ABOUT TAX PROFESSIONALS
Update – February 2, 2013
On February 1, the IRS motion to suspend the injunction pending appeal was denied, and the injunction was modified to make clear that the tax preparer registration program (all paid preparers require a PTIN) was not affected by the injunction.
What does this mean to you, the consumer of prepared tax returns? Unless an appeal causes the injunction to be stayed or vacated, all paid preparers continue to be required to register with the IRS and obtain a PTIN which must appear on every return signed. The change caused by the Court decision is that such PTIN can be obtained and renewed annually without any requirement to have demonstrated a minimal level of competency and without any requirement for continuing education. Any individual can obtain a PTIN and legally prepare returns for compensation, without regard to that individual’s qualifications, experience, or education.
UPDATE – January 31, 2013
The IRS has taken steps to comply with the court’s injunction against tax preparer regulation; and at the same time, has announced that it “continues to have confidence in the scope of its authority to administer this program.” The IRS filed a motion on January 23 requesting a stay of the injunction; and plans an appeal of the January 18 decision within 30 days, regardless of the outcome of their motion.
In March, 2012, several tax preparers filed a complaint in Federal District Court against the IRS asking for “Declaratory and injunctive relief”, based on a question of IRS having the authority to “license the tax preparation industry”; and claims that the licensing and competency exams would drive the small tax preparer out of the business. On January 18, 2013, Judge James E. Boasberg, of the United States District Court for the District of Columbia, issued an opinion that will result in permanently enjoining the IRS from enforcing the tax-return preparers’ registration scheme. It is unknown if the IRS will appeal the decision.
EDITORIAL OPINION: The paragraphs that follow were written prior to the January 18 opinion, but not yet published on our web site. We don’t know how this will ultimately resolve, but now you know what was planned and what might be. We seriously doubt the IRS will eliminate the new RTRP designation; if the court decision stands, it might become a voluntary exam a tax preparer could take to demonstrate a minimal level of competency. Check back for further developments as they unfold. The court decision has no effect on any tax practitioner other than the RTRP.
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First, some background. It’s a long story but we’ll give you the condensed version.
Because third party assistance in tax return preparation had grown increasingly prevalent, and thus correspondingly important; the IRS launched the Return Preparer Review which was completed in December 2009.
The Review estimated that between 900,000 and 1.2 million individuals were preparing returns for a fee (many of which the IRS could not identify), and that a large share of tax return preparers did not pass any government or professionally mandated competency requirements before they prepared a federal tax return. The remainder of the total paid preparers, collectively known as Practitioners, consisted of state-licensed attorneys and certified public accountants as well as IRS Enrolled Agents and others authorized to practice before the IRS. The review identified key findings, and made corresponding recommendations.
The chart that follows is our synopsis of major findings and recommendations relevant to you, along with our assessment of the current status of each.
Key Findings, Recommendations, and Current Status from the IRS Return Preparer Review
|The IRS couldn’t identify, communicate, or adequately oversee a large share of tax return preparers||Mandatory tax return preparer registration for all who sign federal tax returns as a paid preparer, resulting in the issuance of a Preparer Tax Identification Number (PTIN); and requirement for PTIN to be associated with any paid preparer tax return.||All paid preparers had to have registered for their initial PTIN by January 1, 2011; and must renew their registration annually thereafter. The cumulative number of individuals issued PTINs since 9/28/2010 = 907,055; the number of active PTINS today is 744,658|
|A large share of return preparers have not demonstrated a level of competency to an officially-measured and sanctioned standard; although some may indeed operate at such a required level.||Three required minimum competency examinations for all paid return preparers not otherwise tested (licensed attorneys and CPAs, and IRS Enrolled Agents). No preparer to be grandfathered based on experience.||Passing the initial exam results in being designated by the IRS as a Registered Tax Return Preparer (RTRP). All paid preparers must have at least the RTRP designation by January 1, 2014 in order to prepare returns for compensation. To date, 320,172 paid return preparers have not received at least the RTRP designation.|
|A large share of return preparers do not have a requirement for continuing professional education.||Paid return preparers that qualify to prepare returns based on minimum competency exams are required to complete 15 hours of annual continuing education in specified areas.||15 hours of annual continuing education is required for an RTRP to renew their PTIN.|
|A large share of paid return preparers is not subject to the same stringent professional ethics standards, and enforcement sanctions for non-compliance as are other paid preparers||All paid preparers to be subject to the same ethics and non-compliance standards promulgated under Treasury Department Circular 230.||All paid preparers are now subject to the provisions of Treasury Department Circular 230.|
Click here to see Overview of Tax Return Preparer Requirements on the IRS web site which identifies the different kinds of tax professional designations, and presents a comprehensive overview of their different competency requirements, different continuing professional education requirements, and limitations on their respective practice rights (allowable representation before the IRS).