By Nick Fiore
In the fall of 2010, the IRS launched an initiative to increase its oversight of the tax return preparation industry and regulate the conduct of tax return preparers. All paid tax return preparers were required to obtain Preparer Tax Identification Numbers (PTINs). They were then required to sign their names and include their PTINs on the returns and refund claims they prepared for compensation. As of January 1, 2011, a PTIN was the required number to be entered in the preparer identification number field on tax returns; an employer identification number (EIN) was not appropriate.
While over 712,000 tax preparers registered and received PTINs, there were still about 100,000 preparers who either used outdated PTINs or used social security numbers on returns they prepared this past filing season. Therefore, starting on July 7, 2011, the IRS began sending letters to these preparers, explaining the new oversight program, and informing preparers how to register for a new PTIN or renew an old PTIN, and where to get assistance.
"The vast majority of federal tax return preparers complied with the rules. Obviously, some preparers did not get the word, so these letters provide additional information so they can register as soon as possible", said IRS Commissioner Doug Shulman. "We owe it to the compliant tax preparers to make sure that everyone is on a level playing field."
Unenrolled preparers. In a December 2009 report (the Return Preparer Review), the IRS had concluded that "unenrolled" preparers were the source of many of the problems encountered with return preparation. To address this situation, the new program required that paid preparers who are not CPAs, attorneys or Enrolled Agents (EAs) meet additional requirements: they must pass a competency exam and suitability check (expected to start this fall) and complete 15 hours of continuing education credits annually (which will start in 2012).
Nonsigning preparers. Nonsigning preparers who work under the supervision of signing CPAs in CPA firms (and those similarly working in law firms or for EAs) are exempt from the testing and continuing education requirements. (Note: Commercial preparation companies (including the large chains) cannot take advantage of these nonsigner exemptions; they do not qualify as CPA firms (or law or EA firms).)
Returns prepared but not signed. The IRS noted that some preparers may attempt to elude the new oversight program by not signing returns they prepared. The Service warned taxpayers that they should never use tax return preparers who refuse to sign returns and enter PTINs.
To identify these "ghost preparers", the IRS later this year will also send letters to taxpayers who appear to have had assistance with their returns but lack preparer signatures. The letter will inform taxpayers as to how to file a complaint against preparers who failed to sign returns, and explain how to choose legitimate tax preparers. The goal of these letters is to protect taxpayers, by ensuring that all paid federal tax return preparers are registered with the IRS and that they sign tax returns they prepare and use an identifying number when required to do so.
In a recent letter to IRS Commissioner Shulman, the AICPA expressed its support of the IRS's tax return preparer program. Specifically, the AICPA came out in favor of:
- Registering paid preparers and the issuance of unique PTINs.
- The application of Circular 230 (which deals with practice before the IRS) to all paid income tax preparers
- The continuing education approach geared toward "unenrolled" preparers
- Including a basic Form 1040-oriented examination as an aspect of becoming a registered tax return preparer.
In addition, the AICPA congratulated the IRS for its recent issuance of Notice 2011-45 (dealing with misleading advertising and solicitations) and its promise to amend Circular 230, so as to help taxpayers to make appropriate choices concerning selection of a tax adviser.