Tax Preparer Regulations
Tax Preparer Registration, Testing and Continuing Education Requirements are Coming… Will you meet the new standards?
IRS Plan Announced
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” tax preparers (those who are not CPAs, Attorneys or Enrolled Agents) to register with IRS and meet suitability standards prior to the 2011 tax season.
New IRS Rules
Registered preparers will then have 3 years to pass a test of competency. Two different IRS tests will be developed by IRS for preparers of wage and non-business Form 1040 individual returns and those who prepare wage and business Form 1040 individual returns including Schedules C and E. New preparers will be required to pass the test before they may register. A third test is planned by IRS to also cover non-individual business returns such as Form 1120 and 1065. All registered registered preparers will be required to complete 15 hours of continuing professional education (CPE) annually to continue to practice. The annual CPE must include ten hours of federal income tax, 3 hours of federal income tax update and 2 hours of ethics.
Solutions from The Income Tax School
The Income Tax School Comprehensive Individual Tax Course cover all topics that will be on the first two IRS tests. 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 plan to develop special IRS Preparer Test Review Courses for tax preparers to prepare for the IRS tests, and will make these available to all graduates of our income tax courses.
There are two test options available for the IRS Basic Competency Exam:
- The first test will cover basic wage and non-business Form 1040 individual tax preparation. Our new IRS Exam I Prep Course will provide you with the tax knowledge needed to pass IRS Exam I for individual returns.
- The second test will cover basic wage and business Form 1040 individual tax preparation including Schedules C, E, F and Depreciation. The IRS Exam II Prep Course provides the tax knowledge needed to pass IRS exam II for individual and small business returns.
IRS has indicated that a third exam will be introduced at some future time for tax preparers who also do non-individual returns such as Form 1120 Corporation and Form 1065 Partnership. Our Comprehensive Tax Course and the Small Business Level I Tax Course will provide the knowledge needed to pass this IRS exam.
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Implementation Timetable
- September 1, 2010 to January 1, 2011 – Registration (PTIN) of all unenrolled tax preparers
- January 1, 2011 – Annual Continuing Professional Education requirements begin
- Summer, 2011 to January 1, 2014 – Competency Testing of all unenrolled tax preparers
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. ITS 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.
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 by June 1, 2010. For more information, visit the Dept. of Labor, Licensing & Regulation Web site.
- Alabama has legislation pending.
When will IRS nationwide regulation of tax preparers be implemented?
- September 1, 2010 to January 1, 2011 – Registration (PTIN) of all unenrolled tax preparers
- January 1, 2011 – Annual Continuing Professional Education requirements begin
- Summer, 2011 to January 1, 2014 – Competency Testing of all unenrolled tax preparers
Update on Tax Return Preparer Regulation
Online registration will begin September 1, 2010. Those who already have a PTIN will be re-issued the existing PTIN as part of the registration process. Those who do not already have a PTIN when they register will be issued one as part of the registration process. Once paid preparers register, they will be subject to the 15-hour per year continuing education requirement. 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. Read the latest news on PTINs.
The Internal Revenue Service has selected Accenture National Security Services, LLC, as the vendor to establish a system for on-line registration of paid tax return preparers. The system will support the first phase of increased IRS oversight of federal tax return preparers, as outlined in the Return Preparer Review issued on Jan. 4. The vendor will develop and maintain the registration application system and address related questions. The IRS will maintain full oversight of the registration process and registered preparers.
All paid tax return preparers that register by January 1, 2011, will have three years to pass the 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 PTIN. All paid tax return preparers will be required to register and obtain a PTIN by January 1, 2011, or they cannot prepare returns for compensation. Once testing becomes available, any new unenrolled, unregistered tax return preparers would be required to pass one of the two competency tests BEFORE they register, receive a PTIN, and begin preparing returns.
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.
Where to set the fees for tax preparers will be a delicate balancing act as the IRS attempts to bring unenrolled practitioners into the fold without scaring them away with high fees, according to Bryon Christensen, attorney-adviser with the Treasury Department, in a recent speech. He notes that the state of New York charges a $100 registration fee while California charges only $25. “We don’t want this to be a barrier to entry,” he said. “We don’t want the fee to prevent a qualified tax preparer from being able to practice.” Although the IRS has not disclosed the amount of the user fees required to register or take the exam, they have indicated that they are looking to find a way include it with the Enrolled Agent fee so EAs are not paying twice.
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 Income Tax Course includes all topics covered on the IRS exam for preparers of individual tax returns and the Small Business Course covers all additional topics included on the IRS test for preparers of business returns.
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 two 30-hour courses. Learn more
Your first step to success: enroll in the Comprehensive Income Tax Course today!
