Recently issued guidance from the Internal Revenue Service provides answers to a number of questions on tax return preparer registration, and fills in some of the details left unaddressed by recent regulations.

To date, there are two sets of final regs: One on Preparer Tax Identification Number requirements, while the other concerns the user fees to apply for or renew a PTIN. There's also one set of proposed regulations addressing competency testing requirements, continuing education requirements, and extension of the ethics rules for tax return preparers.

The use of a notice - such as Notice 2011-6, the recently issued guidance - allows the IRS to get information out more quickly, said Ed Karl, vice president for taxation at the American Institute of CPAs. "A notice goes through a less formalized review process," he said. "It's typically something they could change. Some of the information could wind up in Circular 230, but when Circular 230 is finalized they have to go through a longer review process. This is a less intense way to get out the information, and do it more quickly."

The non-signing preparer issues, left open by the regs, are addressed in Notice 2011-6. "It says, in essence, that non-signers who work for a CPA firm under the supervision of a CPA have to register and get a PTIN if they meet the definition of a preparer, but they are exempt from testing and CPE," explained Karl.

Until it issues further guidance, the IRS said that it would 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 the individual is supervised by an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary; the supervisor signs the return or claim for refund; the individual is employed at the law firm, CPA firm, or other recognized firm of the tax return preparer who signs the return; and the individual passes the tax compliance check and suitability check when it becomes available.

 

DEFINING THE CPA FIRM

The notice defines a CPA firm as a partnership, professional corporation, sole proprietorship, or any other association that is registered, permitted or licensed to practice as a CPA firm in any state, territory or possession of the U.S., 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 or CPA firm, that has one or more employees lawfully engaged in practice before the IRS and that is 80 percent or more owned by one or more attorneys, CPAs, enrolled agents, enrolled actuaries or enrolled retirement plan agents.

The supervision exception is the one that was most anticipated, according to Robert Kerr, senior director of government relations at the National Association of Enrolled Agents. "The firm carve-out applies equally to law firms, CPA firms and 'recognized firms,' which includes EA firms," he noted. "We urged that enrolled agents be treated on a par with their fellow legacy Circular 230 practitioners and were pleased to see this even-handed treatment."

"The carve-out means that the supervising person signs the return, and takes responsibility for the contents of the return," Kerr explained. "It's important to note that you have the choice to be a supervising attorney, CPA or EA, but it's not necessary. You can have your staff get PTINs, take the test and meet the CPE requirements, and sign the returns themselves. At some point, you have to make a business decision, since in some firms there are market reasons for the principal to sign the return."

The other major exception under the notice applies to individuals who only prepare returns that are not covered by the competency examination. Individuals who obtain a PTIN under this exception will not be required to satisfy the same continuing education requirements that a registered tax return preparer must complete, and may sign the tax return as the paid preparer. However, they must certify that they do not prepare or assist in the preparation of all or substantially all of any return covered by the competency examination, and pass the tax compliance or suitability check when it becomes available. In the future, the IRS may require these individuals to complete continuing education to renew their PTIN.

 

PTIN EXCEPTIONS

The notice includes a list of forms that do not require a preparer to have a PTIN, including information reports like Forms 1099, certain applications for employer identification numbers, certain elections made on behalf of clients, and extensions of time to file. While Forms 940 and 941 are not on the list, individuals who do not exercise any discretion or independent judgment on the client's underlying tax positions and who do not render tax advice are not return preparers and consequently do not need a PTIN. Those who provide advice - for example, on issues such as whether a worker is an employee or an independent contractor - would need to obtain a PTIN but would not be currently subject to testing or continuing education.

The notice makes it clear that the PTINs obtained by individuals who are not attorneys, CPAs or EAs are provisional. After the initial test date, provisional PTINs will not be offered, but they may be renewed until Dec. 31, 2013. After that date the holder needs to take and pass the competency examination.

The notice also confirms that there is no continuing education requirement for registered tax return preparers or tax return preparers who obtain a provisional PTIN during the first year of registration, which began Sept. 30, 2010.

"Our position is to ask the service to delay the exam," said Karl. "We'd like to see what benefits come about from registration, and do some tracking and see if it gets us toward the goal of greater compliance. We're pleased that the service is making adjustments as it goes along, and we encourage them to take the time to get it right."

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