Tax Preparer Regulations

Tax Preparer Registration, Testing and Continuing Education Requirements are Here… Will you meet the new standards?

During 2009 IRS Commissioner Doug Shulman conducted a 6-month study on Tax Preparer Standards.  Input was obtained from all segments of tax industry participants to develop “uniform and high ethical standards of conduct for tax preparers” as a way to increase tax compliance and reduce the “tax gap.”   The result of that study was the announcement by Commissioner Shulman on January 4, 2010 of the IRS plan to require “unenrolled” paid tax return preparers to register with the IRS and pass a basic test competency exam.  The IRS has announced that all paid tax return preparers must be attorneys, CPAs, EAs, or registered tax return preparers, unless they are supervised by such individuals or prepare returns not covered by the competency exam. Passing this basic competency exam and obtaining a PTIN (preparer tax identification number) are what is required to become a registered tax return preparer. Once you have a PTIN with the IRS, you are subject to 15 hours of annual continuing education.  Here is the IRS Summary of the new rules.

Here are the New IRS Rules…

1. PTIN Registration: Online registration for paid tax preparers began Mid-September, 2010. Those who already have a PTIN will still need to register but will be re-issued their existing PTIN as part of the registration process. Those who do not already have a PTIN when they register will be issued a new one as part of the registration process.  Access to the online PTIN sign-up system is available at the IRS website. A fee of $64.25 is required if this is your first time registering for a PTIN. If you are renewing your PTIN, there is an annual fee of $63.00.
2. Pass IRS Competency Exam: All paid tax return preparers that register for a provisional PTIN by atleast April 18, 2012 will have until December 31, 2013 to pass the IRS competency test during the initial three-year phase in period. They will be permitted to continue signing returns as a paid tax return preparer during this transition period as long as they have registered and obtained a provisional PTIN.  IRS testing is available now in the beta testing phase – so not all locations are currently available. To register for the test, sign into your PTIN account.  The fee for the test is $116. After April 18, 2012, any new unenrolled, unregistered tax return preparers will be required to pass the IRS competency test BEFORE they register, receive a PTIN, and begin preparing federal tax returns for compensation.  There are some individuals who are not required to complete the exam. Learn more
3. Brief Background and Tax Compliance Check: The individuals, who pass the competency exam, as well as a background and tax compliance check, will become Registered Tax Return Preparers.
4. Continuing Education Requirements: Registered paid preparers will be subject to a continuing education requirement beginning January 2012.  The IRS plans to base the completion of the required continuing education on the preparer’s registration anniversary date as opposed to a calendar year for everyone.  Everyone who is required to take the Registered Tax Return Preparer competency exam will be required to complete the continuing education. The annual continuing education requirement is 15 hours, including:

• 3 hours of federal tax law updates
• 2 hours of ethics
• 10 hours of other federal tax law

The continuing education requirements for Registered Tax Return Preparers do not apply to attorneys, certified public accountants, and enrolled individuals, certain supervised preparers, and individuals who do not prepare Form 1040 series returns.

There is no continuing education requirement for 2011. The continuing education requirement will begin in 2012. Individuals who are Registered Tax Return Preparers, and those who have provisional PTINs but have until December 31, 2013 to pass the test, will need to obtain 15 hours of continuing education courses from IRS approved providers during calendar year 2012 and each subsequent year.

A Brief Tax Compliance Check by the IRS

The IRS believes that all individuals who are advising and assisting others in tax return preparation should be compliant with their own tax obligations. Accordingly, the IRS will conduct a limited review of a preparer’s filing and payment compliance history to determine if the preparer has filed his or her federal personal and business tax returns. The review will also determine whether the tax due on those returns has been paid or the tax return preparer has reached an acceptable agreement with the IRS to satisfy any outstanding balances. During the initial registration period, the IRS does not intend to conduct tax compliance checks as a condition of registration but will conduct these checks on all registered preparers after registration and before renewal time. After the three-year phase in period, these checks will be conducted prior to the issuance or renewal of a PTIN.

Here are the Courses You Need to Pass the Exam and Continue Your Education

The Income Tax School Comprehensive Tax Course will provide you with the knowledge needed to pass the IRS basic competency exam. This course also includes a supplement that will contain tax law updates, information about Tax Preparer Registration and any additional topics that the IRS may add.  The supplement will be received at a later date.

If the IRS should decide to provide for graduates of courses such as ours to be excused from the examination, ITS will request such an exemption.  However, the IRS has not made any such determination and we can give no assurance that it will.  We will also have an IRS Preparer Competency Exam Review for experienced tax preparers and our prior students to prepare for the IRS test.

In addition, the IRS has indicated that a second exam may also be introduced at some future time for tax preparers who prepare non-individual returns such as Form 1120 Corporation and Form 1065 Partnership.  If and when the time comes, our Small Business Level I Tax Course will provide the knowledge needed to pass this IRS exam.

Our Comprehensive Tax Course will provide you with the tax knowledge needed to pass the IRS basic competency exam for individual returns.

In addition, the IRS has indicated that a second exam may also be introduced at some future time for tax preparers who prepare non-individual returns such as Form 1120 Corporation and Form 1065 Partnership.  If and when the time comes, our Small Business Level I Tax Course will provide the knowledge needed to pass this IRS exam.

The Income Tax School offers many 3-hour online continuing education seminars that you can pull together to meet your new annual requirements.  Learn more 

Your Success Is Guaranteed by The Income Tax School!

We’re so confident you will successfully complete the IRS Competency Exam using The Income Tax School’s course materials; we’re willing to offer a Success Guarantee!

 

Implementation Timetable

• Beginning January 1, 2011 – Registration (PTIN) of all unenrolled tax preparers
• Fall, 2011 to December 31, 2013 – Competency Testing of all unenrolled tax preparers
• January 1, 2012 – Annual Continuing Professional Education requirements begin

Current Status

Currently only two states, California and Oregon, license tax preparers.  However, as explained below, IRS regulation of tax preparers is coming soon.  The Income Tax School (ITS) is an approved provider of courses that meet the requirements for licensing in California and Oregon.  The Income Tax School is also a sponsor of continuing professional education for CPAs and CFPs, and is approved by the IRS Director of Practice as a provider of continuing education for IRS Enrolled Agents.

More Information

You can find a discussion of the movement toward IRS tax preparer licensing at the LinkedIn Group titled “Tax Business Owners of America” www.linkedin.com which you can join if you are a LinkedIn member or if you become a LinkedIn member. You can find complete details under the heading of “Recent Posts” on our Start Your Own Tax Business website. 

More FAQs can be found at the following IRS website link.

How can you prepare for the IRS test?

Taking one or more tax course at The Income Tax School will give you a solid foundation in tax preparation. The Income Tax School requires that you complete tax returns manually, without using tax preparation software to prepare practice tax returns. If students use software, they will not learn what the software does automatically. The Comprehensive Tax Course includes all topics covered on the IRS exam for preparers of individual tax returns. The Small Business I Course covers all additional topics that might be included on a future IRS test for preparers of business returns.

• Here is a video from the IRS that explains what you can expect the day you take your test at a Prometric testing center.
• You can also view this IRS RTRP sample test with a tutorial that will demonstrate how the Prometric computer-based tests operate. This sample test seems to be more difficult than what we expect will actually be on the exam. The sample questions may have come from a bank of Enrolled Agent (EA) exam. This sample will still give you a good idea of how the exam will look and feel on exam day.

FAQs about the New Tax Preparer Regulations

The CTP® Advantage

By earning the professional designation of Chartered Tax Professional-CTP®, you will have the tax knowledge needed to prepare the most complex individual and small business tax returns. And equally important, you will have the credibility to instill confidence in your clients. You will also have the knowledge to easily qualify for the anticipated IRS licensing of tax preparers at both the individual and corporate tax levels. However, you will be qualified to start preparing individual tax returns for the general public after completing just the first 60-hour courses. Learn more

Your first step to success: enroll in the Comprehensive Income Tax Course today! (course covers all subjects on IRS Competency Exam)

FAQs

Why do tax preparers need to be regulated? The quick answer is that regulated tax preparers would result in more accurate tax returns and a more equitable sharing of the tax burden by U.S. taxpayers as intended by Congress.

In a recent report by the Treasury Inspector General for Tax Administration, 61 percent of a limited sample of tax returns prepared by unenrolled or unlicensed preparers contained errors resulting in a considerable net understatement of tax (see Study Results Boost Preparer Registration Movement).

Tax preparers should be regulated and licensed by the IRS in order to prevent unqualified tax preparers from practicing. As discovered by the General Accounting Office (GAO), tax preparers in Oregon, where stringent regulation of preparers exists, prepare more accurate tax returns resulting in greater compliance and revenue to the US Treasury. Correctly prepared tax returns result in all taxpayers paying their fair share of tax; no more and no less.

What states currently regulate tax preparers? Currently, California and Oregon are the only two states regulate tax preparers.

What states have legislation passed or pending to regulate tax preparers?

• Under a new Maryland law, all persons offering individual tax preparation services must become licensed with the State Board of Individual Tax Preparers. This is still in the works should be ready soon.  For more information visit: http://www.dllr.state.md.us/license/taxprep/
• Alabama has legislation pending.