The Internal Revenue Service released more information Thursday on the implementation of the new Treasury regulations governing tax return preparers and the new requirements to obtain a Preparer Tax Identification Number, including those who work at CPA firms.

Notice 2011-06, which will appear in Internal Revenue Bulletin 2011-3, dated Jan. 17, 2011, also describes the forms that qualify as tax returns or claims for refund for purposes of those regulations, and interim rules applicable to certain PTIN holders during the implementation phase of the new tax preparer regulations.

The IRS noted that beginning after Dec. 31, 2010, all tax return preparers must have a PTIN that was applied for and received at the time and in the manner as prescribed by the IRS. The notice confirms that tax return preparers who obtain a PTIN or a provisional PTIN and pay any applicable user fee after Sept. 28, 2010, have applied for and received a PTIN in the manner prescribed by the IRS for purposes of the Section 6109 regulations.

Until further guidance is issued, the IRS, in accordance with the authority to provide exceptions to the PTIN rules under Section 1.6109-2(h) of the Tax Code, will permit any individual 18 years or older to pay the applicable user fee and obtain a PTIN permitting the individual to prepare, or assist in the preparation of, all or substantially all of a tax return or claim for refund for compensation if: (i) the individual is supervised by an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary authorized to practice before the IRS under Circular 230 Section 10.3(a) through (e);

(ii) the supervising attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary signs the tax returns or claims for refund prepared by the individual;

(iii) the individual is employed at the law firm, CPA firm, or other recognized firm of the tax return preparer who signs the tax return or claim for refund; and

(iv) the individual passes the requisite tax compliance check and suitability check (when available).

The notice defines a certified public accounting firm as a partnership, professional corporation, sole proprietorship, or any other association that is registered, permitted, or licensed to practice as a certified public accounting firm in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia.

A recognized firm is a partnership, professional corporation, sole proprietorship, or any other association, other than a law firm or certified public accounting firm, that has one or more employees lawfully engaged in practice before the IRS and that is 80 percent or a greater percent owned by one or more attorneys, CPAs, enrolled agents, enrolled actuaries, or enrolled retirement plan agents authorized to practice before the IRS under sections 10.3(a) through (e) of Circular 230, respectively.

Individuals applying for a PTIN under this provision will be required to certify on the PTIN application that they are supervised by an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary who signs the tax return or claim for refund prepared by the individual and provide a supervising individual’s PTIN or other number if prescribed by the IRS.

If at any point the individual is no longer supervised by the signing attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary, the individual must notify the IRS as prescribed in forms, instructions, or other appropriate guidance and will not be permitted to prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation under this provision.

Individuals who obtain a PTIN under this provision and prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation will not be subject to a competency examination or continuing education requirements. These individuals, however, may not sign any tax return they prepare or assist in preparing for compensation, represent taxpayers before the IRS in any capacity, or represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner.

Although individuals who obtain a PTIN under this provision are not practitioners under Circular 230, they are, by preparing, or assisting in the preparation of, a tax return for compensation, acknowledging that they are subject to the duties and restrictions relating to practice in subpart B of Circular 230.

The IRS said it may, by written notification, revoke a PTIN obtained under this provision if the tax return preparer willfully violates applicable duties and restrictions prescribed in Circular 230 or engages in disreputable conduct.  The tax return preparer may, within 30 days after receipt of the notice of revocation of the PTIN, file a written protest of the notice of revocation as prescribed in the revocation notice.  A protest is not a proceeding under subpart D of Circular 230.’

The notice also covers individuals who prepare tax returns not covered by the registered tax return preparer competency examination. It said the Treasury Department and the IRS have proposed rules that will require an individual to pass a registered tax return preparer minimum competency examination (competency examination).

The IRS anticipates, however, that the tax returns and claims for refund covered by the competency examinations initially offered will be limited to individual income tax returns (Form 1040 series tax returns and accompanying schedules). Although the IRS anticipates the types of returns and claims for refunds covered by the competency examinations may expand in the future, the IRS recognizes that certain compensated tax return preparers do not prepare Form 1040 series tax returns or related claims for refunds and that the tax returns and claims for refunds prepared by some of these individuals may not be covered by the competency examinations for a significant period of time.

The IRS has determined that individuals should not be required, as a condition to obtaining a PTIN, to pass a competency examination covering tax returns and claims for refunds not prepared by the individual. Therefore, until further guidance, this notice, in accordance with the authority under section 1.6109-2(h), provides that any individual 18 years or older may pay the applicable user fee and obtain a PTIN if:

(i) the individual certifies that the individual does not prepare, or assist in the preparation of, all or substantially all of any tax return or claim for refund covered by the competency examinations for registered tax return preparers administered under IRS oversight (1040 series until further notice); and

(ii) the individual passes the requisite  tax compliance check and suitability check (when available).

Individuals who obtain a PTIN under this provision and prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation will not yet be subject to a competency examination. These individuals are not currently required to satisfy the same continuing education requirements that a registered tax return preparer must complete to renew their PTIN. In the future, the IRS may require through forms, instructions, or other appropriate guidance that these individuals complete continuing education to renew their PTIN.

Individuals who obtain or renew a PTIN under this provision may sign the tax returns or claims for refunds that they prepare for compensation as the paid preparer. These individuals may also represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the IRS (including the Taxpayer Advocate Service) during an examination if the individual signed the tax return or claim for refund for the taxable year under examination.

They may not, however, represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner.  Enrolled retirement plan agents and enrolled actuaries who obtain a PTIN under this provision may continue to practice and represent as provided in Circular 230. 

Although individuals who obtain a PTIN under this provision are not practitioners under Circular 230, they are, by preparing, or assisting in the preparation of, a tax return for compensation, acknowledging that they are subject to the duties and restrictions relating to practice in subpart B of Circular 230.  The IRS may, by written notification, revoke a PTIN obtained under this provision if the tax return preparer willfully violates applicable duties and restrictions prescribed in Circular 230 or engages in disreputable conduct.

The tax return preparer may, within 30 days after receipt of the notice of revocation of the PTIN, file a written protest of the notice of revocation as prescribed in the revocation notice. A protest is not a proceeding under subpart D of Circular 230.

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