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.