IRS provision exempts some non-signing tax preparers from competency exam

The Internal Revenue Service has issued regulations regarding non-signing preparers and Preparer Tax Identification Number (PTIN) registration. The regulations provide an exemption from competency exam requirements for some non-signing tax preparers. 

Guidelines requiring tax preparers to obtain a PTIN went into effect January 1, and the IRS Web site has been accepting applications and collecting related fees for the PTINs.
 
The new regulations follow comments made by IRS Commissioner Mark Schulman in October during the National Tax Conference in Washington, D.C. At various sessions during the conference, attendees expressed concern about the new preparer guidelines that suggest the potential need for testing and certification of accounting firm staff members who are involved in the preparation of a client's tax return but who have no signature authority over the return.
 
"I am sympathetic to the argument that the rules should be flexible for people who have met a higher professional standard. Therefore, it is highly likely that as we implement the new rules and procedures there will be some relief for testing and continuing education requirements for people who do not sign a return and work in a professional firm under the supervision of an accountant, enrolled agent, or lawyer," Schulman said.
 
As part of the recently announced regulations in Notice 2011-6, the IRS has decided to allow certain individuals who are not attorneys, certified public accountants, enrolled agents, or registered tax return preparers to obtain a PTIN and prepare or assist in the preparation of certain tax returns, and not be subject to a competency examination or continuing education requirements.
 
These individuals, however, may not sign any tax return they prepare or assist in preparing for compensation, represent taxpayers before the IRS, or represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner, according to the agency.
 
These individuals must meet certain criteria, including:
  • The individual is supervised by an attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary authorized to practice before the IRS under Circular 230 §10.3(a) through (e)
  • The supervising attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary signs the tax returns or claims for refund prepared by the individual
  • The individual is employed at the law firm, certified public accounting firm, or other recognized firm of the tax return preparer who signs the tax return or claim for refund
  • The individual passes the requisite tax compliance check and suitability check (when available).
 
Furthermore, the Treasury Department and the IRS have proposed rules that will require an individual to pass a registered tax return preparer minimum competency examination. However, the IRS anticipates that the tax returns and claims for refund covered by the competency examinations initially offered will be limited to individual income tax returns (Form 1040 series tax returns and accompanying schedules).
 
Although the IRS expects that the types of returns and claims for refunds covered by the competency examinations expand in the future, the IRS recognizes that certain compensated tax return preparers do not prepare Form 1040 series tax returns or related claims for refunds and that the tax returns and claims for refunds prepared by some of these individuals may not be covered by the competency examinations for a significant period of time.
 
The IRS has determined that individuals should not be required, as a condition to obtaining a PTIN, to pass a competency examination covering tax returns and claims for refunds not prepared by the individual.
 
Therefore, an individual may pay the applicable user fee and obtain a PTIN if:
  • The individual certifies that the individual does not prepare, or assist in the preparation of, all or substantially all of any tax return or claim for refund covered by the competency examination(s) for registered tax return preparers administered under IRS oversight (1040 series until further notice)
  • The individual passes the requisite tax compliance check and suitability check (when available)
 
Individuals who obtain a PTIN under this provision and prepare tax returns or claim for refund for compensation will not yet be subject to a competency examination, according to the IRS. These individuals are not currently required to satisfy the same continuing education requirements that a registered tax return preparer must complete to renew their PTIN. In the future, however, the IRS might require through forms, instructions, or other appropriate guidance that these individuals complete continuing education to renew their PTIN.
 
Individuals who obtain or renew a PTIN under this provision may sign the tax returns or claims for refunds that they prepare for compensation as the paid preparer, according to the IRS. These individuals also may represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the IRS during an examination if the individual signed the tax return or claim for refund for the taxable year under examination.
 
They may not, however, represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner. Enrolled retirement plan agents and enrolled actuaries who obtain a PTIN under this provision may continue to practice and represent as provided in Circular 230.
 

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