IRS Return Preparer Initiative
Encyclopedia
The IRS Return Preparer Initiative is an effort by the Internal Revenue Service
to regulate the tax return preparation industry. The initiative requires all paid federal tax return preparers to obtain and use an identification number, called a Preparer Tax Identification Number
(PTIN), starting January 1, 2011. The multi-year phase-in effort calls for certain paid tax return preparers to pass a competency exam and to take continuing education courses. There is a recommendation to extend the ethics provisions found in Treasury Department's Circular 230
to all paid tax return preparers. Preparers who have their PTINs, pass the exam and take education courses would, in the future, be given a new designation: IRS Registered Return Preparer.
"I believe it is one of the most important initiatives and defining actions that the IRS has taken in recent years in improving both compliance and our ability to deliver better service to taxpayers; in this case, helping them to file accurate returns from the get-go and avoid potentially time-consuming problems later on," said IRS Commissioner Douglas Shulman.
are complex and change nearly every year. National Taxpayer Advocate Nina Olson, in her 2002 annual report to Congress, suggested legislation to register and regulate paid tax preparers. In 2006, the GAO testified that the agency secretly visited 19 different paid tax preparers. The agency found that all 19 tax returns were wrong to some degree and that only two preparers correctly calculated the proper refund amount. In 2008, the GAO followed up with a review of how Oregon and California, the only states to regulate tax preparers, addressed the issue. In 2009, IRS Commissioner Shulman announced the agency would conduct a thorough review of the issues of regulating paid tax return preparers.
The publication contains a comprehensive overview of the 2009 IRS study and outlines eight categories of recommendations. However, some recommendations are being implemented differently than originally proposed. Official IRS regulations, not the Return Preparer Review, will provide the final guidance for implementing the recommendations.
(PTIN). Previously, use of the PTIN on tax returns was optional. On September 28, 2010, the IRS launched a new PTIN sign-up system that requires preparers to create an account, complete the PTIN application, pay a $64.25 fee and get a PTIN. Even preparers who previously had PTINs must renew their numbers through the new sign-up system.
This process will allow the agency to determine how many paid federal tax return preparers there are, create a searchable data base that can be used by taxpayers, and create an online account for preparers that eventually will allow them to track their testing and education courses, if those provisions apply. The IRS also created a new paper application, Form W-12. Currently, preparers can first obtain their PTINs prior to testing. However, once the test is available, possibly in mid-2011, preparers must pass the exam before obtaining PTINs.
Return preparers can view an IRS YouTube video that explains how to use the new PTIN sign-up system.
- to take this exam. Anyone seeking a new PTIN after October of 2011 will need to pass the exam before being issued a PTIN. Preparers who already have PTINs before the competency exam is released will have until December 31, 2013, to take and pass the test. CPAs, attorneys and enrolled agents in good standing with their professional organizations would be exempt because they already pass examinations to obtain their professional credentials. The IRS is reviewing whether the return-preparing employees of CPA, attorney and enrolled agent firms will be exempt. Initial plans call for the test to be related to the Form 1040 series.
The IRS also released a break-down of the topics that will be tested on the competency exam, which include Preliminary Work and Collection of Taxpayer Data, Treatment of Income and Assets, Deductions and Credits, Other Taxes, Completion of the Filing Process, Practices and Procedures, and Circular 230. The IRS provided a list of the recommended study materials (although the IRS noted that this list is not all encompassing and merely highlights the topics test candidates will need to know):
Publication 17, Your Federal Income Tax
Form 1040, U.S. Individual Income Tax Return
Form 1040 Instructions
Circular 230, Regulations Governing Practice before the Internal Revenue Service (rev. 8/2/11)
Publication 334, Tax Guide for Small Business
Publication 970, Tax Benefits for Education
Publication 1345, Handbook for Authorized IRS e-file Providers
Form 6251, Alternative Minimum Tax – Individuals
Form 6251 Instructions
Form 8879, IRS e-File Signature Authorization
The only reference material that will be available to test takers is Publication 17, Form 1040, and the Form 1040 Instructions. The IRS will not provide any study aids for test preparation.
On September 6, 2011 the IRS published IR-2011-89 which provided specific information regarding the upcoming competency exam. The fee for taking the competency exam is expected to be between $100 and $125 per attempt. The test will be proctored at Prometric testing sites.
(AICPA), IRS Commissioner Shulman indicated this provision would not begin for at least another year. As with the testing provision, the IRS is reviewing whether the return-preparing employees of CPA, attorney and enrolled agent firms also will be exempt.
to all paid federal tax return preparers. Guidance is pending.
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
to regulate the tax return preparation industry. The initiative requires all paid federal tax return preparers to obtain and use an identification number, called a Preparer Tax Identification Number
Preparer Tax Identification Number
The Preparer Tax Identification Number is an identification number that all paid tax return preparers must use on U.S. federal tax returns or claims for refund submitted to the Internal Revenue Service...
(PTIN), starting January 1, 2011. The multi-year phase-in effort calls for certain paid tax return preparers to pass a competency exam and to take continuing education courses. There is a recommendation to extend the ethics provisions found in Treasury Department's Circular 230
Circular 230
Circular 230 prescribes the rules governing practice before the U.S. Internal Revenue Service . These rules also require attorneys, Certified Public Accountants , Enrolled Agents, and others preparing tax returns and giving tax advice to do certain things, and prohibit certain things...
to all paid tax return preparers. Preparers who have their PTINs, pass the exam and take education courses would, in the future, be given a new designation: IRS Registered Return Preparer.
"I believe it is one of the most important initiatives and defining actions that the IRS has taken in recent years in improving both compliance and our ability to deliver better service to taxpayers; in this case, helping them to file accurate returns from the get-go and avoid potentially time-consuming problems later on," said IRS Commissioner Douglas Shulman.
Initiative Background
Prior to the IRS Return Preparer Initiative, anyone could prepare a federal tax return for a fee. The lack of training or minimum qualifications for paid federal tax return preparers resulted in concerns that some ill-equipped tax preparers were making numerous errors that were costly to taxpayers and to the U.S. Treasury. Income tax laws in the United StatesIncome tax in the United States
In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
are complex and change nearly every year. National Taxpayer Advocate Nina Olson, in her 2002 annual report to Congress, suggested legislation to register and regulate paid tax preparers. In 2006, the GAO testified that the agency secretly visited 19 different paid tax preparers. The agency found that all 19 tax returns were wrong to some degree and that only two preparers correctly calculated the proper refund amount. In 2008, the GAO followed up with a review of how Oregon and California, the only states to regulate tax preparers, addressed the issue. In 2009, IRS Commissioner Shulman announced the agency would conduct a thorough review of the issues of regulating paid tax return preparers.
Return preparer review
On January 4, 2010, IRS Commissioner Shulman announced the results of a six-month study that included public hearings with consumer advocates, other government agencies and tax professionals. The Return Preparer Review Final Report (IRS Publication 4832) outlined the increasing importance of the tax preparation industry as tax law becomes more complex and taxpayers seek help in preparing accurate tax returns. Eighty percent of taxpayers seek third party assistance, either from tax preparers or tax software, to prepare and file their federal tax returns. The report found that the number of paid tax return preparers was difficult to determine, ranging anywhere from 900,000 to 1.2 million people. "There is general agreement that tax return preparers and the associated industry play a pivotal role in our system of tax administration and they must be a part of any strategy to strengthen the integrity of the tax system. And, more directly, the American public overwhelmingly supports efforts to increase the oversight of paid tax return preparers," the report concluded. The report recommended a new Return Preparer Initiative related to registration, testing, continuing education and ethics.The publication contains a comprehensive overview of the 2009 IRS study and outlines eight categories of recommendations. However, some recommendations are being implemented differently than originally proposed. Official IRS regulations, not the Return Preparer Review, will provide the final guidance for implementing the recommendations.
PTIN registration
The first significant step to the Return Preparer Initiative is the registration of all paid tax preparers. Starting January 1, 2011, anyone who for compensation preparers all or substantially all of any federal tax return or claim for refund must have and use a Preparer Tax Identification NumberPreparer Tax Identification Number
The Preparer Tax Identification Number is an identification number that all paid tax return preparers must use on U.S. federal tax returns or claims for refund submitted to the Internal Revenue Service...
(PTIN). Previously, use of the PTIN on tax returns was optional. On September 28, 2010, the IRS launched a new PTIN sign-up system that requires preparers to create an account, complete the PTIN application, pay a $64.25 fee and get a PTIN. Even preparers who previously had PTINs must renew their numbers through the new sign-up system.
This process will allow the agency to determine how many paid federal tax return preparers there are, create a searchable data base that can be used by taxpayers, and create an online account for preparers that eventually will allow them to track their testing and education courses, if those provisions apply. The IRS also created a new paper application, Form W-12. Currently, preparers can first obtain their PTINs prior to testing. However, once the test is available, possibly in mid-2011, preparers must pass the exam before obtaining PTINs.
Return preparers can view an IRS YouTube video that explains how to use the new PTIN sign-up system.
Competency Exam
The IRS plans to launch its competency testing requirement in mid-2011. The IRS must issue guidance regulations to implement this recommendation. The current plan calls for all paid tax return preparers - except for Certified Public Accountants, attorneys and Enrolled AgentsEnrolled Agent
An Enrolled Agent is a tax professional recognized by the United States federal government to represent taxpayers in dealings with the Internal Revenue Service...
- to take this exam. Anyone seeking a new PTIN after October of 2011 will need to pass the exam before being issued a PTIN. Preparers who already have PTINs before the competency exam is released will have until December 31, 2013, to take and pass the test. CPAs, attorneys and enrolled agents in good standing with their professional organizations would be exempt because they already pass examinations to obtain their professional credentials. The IRS is reviewing whether the return-preparing employees of CPA, attorney and enrolled agent firms will be exempt. Initial plans call for the test to be related to the Form 1040 series.
The IRS also released a break-down of the topics that will be tested on the competency exam, which include Preliminary Work and Collection of Taxpayer Data, Treatment of Income and Assets, Deductions and Credits, Other Taxes, Completion of the Filing Process, Practices and Procedures, and Circular 230. The IRS provided a list of the recommended study materials (although the IRS noted that this list is not all encompassing and merely highlights the topics test candidates will need to know):
Publication 17, Your Federal Income Tax
Form 1040, U.S. Individual Income Tax Return
Form 1040 Instructions
Circular 230, Regulations Governing Practice before the Internal Revenue Service (rev. 8/2/11)
Publication 334, Tax Guide for Small Business
Publication 970, Tax Benefits for Education
Publication 1345, Handbook for Authorized IRS e-file Providers
Form 6251, Alternative Minimum Tax – Individuals
Form 6251 Instructions
Form 8879, IRS e-File Signature Authorization
The only reference material that will be available to test takers is Publication 17, Form 1040, and the Form 1040 Instructions. The IRS will not provide any study aids for test preparation.
On September 6, 2011 the IRS published IR-2011-89 which provided specific information regarding the upcoming competency exam. The fee for taking the competency exam is expected to be between $100 and $125 per attempt. The test will be proctored at Prometric testing sites.
Continuing education
The IRS plans to launch its continuing education requirement in late 2011. The IRS must issue guidance regulations to implement this recommendation. The continuing education provision calls for 15 hours of courses annually, which should include 10 hours of general federal tax law topics, 3 hours of federal tax law updates and 2 hours of ethics. CPAs, attorneys and enrolled agents, who are in good standing with their professional organization, would be exempt from this provision because of their pre-existing education professional requirements. Initially, the IRS recommended the one-year timeframe begin with PTIN registration. However, in an October 26, 2010 speech to the American Institute of Certified Public AccountantsAmerican Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...
(AICPA), IRS Commissioner Shulman indicated this provision would not begin for at least another year. As with the testing provision, the IRS is reviewing whether the return-preparing employees of CPA, attorney and enrolled agent firms also will be exempt.
Ethics
Prior to the Return Preparer Initiative, standard ethical guidelines did not apply to some federal return preparers. The initiative calls for extending the ethical provisions set out by Treasury's Circular 230Circular 230
Circular 230 prescribes the rules governing practice before the U.S. Internal Revenue Service . These rules also require attorneys, Certified Public Accountants , Enrolled Agents, and others preparing tax returns and giving tax advice to do certain things, and prohibit certain things...
to all paid federal tax return preparers. Guidance is pending.