New IRS tax preparer regulations: What they mean for you

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By Dave Carr

In June of 2009, the IRS began a review of tax preparers to investigate whether greater oversight was needed for those who collect compensation for preparing tax returns. After an extensive six-month study, including not only analysis of tax preparers and their activities, but also state and federal laws, the IRS released a report in December of 2009 giving recommendations on further oversight for tax preparers.

Additional rules were proposed in early 2010 and requirements for registration, testing, continuing education, and fees related to the new oversight measures were negotiated. In August of this year, the IRS proposed new rules outlining the requirements for the increased oversight as well as minor changes to Enrolled Agents, Actuaries, and Retirement Plan registrants.

What are these requirements and what do they mean to you on a firm, business, or personal level?

Individual tax preparers


Beginning with all tax returns prepared and filed after December 31, 2010, every tax preparer will have to submit a Preparer’s Tax Identification Number (PTIN) on return forms. Until now, tax preparers could use a Social Security number, Tax ID number, or even a company Employer Identification Number.

Under the new law, all CPAs, attorneys, enrolled agents, enrolled actuaries, enrolled retirement plan agents, preparers registered with the IRS, and any other persons who are preparing tax returns for compensation must register for and obtain a PTIN. Registration requires the completion of a form and payment of a $50 fee. Upon receipt of both, the IRS will assign a PTIN to the applicant.

Tax preparers also will have to pass an exam given by a third-party agency. Neither the passing percentage nor the identity of the third-party agency has been determined as of the writing of this article. Those obtaining a PTIN in 2010 will have three years to pass the exam. If an applicant does not successfully pass the exam within this time frame, it will be revoked until such time as they can pass the exam and re-register. CPAs, attorneys, and enrolled agents are not required to take an exam.

Additionally, as proof that the preparer is current with the latest tax laws, each will be required to earn 15 credits of continuing education per year. The education must consist of three credit hours of federal tax law updates, two hours of ethics, and 10 hours in other federal tax law subjects.

As with the exam, CPAs, attorneys, and enrolled agents do not need to comply with the continuing education requirement even if their home state has no continuing education requirement. Still, they should keep up to date with new tax laws and the IRS is reserving the right to impose continuing education on these groups if individuals are inadequately preparing themselves for preparing tax returns for their clients.

Accounting firms, tax preparation companies


In some instances, it is easy to discern who, within a firm or company, will need PTINs and who will not. However, in many cases, it is difficult to interpret the defined term substantially all when referring to someone preparing a tax return.

The proposed rules give examples of who would and who wouldn’t need to register for PTINs, based on real-world examples centered around one tax return. One of the questions that has been raised is whether one should base if they need a PTIN on their level of involvement on just one return or their tax activity as a whole during the tax season?

From examples, one would think it is based on any return you file during tax season but clarification is still needed. Additionally, there are unanswered questions about when the exam needs to be taken, what the passing levels are, what new tax preparers need to do if they become a preparer after 2010, and whether there are special rules for continuing education for new preparers.

These blank spots in the rules should be filled in soon. There will be a rule hearing on October 8, 2010, at which point the IRS will have an opportunity to offer insight into the questions which were submitted during the comment period.

Enrolled agents, registered tax preparers


Initial certification and base CPE requirements are fairly clear for Enrolled Agents and Registered Tax Preparers. However, the rules are a bit more difficult to interpret once the details are studied carefully.

At this time, it is difficult to determine whether the same CPE requirements and rules for Enrolled Agents apply for Registered Tax Preparers in the areas of new certification, partial year certification, or special circumstances like teaching a program

The new rules for Tax Preparer oversight are very important because millions of consumers use independent tax preparers every year during tax season. Additionally, hundreds of firms have many non-CPA preparers who work for them during tax season and they will need to pay attention to the new rules to ascertain who needs to comply with exams and CPE.

Firms also need to assess whether they have Licensed Public Accountants (LPAs) on staff preparing tax returns and whether the state in which they hold the LPA treats LPAs as substantially equivalent to a CPA. If so, then no exam or CPE must be taken.

The IRS has a listingof several states articulating whether their LPAs can prepare taxes without examination or CPE, but it is by no means exhaustive. It will be up to the firm to make the determination about whether the representatives employed will need CPE and exam status tracking capability.



This initiative is a tremendous undertaking for the IRS, firms, individual tax preparers, and tax preparation companies. The process of registering for PTINs alone will involve hundreds of thousands of preparers seeking registration before the January 1, 2011, deadline. In addition, it will be a necessity that the proficiency exam be allowed to be taken up to three years in the future because having so many preparers take the required exam in a short period of time will present extremely difficult logistical challenges.

Fortunately the CPE requirement does not appear to be oppressive in any way. Additionally, there is a wealth of information on the IRS Web site about the new rules and who they impact. Much of the information posted here will answer many common questions and concerns that firms, individuals, and tax companies might have.

There are still some unanswered questions recently raised in response to the proposed changes to Circular 230. The IRS will clarify many of these questions at the October hearing and hopefully there will be few unanswered questions left, enabling everyone to be ready for an easy (in the regulatory sense) and productive tax season.

About the author:

Dave Carr is one of the industry’s leading and most recognized experts on CPE/CLE professional compliance and state-based rules. As compliance manager for LearnLive Technologies, Carr is responsible for building out and maintaining its system providing up-to-date compliance information for its legal and accounting professionals.

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