational visits with return preparers on a variety of issues. In total, the IRS visited more than 5,000 preparers this fiscal year to help them avoid filing incorrect or fraudulent returns.
