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IRS LAUNCHES COMPETENCY TEST, FEE WILL BE $116
USER FEE REGULATIONS FINALIZED

The IRS has launched the return preparer competency test with test scheduling to begin the week of November 28th . The fee for the competency test is $116, which includes the IRS portion of the fee and the fee for Prometric Inc., the third-party test vendor. Initial test takers will not receive their test scores for two to six weeks to allow the IRS to validate the exam and determine the pass/fail cutoff. Once validation is complete, around mid-January, those taking the computer-based test will receive their scores at the test center immediately upon completing the test.

Prometric will eventually administer the test at more than 260 centers nationally, but the test is not available at all locations currently. Test sites will be added daily, and international locations may be added in the future.

Scheduling a Test and Paying the Fee

Preparers who need to take the test can schedule an appointment beginning next week through their online PTIN account at www.irs.gov/ptin. Preparers must pay the $116 test fee at the time they are scheduling their appointment. Those who do not have an online PTIN account can make test appointments and pay by phone at 855-477-3926.

Click here for the IRS News Release on the exam.

Click here for an IRS Fact Sheet on the exam.

IRS Finalizes Competency Exam User Fee Rules

The IRS also has finalized rules for imposing a fee for the return preparer competency examination. Proposed regulations were issued on September 26, 2011 establishing the IRS's portion of the user fees for the competency examination and fingerprinting. Since that time, the IRS has backed off on its fingerprinting requirement, so no fingerprinting fee is included in the final regulations. The IRS will continue to study the fingerprinting issue and is still interested in getting comments from tax preparers on this issue.

The final regulations only finalize the user fee to take the competency examination. The fee is set at $27 each time an applicant takes the exam. The IRS said the cost is the same to the IRS and the vendor each time the exam is taken, so the same user fee will apply for each attempt. This is the IRS portion only. Prometric, the IRS testing vendor, is charging the balance of the fee. The total fee will be $116.

Despite requests to the contrary, the IRS will not exempt certain employees from taking the competency examination if they already have to take their employer's exam. Presumably, this decision relates to employees of the big tax preparation firms.

The remaining portions of the proposed regulations were adopted without substantive change.

Click here for the Final Regulations.

IRS TELLS PTIN HOLDERS TO WAIT FOR NEW ONLINE E-MAIL CHANGE OPTION

The IRS will add a new option on the PTIN system in mid-December for users who need to change the email address associated with their online PTIN account. The new functionality will also help people who have forgotten their user IDs and/or passwords and do not have access to their original email account. Preparers in this situation are encouraged to wait for this online option instead of sending paper applications, which take 4-6 weeks to process.

If you have the same e-mail and know your user ID and password, you should go ahead and renew as soon as possible to avoid possible delays from high volumes at the end of the year.

Posted 11/18/11

COMPETENCY EXAM UPDATE,
IRS RELEASES WARNING LETTERS FOR TAX PREPARERS

The preparer competency exam is ready to go, according to the IRS. The IRS must publish regulations to implement the test in the Federal Register to get it officially started. Release of those rules could come within the next week. Prometric, the IRS's test vendor, will run statistics on the first 2,400 tests which will delay the results for those test takers. Mid-year 2012, Prometric expects to have mobile test sites available for preparers in remote locations. The test will NOT be available for two weeks annually: April 1 - April 15, while the test is updated to reflect new law. For example, after April 15, 2012, the test will be updated for 2011 tax law.

Release of PTIN Information

The IRS is looking into the Freedom of Information Act (FOIA) as it relates to the personal information on PTIN holders. The IRS has received several requests under FOIA for PTIN holder information. The IRS has responded to a few requests but put others on hold as it determines what is "confidential" information on a PTIN holder that should be excluded from public release.

Warning Letters to Preparers

Last week, the IRS sent 21,000 letters to preparers warning them of possible problems with their return filings. The letters were specifically targeted toward practitioners with a large number of individual returns with Schedules A, C, or E during the 2011 filing season. The tax return preparers receiving the letters prepared returns which the IRS determined had a high number of possible inaccuracies or misinterpretations of tax law. The letters include an enclosure that outlines common issues they should be aware of on the specific schedule. The letters also describe current responsibilities of tax return preparers, the consequences of filing incorrect returns, and new tax return preparer requirements. Approximately 2,100 of those preparers will be visited in person by the IRS.

Click here for a copy of the IRS letter.

Click her for a copy of the IRS FAQs on the IRS Letters and Visits to Preparers.

Posted 11/14/11

REVISED PTIN FORM RELEASED BY IRS

The IRS has released revised Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal. The new version of the Form replaces the October 2010 version. The new Form reflects changes made in the PTIN program in the last year. It now asks whether the applicant prepares Form 1040 series tax returns for compensation. It also asks whether the preparer is supervised employee of a firm 80% owned by CPAs, attorneys, or enrolled agents, and whether the supervising CPA, attorney, or enrolled agent signs the returns that the employee prepares. If so, the preparer is a "supervised preparer" and must enter his or her supervisor's PTIN on the Form. Finally, the Form requests more details on the preparer's professional credentials, including the expiration date for the credentials of an attorney, CPA, enrolled agent, enrolled actuary, enrolled retirement plan agent, certified acceptance agent, or state regulated tax preparer.

Click here for the revised Form W-12

Posted 11/8/11

IRS HOLDING OFF ON FINGERPRINTING PREPARERS, TESTING LIMITED TO 1040s FOR NOW

IRS Commissioner Douglas Shulman has announced that the IRS is holding off on fingerprinting tax preparers for now in response to comments received from the practitioner community. Speaking to the Fall meeting of the AICPA in Washington, D.C. November 8th, Shulman also said he has no current plans to extend competency testing beyond the Form 1040 series.

Shulman gave an overview of developments in the tax return preparer regulation program, noting that over 740,000 individuals have registered for PTINs, with over 60 percent who are not CPAs, Attorneys, or Enrolled Agents. Shulman also said that, beginning soon, the IRS will send letters to tax return preparers who have been identified as "high risk." The letters are intended to bring to these return preparers' attention that to "questionable traits on a number of their Schedules A, C, or E."

Finally, Shulman assured the CPA society that limitations on the use of the title "Registered Tax Return Preparer" should prevent these preparers from "overselling" their credentials. These preparers will have to use a disclaimer statement on any paid advertising involving print, television or radio that the IRS does not endorse any particular individual tax return preparer.

Excerpts from Shulman's speech on tax preparer regulations issues appear below.

Excerpts

Prepared Remarks of IRS Commissioner Doug Shulman at the AICPA Fall Meeting in Washington, D.C., on Nov. 8, 2011

IR-2011-108, Nov. 8, 2011

Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers. And let me thank the AICPA. You have been a strong ally in not only our efforts to boost service and compliance, but in fine tuning the program and making it better.

Here's a quick rundown of our efforts to date. First, we had to identify all preparers and have them register.

Since Sept. 28 of last year, almost 740,000 individuals have registered and obtained a Preparer Tax

Identification Number, or PTIN, and are now in our tax professional database. And we're already learning some interesting facts about not only the size, but the nature of the tax preparer community. For example, over 60 percent of PTIN holders are not attorneys, CPAs, or enrolled agents.

PTINs have to be renewed annually and last month we launched renewal open season. We're encouraging those 740,000 PTIN holders to renew before the end of the year. At the same time, we're continuing to work to identify those people who still haven't gotten a PTIN. More on that in a moment.

While PTIN registration was moving on one track, we also issued a number of proposed guidance documents that focused on the next phase of the program.

This phase involves the launch of a new competency test for certain tax return preparers, as well as a new continuing education requirement. In addition to testing, we've issued a number of proposals regarding background checks. Let me give you the state-of-play.

From the beginning, we planned to exempt CPAs, attorneys, and enrolled agents from the testing and continuing education requirements as you already have more stringent testing and education requirements.

But we received valuable input from stakeholders, including the AICPA, that helped us create what I think is a better overall final product. Let me highlight a few examples.

First, is the creation of a "supervised preparer" category which makes a lot of common sense to us …and to you. We refined the rules that we initially proposed to provide greater flexibility for people who work in a professional firm and prepare returns under the supervision of an accountant, enrolled agent or attorney.

These supervised preparers must obtain a PTIN and renew it each year, but they will be exempt from competency testing and continuing education requirements. You've been helpful to us in determining how to define the supervised preparer category… how to program our online system regarding it …and how we should notify the supervisors.

Second, while we want to ensure a minimum level of competency in the preparer community, we do not want newly-registered return preparers to oversell what this means. Therefore, we created a disclaimer statement for individuals who will be future Registered Tax Return Preparers. This was to ensure that registration with the IRS is not viewed as an endorsement by the IRS.

And so, Registered Tax Return Preparers will need to include a clear statement on any paid advertising involving print, television or radio that "the IRS does not endorse any particular individual tax return preparer," and that more information is available about this on IRS.gov.

Third, we clarified the level of review IRS will conduct before approving continuing education providers. Indeed, we revised the final Circular 230 to allow for more flexibility in recognizing and approving continuing education programs and providers.

And fourth, we have received input on the recent background check and fingerprinting proposals. While we all share the same goal of ensuring that there is adequate due diligence on people entering this field, the AICPA and others have made a number of important points that we need to think through regarding how best to do this.

And so we've decided to hold off on fingerprinting as we consider the issues that have been raised, and have further discussions with interested parties.

Of course, for return preparers who are not CPAs, attorneys, or enrolled agents we're still going ahead with the launch of the new Registered Tax Return Preparer testing program, which we expect to be up and running soon.

Finally, I've been asked whether the IRS intends to extend the competency tests beyond the 1040 family of tax forms. I recognize that together we've taken a big step to establish a new set of standards for the return preparer community, and it will take time for the IRS and practitioners to implement them. I intend to give this process time…and I have no plans to extend the testing requirement to other forms.

Now, as we set up the registration, testing and continuing education components of our return preparer initiative, it is also important that we focus on ferreting out unscrupulous preparers who damage the good name of honest return preparers and cause damage to the overall tax system.

Therefore, we have a comprehensive strategy to focus on preparer enforcement and compliance. This year, we are focusing on two categories of preparers. First, are those preparers whose clients' returns send out a warning signal of serious problems with accuracy and errors. We are also focusing on those preparers who are not signing returns and identifying themselves with a PTIN, also known as "ghost preparers."

We also intend to continue our outreach to practitioners on compliance topics. And each year we are getting better and better at targeting communications to those who need it most.

Let me give you a high-level overview of our plans for the coming year. Our efforts will be focused on places of highest risk …places where the vast majority of preparers who play by the rules should want us to focus.

Beginning soon, the IRS will send letters to tax return preparers who have been identified as "high risk." The letters are intended to bring to these return preparers' attention that we've noticed some questionable traits on a number of their Schedules A, C, or E. We ask preparers to review the rules in these areas and to ensure they are meeting their due diligence requirements when interviewing clients.

These letters will also help ensure taxpayers get the service for which they paid and they deserve. And we want to help provide a level playing field to the reputable tax return preparers who abide by the rules. Let me be clear that these letters are sent based on real data showing historical issues with taxpayer returns.

Some additional compliance efforts will include, for example, in-person visits focused on return preparers we've identified as "egregious" with high error rates. And we will be ratcheting up our efforts to identify "ghost preparers."

We will also send letters to return preparers whose clients' returns contain traits commonly associated with highly questionable Earned Income Tax Credit claims. In addition, we will conduct in-person visits with EITC return preparers to discuss due diligence requirements, assessing penalties against those who are found to be non-compliant.

While most return preparers are professionals, who provide honest and excellent service to their clients, some make basic errors that must be addressed. And then there are those who engage in fraud and other illegal activities. Our Criminal Investigation division will continue to conduct undercover shopping visits to return preparers suspected of engaging in fraud, and we will continue to work closely with the Department of Justice to pursue civil or criminal action against unscrupulous return preparers.

And finally, our Office of Professional Responsibility will continue to ensure high standards of ethical conduct for the practitioner community, including newly-registered return preparers. I think that this office, which operates independently from our enforcement activities, is vital to fair tax administration and I intend to increase the resources devoted to core OPR activities.

Posted 11/3/11

ENROLLED RETIREMENT PLAN AGENTS DON'T NEED PTIN

The IRS has announced that enrolled retirement plan agents will not need to get a PTIN or renew their existing PTINs if they prepare only Form 5300 or 5500 series returns. These forms are on the list of types of form preparation exempt from the PTIN filing requirement. The IRS is taking this action because of comments it received from enrolled retirement plan agents that most of them prepare only forms in the 5300 or 5500 series. The IRS intends to amend Circular 230 to remove the PTIN requirement for these agents. Note that enrolled retirement plan agents still must get a PTIN if they prepare or assist in preparing for compensation a tax return or claim for refund.

Click here for the full-text of Notice 2011-91.

Posted 10/26/11

COMPETENCY TEST INFORMATION BULLETIN RELEASED BY IRS

The IRS has released a Candidate Information Bulletin which provides details about the Registered Tax Return Preparer competency test. Testing will not begin until November and the test will have 120 questions. Candidates will have 2.5 hours to take the test. The full-text of the Candidate Information Bulletin appears below.

RTRP Candidate Information Bulletin

Posted 10/20/11

PTIN RENEWAL SYSTEM NOW OPEN FOR 2012

The IRS has opened its PTIN renewal system for tax return preparers who want to renew their PTINS for the 2012 filing season. Preparers are required to renew their PTINs on an annual basis and need to do so before the end of this year, December 31, 2011. The PTIN renewal fee for 2012 is $63. The initial application fee for a PTIN remains at $64.25. Return preparers who obtained their PTINs by creating an online account should renew their PTINs at www.irs.gov/ptin.

Preparers who used paper applications to receive their 2011 PTINs will receive an activation code in the mail from the IRS which they can use to create an online account and convert to an electronic renewal for 2012. Individuals can also renew using a paper Form W-12, IRS Paid Preparer Tax Identification Number Application. If you renew using a paper form, it can take from four to six weeks to process your renewal.

Some changes to the PTIN application and renewal process include:

  • Return preparers must self-identify if they are supervised preparers or non-1040 preparers.
  • Supervised preparers will need to provide a supervisor's PTIN when applying for or renewing their PTINs.
  • Credentialed preparers (Certified Public Accountants, attorneys and Enrolled Agents) must provide the expiration date for their licenses when they apply for or renew their PTINs.

Supervised preparers are individuals who do not sign the returns they prepare or help prepare; work at a firm at least 80 percent owned by a Certified Public Accountant, an attorney or an Enrolled Agent; and prepare returns that are signed by a supervisor who is a CPA, attorney or Enrolled Agent.

Non-1040 preparers are people who do not prepare any individual income tax returns for compensation. For this purpose, preparers of Form 1040-PR and Form 1040-SS are considered non-1040 preparers.

Supervised preparers and non-1040 preparers must identify themselves when they apply for or renew their PTINs to be exempted from testing and continuing education requirements; Certified Public Accountants, attorneys and Enrolled Agents are also exempt from testing and continuing education requirements.

Posted 10/10/11

NSTP BOARD MEMBER HUEBEL TELLS IRS USER FEES AND FINGERPRINTING TOO BURDENSOME

Keith Huebel, CPA and Board Member of National Society of Tax Professionals testified before the IRS on October 7th, telling IRS officials that the user fees and fingerprinting requirements contained in the latest proposed regulations are an unnecessary burden on tax professionals. In the new rules, the IRS stated that its portion of the user fees are for running background checks on Prometric and Daon Trusted Identity Services, the IRS's contractors for administering the competency exam and fingerprinting program. Huebel noted that these vendors already have security clearance and thus the fees imposed on tax preparers are for duplicative work.

Huebel also told the IRS that the fingerprinting process should be streamlined so that any tax professional whose fingerprints currently are on file with the FBI should be exempt from being fingerprinted again and paying another fee for the service. He also observed that there is no reason to exempt individuals in the PTIN, acceptance agent, or e-file provider program who are located outside of the U.S. from the fingerprinting requirement imposed on U.S. tax professionals.

Finally, Huebel, reciting the numbers, noted that while fees may appear minor, with the addition of the vendor fees, the total amount to be collected from the tax professional community is substantial, upwards of $25 million. These figures represent a significant financial burden on tax preparers and on the taxpayers they serve, Huebel observed.

For the outline of the Huebel's Testimony, click here.

Send Your Comments: The NSTP will be submitting final written public comments to the IRS by the late October deadline referenced in the regulations. If you are interested in making your views known, please send an e-mail with your comments on the regulations to Lucia Smeal at govrelations@nstp.org by Monday, October 17th. She will summarize member comments and add them to the NSTP's official written testimony which will be sent to the IRS on October 26th. The proposed regulations are posted on the NSTP website in the Registered Tax Return Preparer/PTIN section.

Posted 10/5/11

ONLINE PTIN SYSTEM UPDATED WITH NEW QUESTIONS

Effective this week, PTIN applicants will see new questions on the online PTIN system. All new applicants will need to answer questions to identify whether they are a "supervised preparer" or "non-1040 preparer". Individuals who are a supervised preparer will need to enter the PTIN of their supervisor.

These changes are in preparation for the upcoming PTIN renewal season. More information about the renewal process will be available the week of October 17, 2011.

Note: PTIN issuance for 2012 has not begun. Any new PTINs issued currently will expire on December 31, 2011. Any individuals who prepared returns for compensation in 2011 and have not yet obtained a PTIN will still need to obtain a 2011 PTIN.

Posted 9/22/11

IRS ISSUES FURTHER GUIDANCE ON PREPARER TESTING FEES, EDUCATION REQUIREMENTS, AND FINGERPRINTING

The IRS has released a Notice and new regulations that provide further rules for tax return preparers, including testing fees, PTIN timetables, and continuing education requirements. The IRS portion of the test fee will be $27 and the IRS portion of the fingerprinting fee will be $33. These amounts are in addition to what the vendor will charge, which has not been disclosed at this point. The total fees are expected to be between $60 and $90 for fingerprinting and $100 and $125 for testing.

Provisional PTINs and Renewal

PTINs must be renewed on a calendar year basis, between October 15th and January 1st annually. This can be done online or by filing paper Form W-12. The fee is $64.25 for 2012. The IRS will continue to issue provisional PTINs at least until April 18, 2012 to allow individuals sufficient time to prepare for the competency examination and to prevent disruption of the 2012 filing season. The IRS will announce the last date it will issue provisional PTINs in a news release issued at least 30 days before that date. Once the IRS stops issuing provisional PTINs, return preparers will have to pass the competency test and background check before getting a PTIN. If a preparer gets a provisional PTIN before the last provisional PTIN date, the preparer will have until the end of 2013 to pass the competency test.

Preparers who have a provisional PTIN through December 31, 2013 must annually renew and continually maintain the provisional PTIN to retain the ability to prepare tax returns during this period. If a preparer lets his or her provisional PTIN expire, the preparer must take the competency test and pass a suitability check before getting another PTIN.

Continuing Education and Fingerprinting

The 15-hour continuing education requirement will take effect starting in 2012 and will apply on a calendar-year basis. Fully credentialed Registered Tax Return Preparers and provisional PTIN holders--those individuals required to pass the competency examination before December 31, 2013-- must complete the 15-hour requirement to maintain their PTINs. The IRS also has explained how to prorate continuing education requirements for preparers who first get PTINs after January 31 of a calendar year. These individuals will be required to complete one hour of continuing education credit for each month or portion of a month that the individual is a registered tax return preparer during the initial registration year. These individual still must do at least two hours of ethics education regardless of when they become registered preparers.

Return preparers who must pass a background check will have to provide their fingerprints for an FBI database search, with a few exceptions. The fingerprint requirement will affect those preparers who currently have provisional PTINs and those applying for a PTIN after the provisional period. However, attorneys, CPAs, enrolled agents, enrolled retirement plan agents, and enrolled actuaries are exempt from the fingerprint requirement. Also, any participant in the PTIN, acceptance agent, or authorized e-file provider programs who resides and is employed outside of the United States will not have to be fingerprinted to participate in these programs. Fingerprinting will not begin until at least April 18, 2012.

Hearing and Comments on Fee Regulations

The IRS has scheduled a public hearing on the proposed fee regulations on October 7th. Written comments can be submitted until October 27, 2011. More information on submitting regulation comments is contained in the full-text of the regulations, posted on the NSTP website.

Notice 2011-80 »

Proposed Regulation No. REG-116284-11 »

Posted 9/16/11

IRS ANNOUNCES THAT THE COMPETENCY EXAM WILL BE AVAILABLE IN OCTOBER, POSTS STUDY MATERIALS

The IRS has announced that the Registered Tax Return Preparers competency exam will be available starting in October. If you plan on taking it in the next few months, the forms and publications you should study are from tax year 2010. A list of the 2010 versions are now on a new IRS information page, http://www.irs.gov/taxpros/article/0,,id=243833,00.html. The list also appears below. Alternatively, you can navigate to the page by going to www.irs.gov. Then select the Tax Professionals tab at the top. Click on "PTIN Requirements" in the left navigator. On the PTIN page on the right under "Next Step" click on the link for "Competency Test."

IRS Recommended Study Materials And Test Information

Set forth below is information from the new IRS Competency Test information page.

*NOTE: At the time the 2010 version of Publication 17 went to press, there were certain tax benefits that had not been finalized and several tax benefits were subsequently extended. See Legislative Changes Affecting the 2010 Publication 17 for the details needed for study purposes.

Scheduling a Test:

In order to take the test, you must have a PTIN. You can schedule your test directly from your online PTIN account.

Test Logistics:

  • Candidate Information Bulletin (coming soon)
  • What to expect on test day (coming soon)
  • Test center locations (coming soon)
  • Results reported on the RTRP test (coming soon)
  • Frequently Asked Questions

IRS RELEASES COMPETENCY TEST SPECIFICATIONS; TWO TO THREE HOURS, 120 QUESTIONS

The IRS has released the specifications for the competency test individuals must pass to become a Registered Tax Return Preparer. The specifications identify the major topics that will be covered by the test, which will be available starting this Fall. Although individuals who already have a provisional preparer tax identification number (PTIN) from the IRS do not have to pass the exam until December 31, 2013, they may take the exam at any time once it is available.

The test will have approximately 120 questions in a combination of multiple choice and true or false format. Questions will be weighted and individuals will receive a pass or fail score, with diagnostic feedback provided to those who fail.

Test vendor Prometric Inc. worked with the IRS and the tax preparer community to develop the test. The time limit for the test is expected to be between two and three hours. The test must be taken at one of the roughly 260 Prometric facilities nationwide.

To assist in test preparation, the following is a list of recommended study materials. This list is not all-encompassing, but a highlight of what the test candidates will need to know.

Some reference materials will be available to individuals when they are taking the test. Prometric will provide individuals with Publication 17, Form 1040 and Form 1040 instructions as reference materials.

The fee for the test has not been finalized but is expected to be between $100 and $125, which is separate from the PTIN user fee. Currently there is no limit on the number of times preparers can take the test, but they must pay the fee each time. Individuals must pass the test only once.

The IRS will notify those preparers who have a testing requirement and provide more details. Once the test is available, preparers who have on-line accounts can use their accounts to schedule a test time and select a Prometric site.

The IRS also posted this further note: At the time the current version of Publication 17 went to press, there were certain tax benefits that had not been finalized and several tax benefits were subsequently extended. See Legislative Changes Affecting the 2010 Publication 17 on IRS.gov for the details needed for study purposes.

COMPETENCY TEST SPECIFICATIONS

Follow the link below to view the Competency Test Specifications.

IRS Return Preparer Test Specifications Download

COMPETENCY TESTING IN OCTOBER

RESULTS IMMEDIATELY AVAILABLE TO APPLICANTS

Representatives from the IRS Return Preparer Office told participants at a recent SB/SE National Practitioner Forum that competency testing will not be available until October 2011. The IRS originally said testing would begin in September. They also said that the test results will be immediately available, before the test-taker leaves the testing facility. Preparers with existing PTINs will have until December 31, 2013 to pass the test.

2012 PTIN RENEWALS

The second release of the upgraded PTIN system will occur sometime after September 2011. The IRS changed the renewal cycle for all PTINs to a calendar-year renewal. Open season for 2012 PTIN renewal will begin in October 2011.

IRS ANNOUNCES THAT PTINS WILL EXPIRE ON A CALENDAR-YEAR BASIS

The IRS has sent PTIN holders a notice and has posted on its website updated renewal rules for PTINs. Your PTIN will now expire on a calendar-year basis, so if you obtained or renewed your PTIN between September 28, 2010 and the present, it will expire on December 31, 2011. Therefore, your PTIN number will expire at the end of the calendar year rather than one year after you acquired it.

Here are the IRS FAQs on PTIN expiration:

1. When can I renew my PTIN for the 2012 filing season? (posted 6/9/11)

PTIN renewal is expected to be available in October 2011. Check www.irs.gov/ptin for updates.

2. When does my PTIN expire? (posted 6/29/11)

PTINs now expire on a calendar year basis. If you obtained or renewed your PTIN for the 2011 filing season (e.g., between September 28, 2010 - present), your PTIN expires on 12/31/2011.

FINAL CIRCULAR 230 RULES ESTABLISH 'REASONABLE BASIS' REQUIREMENT FOR SIGNING RETURNS

The IRS has finalized the Circular 230 regulations covering tax return preparers. The final rules, which go into effect on August 2, 2011, define the limited practice rights of "registered tax return preparers" (RTRPs) and also modify the professional standards for all practitioners to be consistent with the preparer penalty standards in Code Section 6694.

New Standards

Under the final regulations, a practitioner cannot sign a tax return or claim for refund that he or she knows or reasonably should know contains a position that: "(A) lacks a reasonable basis; (B) is an unreasonable position; or (C) is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner."

Note that under (B) above, a position is "unreasonable" if the tax preparer does not have substantial authority for the position, if it is not disclosed. If the position is disclosed, the standard is "reasonable basis." If the position involves a tax shelter or reportable transaction, the preparer must believe it is "more likely than not" that the position will be sustained on its merits. These are the same as the current standards for the civil preparer penalties in Code Section 6694.

The IRS also clarified that a practitioner liable for a preparer penalty is not automatically subject to discipline under Circular 230.

Explanation of Other Revisions to the Proposed Rules

The final rules adopt the proposed regulations that were released in August 2010. The IRS received over 50 comments on the proposed rules and made some changes as described below.

Registered Return Preparer Designation, Duties and Practice Rights

The final regulations adopt the proposed amendments which establish a new "registered tax return preparer" designation. While some commentators thought the term "registered tax return preparer" would confuse the public, the IRS concluded that the term "registered" is appropriate. The IRS also stated in its explanation of the regulations that, because registered tax return preparers prepare returns and claims for refund for compensation, they are considered to be "practicing before the IRS."

The IRS was asked which forms registered tax return preparers are permitted to prepare. In response the IRS said it will issue guidance to identify the tax returns and claims for refund registered tax return preparers are permitted to prepare after they pass the competency examination. The IRS also will issue guidance explaining which documents may be prepared without completion of the competency examination.

Registered preparers may represent taxpayers before IRS agents and customer service personnel during an audit if the preparer signed the return or refund claim. However, registered preparers may not represent taxpayers in the IRS appeals process and may not give tax advice to clients except in conjunction with preparing a return.

An individual who only furnishes typing, reproducing, or other mechanical assistance with respect to a tax return is not subject to the duties and restrictions relating to practice before the IRS.

Solicitations Cannot Say "Certified"

The final rules clarify that a practitioner may not use the term "certified" in describing their designation and may not imply an employer/employee relationship with the IRS. An acceptable description for registered tax return preparers is "designated as a registered tax return preparer by the Internal Revenue Service," according to revised Circular 230.

Nonsigning Preparers with PTINs

In an earlier Notice, the IRS allowed preparers who are supervised by an attorney, CPA, or enrolled agent to obtain a PTIN and assist in the preparation of a return. These individuals have to certify in their PTIN application that their work is supervised. The final rules clarify that the nonsigning PTIN holders must notify the IRS if they are no longer supervised.

Eligibility to Become a Registered Tax Return Preparer

The final regulations require that an individual must be eighteen years old, possess a valid PTIN, and pass a minimum competency examination to become a registered tax return preparer. The age requirement was not in the proposed regulations.

Continuing Education Credit Hours

In the final regulations, the IRS modified the proposed rules to allow enrolled agents to get a maximum of six hours of continuing education credit annually for being a CPE instructor. Other registered return preparers can earn up to four hours annually for being an instructor. The final regulations also remove the ability to receive CPE credit for authoring articles, books, or other publications that was formerly allowed for enrolled agents and enrolled retirement plan agents.

Registration of Interns

Some commentators requested that the IRS exempt student interns from the PTIN requirement. The final rules exempt interns if they do not work for compensation, but the rules require interns who prepare returns to obtain a PTIN if they are paid for their work.

Disreputable Conduct

The final rules expand the definition of "disreputable conduct" by a tax practitioner to include:

  1. Willful failure to e-file as required by the new electronic filing requirements for tax preparers (unless the failure is due to reasonable cause and not due to willful neglect).
  2. Willful preparation or signing of a tax return as a compensated tax return preparer when the practitioner does have a valid PTIN; and
  3. Willfully representing a taxpayer before an IRS officer or employee unless the practitioner is authorized to do so.

Tax professionals who engage in disreputable conduct can be sanctioned under Circular 230.

Confidentiality Privilege

Some commentators asked the IRS whether the taxpayer-client confidentiality privilege applies to communications between a taxpayer and a registered tax return preparer. The IRS has explained that it does not, because the advice a registered tax return preparer gives a client is intended to be reflected on a tax return and is not intended to be confidential or privileged.

Firm Responsibility to Oversee Tax Preparation

The final rules expand the responsibility of firms to oversee the practice of preparing tax returns, claims for refunds and other documents filed with the IRS. Firms must take reasonable steps to ensure that the firm has adequate procedures in effect to comply with the tax preparation rules of Circular 230.

IRS EXPLAINS RESTRICTIONS ON THE USE OF THE TERM 'REGISTERED TAX RETURN PREPARER'

Final Circular 230 Regulations Issued

The IRS has issued a Notice restricting the use of the term "Registered Tax Return Preparer" by tax professionals during the time of provisional PTINs. The IRS also issued final Circular 230 regulations relating to the disciplinary rules for tax return preparers and other tax professionals admitted to practice before the IRS.

Requirements for Registered Preparers

To become a registered tax return preparer, an applicant must pass a competency examination as well as tax compliance and suitability checks. The IRS has selected Prometric, Inc., to develop and administer the competency examination, but the examination is not yet available. The IRS also is still working on the process of developing the suitability check.

Restrictions on Use of Term

Because the conditions for becoming a registered tax return preparer cannot be satisfied yet under the provisional PTIN process, the IRS has mandated that no individual may represent that he or she is a registered tax return preparer at this time. An individual with a provisional PTIN may not represent that he or she is a registered tax return preparer or has passed the competency examination. Once the competency examination is available, only an individual who has met all of the conditions, including passing the competency examination and the tax compliance and suitability checks, may represent that he or she is a registered tax return preparer.

IRS Required Language in Preparer Advertisements

An individual who becomes a registered tax return preparer must comply with the advertising and solicitation rules in Circular 230, which will require that a registered tax return preparer using any paid advertising involving print, television or radio must display or broadcast the following statement:

"The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov."

Final Circular 230 Regulations

The IRS also has finalized the Circular 230 regulations covering tax return preparers. We are analyzing the final regulations and will provide you with an explanation of the final rules soon. Watch your e-mail and the NSTP website for further information.

IRS AWARDS CONTRACT FOR RETURN PREPARER TESTING AND FOR FINGERPRINTING

The IRS has selected Prometric, Inc. as the vendor to administer a new competency examination and fingerprinting program for paid tax return preparers. Prometric, Inc. currently administers the Special Enrollment Examination for Enrolled Agents. The IRS also has selected Daon Trusted Identity Services, a Reston, Virginia company, as a vendor to offer fingerprinting services. The testing and background checks are two components of the next phase of increased IRS oversight of federal tax return preparers, as outlined in its Return Preparer Review issued in January 2010.

The testing vendor will administer the testing program. In formulating the tests, Prometric will conduct a job analysis using information gained from IRS staff members and the tax preparer community to develop the material the test will cover. The IRS will have final approval of all test questions. Once a test plan is approved, the IRS will publicly release the test specifications to assist preparers in studying for the exam.

The fingerprinting vendor will assist the IRS in evaluating the background and suitability of certain PTIN applicants, but the IRS will make all determinations regarding suitability issues.

COMPETENCY TESTING TO BEGIN IN SEPTEMBER, 700,000 PREPARERS REGISTERED SO FAR

David Williams, Director of the IRS Return Preparer Office, told an IRS webinar audience on March 30th that he expects competency testing to begin in September of this year. Williams also said the contract for the testing vendor will be awarded "in the next couple of weeks."

The test will be on 1040s only, not business returns. The test will not be open book, but test taker will likely have access to IRS instructions. Williams said the test will focus on "thinking your way around a return," not calculations. Calculating software will not be provided with the tests. Rather, the questions will ask things like when a taxpayer may be subject to the alternative minimum tax. Test sites will be around the country, and candidates will have to come into testing centers. Those preparers with provisional PTINS will have until the end of 2013 to pass the test and can take it as many times as they like. However, the IRS may require a waiting period after a preparer has failed the exam before the preparer can take it again.

Practitioner Recommendations on Test

The IRS will solicit recommendations from the practitioner community on what should be included on the test. Also, the IRS will release general outlines of the test content, but will not give out sample tests or offer an IRS review course. The IRS will leave test prep courses up to "the marketplace". Preparers will be able to get continuing education credit for taking test review courses.

PTIN Registrations

Williams also reported that 700,000 preparers have registered in the PTIN system since September 28, 2010. IRS estimates that there are between 800,000 and 1.2 million paid preparers in the U.S., so it believes there are still many paid preparers who are not registering or not getting the message that they have to register. The IRS intends to contact as many unregistered preparers as possible and will be looking for returns filed by preparers without PTINS. Williams also said that IRS intends to "level the playing field" by finding nonsigning preparers. One method will be to use statistical analysis to identify returns that are likely prepared by a nonsigner. The IRS will then question the taxpayers about who prepared their return.

The registration requirement is targeted not only to the person who actually signs the return, but also applies to any person "exercising substantive judgment that really determines the outcome on the tax return," Williams observed.

Confusion with E-File Requirement

Panelist Bill Parrish, with the Private Practice Group, noted that some practitioners are getting the PTIN registration requirement confused with the E-File requirement. This year, preparers who expect to file 100 or more returns have to e-file those returns. (That number drops to 11 or more in 2012.) Some preparers think they only have to register for a PTIN if they have to e-file. This is incorrect. All paid preparers who prepare all or substantially all of a return or make substantive judgments on a return have to register for a PTIN. The PTIN registration has nothing to do with the e-file requirement. Note: They are separate requirements with different criteria.

Continuing Education

The IRS will not be able to fully implement the continuing education requirement until it compiles its approved list of courses and providers. It is looking to 2012 to get the program underway, but it still has to create the list of qualified providers. At 20,000 attendees per year, the IRS Tax Forums do not have the capacity to serve all of the preparers who will need CPE courses.

Treasury Inspector General for Tax Administration - Office of Audit

IT WILL TAKE YEARS TO IMPLEMENT THE RETURN PREPARER PROGRAM AND TO REALIZE ITS IMPACT

Issued on September 30, 2010

HIGHLIGHTS

Highlights of Report Number: 2010-40-127 to the Internal Revenue Service Deputy Commissioner for Services and Enforcement.

IMPACT ON TAXPAYERS

Every year, more than one-half of all taxpayers pay someone else to prepare their Federal income tax returns. In Calendar Year 2009, the Internal Revenue Service (IRS) processed approximately 83.1 million individual Federal income tax returns prepared by paid preparers.

WHY TIGTA DID THE AUDIT

This audit was initiated because the IRS recently made reforms to return preparer oversight. The reforms include requirements for registration, competency testing, continuing professional education, ethical standards, and enforcement.

The overall objective of this review was to monitor and evaluate the IRS's implementation of the Return Preparer Strategy. The scope of this audit was limited to the planning, design, and implementation of the Return Preparer Registration System and planning for the implementation of future phases of the Return Preparer Strategy.

WHAT TIGTA FOUND

Immediately after announcing the Return Preparer Review, the IRS established a Return Preparer Implementation Project Office. The Project Office will support the IRS in implementing key Return Preparer Program functions for Filing Season 2011 and lay the foundation for long-term Program institutionalization.

When the decision was made to register preparers in September 2010, the IRS had only begun to implement the Return Preparer Program and had not established all Program requirements, established the organizational structure of the Return Preparer Program, or determined how to test to ensure all preparers met the requirements. It has also not determined how the IRS will enforce Program requirements, and it has not developed the system(s) and processes necessary to administer and oversee the Program.

The new preparer requirements will take several years to implement, and it will not be until Calendar Year 2014 that all preparers will be subjected to all suitability and competency tests. During that time, the IRS will be developing and implementing an enforcement strategy. Currently, the IRS does not have a sufficient management information system to gather data on preparers. Further, the IRS will need to ensure taxpayers understand the new requirements and the importance of only using registered preparers to prepare their tax returns.

WHAT TIGTA RECOMMENDED

TIGTA made several recommendations for improvement. Specifically, the IRS should complete the study comparing the four preparer programs to gain an understanding of the basis for the requirements and to ensure consistencies in the requirements and suitability testing among the programs.

In its response to the draft report, IRS management stated that it plans to complete the study comparing the four preparer programs and to leverage existing best practices when appropriate.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treas.gov/tigta/auditreports/2010reports/201040127fr.html

IRS Releases Proposed Regulations that Would Reduce Enrolled Agent Fees

The Internal Revenue Service has released proposed regulations that would reduce fees related to application and renewal for enrolled agents and enrolled retirement plan agents. The reduction is related to the preparer tax identification number requirements implemented last month which establish a new registration process and fee for all return preparers.

The proposed regulations (REG-124018-10) would reduce the fee for application and renewal for enrolled agents and enrolled retirement plan agents from $125 to $30. The reduction reflects the fact that the processes used to review enrollment and renewal of enrollment applications are partially duplicative of the new process for reviewing a PTIN application, which costs $64.25.

Individuals granted status as an enrolled agent or enrolled retirement plan agent must renew enrollment every three years. The renewal schedule is based on the last digit of the individual's social security number or tax identification number.

Tax professionals and other interested parties have until Jan. 10 to submit comments regarding the proposed regulations.

Delay of Renewal Period for Certain Enrolled Agents

In anticipation of these proposed regulations, the IRS recently announced in Announcement 2010-81 a delay of the renewal period for enrolled agents whose tax identification numbers end in 4, 5, or 6. The IRS is not accepting or processing applications for renewal of enrollment until further guidance is issued.

Individuals who have successfully completed the special enrollment examination may submit an application for enrollment, but the current user fee of $125 must be paid with the application until final regulations reducing the user fee are published in the Federal Register. These individuals also may choose to delay filing an application for enrollment until the user fee is reduced. Individuals who delay filing an application for enrollment may not practice before the IRS until the application is submitted and the Office of Professional Responsibility has granted enrollment.

Reminder of New Registration Requirement for All Return Preparers

The IRS recently launched a new online application system to obtain a PTIN. All paid tax return preparers who prepare all or substantially all of a tax return are required to use the new registration system to obtain a PTIN. Individuals who obtained a PTIN prior to Sept. 28, 2010, need to reapply under the new system but generally will be reassigned the same number.

Applicants must pay $64.25 to obtain or renew a PTIN. Access to the online system is available through the Tax Professionals page on this website. Receipt of a PTIN will be immediate after successful online registration. Or a paper application may be submitted on Form W-12, IRS Paid Preparer Tax Identification Number Application, with a response time of four to six weeks.