Proposed New Requirements for Tax Return Preparers

Frequently Asked Questions

Who is affected?

How will the recommendations impact owners of firms or franchises? Do the owners and their staff need to obtain a PTIN and test as applicable? What if an attorney or enrolled agent or CPA signs all the returns, would the unenrolled preparers be subject to the regulations? (posted 3/29/10)

All individuals who are compensated for preparing, or assisting in the preparation of, all or substantially all of a federal tax return or claim for refund or who sign, or are required to sign, a federal tax return or claim for refund as paid tax return preparer must obtain a PTIN and, if applicable, successfully pass an examination.

The proposed regulations under section 6109 published in the Federal Register on March 26, 2010, provide additional guidance, including examples, on who must obtain a PTIN.

If an employee of a business prepares the business' tax returns as part of their job responsibilities, will the recommendations affect them? (posted 2/2/10)

No. An employee who prepares his employer's returns is not required to sign as a paid preparer. Accordingly, unless the employee prepares other federal tax returns for compensation, he or she will not be required to register and obtain a PTIN.

Will Accredited Council of Accountancy for Taxation (ACAT) credential holders have to pass the IRS return preparer examination and complete continuing professional education to prepare returns? (posted 2/2/10)

Yes, ACAT credential holders will need to pass the IRS exam unless they are also attorneys, certified public accountants, or enrolled agents. As for continuing professional education, they will be subject to the new requirements unless they are also attorneys, CPAs, enrolled agents, enrolled actuaries or enrolled retirement plan agents.

Only attorneys, certified public accountants and enrolled agents will be exempt from testing. Attorneys, certified public accountants, enrolled agents, enrolled actuaries and enrolled retirement plan agents are exempt from the return preparer continuing education requirements.

How will the new regulations affect registered or licensed public accountants? Would they have to test? (revised 4/12/10)

In many states, a registered or licensed public accountant (LPA) has the same rights and privileges as a certified public accountant. Thus, an LPA in those states is eligible to practice before the IRS by virtue of their public accountant's license and these individuals will not be required to pass the IRS' return preparer examination or satisfy the CPE requirements for tax return preparers.

The following is a non-exclusive list of states where a LPA has the same rights and privileges as a CPA: Alabama, Alaska, Arkansas, California, Colorado (Registered Public Accountants only), Connecticut, Hawaii, Idaho, Maine, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, and West Virginia.

LPAs in the following states do not have the same rights and privileges as a certified public accountant and, therefore, will be required to pass the IRS' return preparer examination and satisfy the CPE requirements for tax return preparers to prepare any federal tax return for compensation (unless the LPA is an attorney or enrolled agent): Delaware, Illinois, Iowa, Kansas, Michigan, Oregon, and South Carolina
LPAs in other states should review the laws of the state in which they are licensed to determine whether they have the same rights and privileges as a certified public accountant.

In Minnesota, we have Registered Public Accountants. These individuals are governed by the Minnesota Board of Accountancy, must register with the Board, pay a fee and have continuing education requirements and ethics requirements. Will they have to test? (posted 1/22/10)

In general, a registered (or licensed) public accountant may practice before the IRS if the registered (or licensed) public accountant has the same rights and privileges as a certified public accountant under state law. Although the IRS has reviewed the laws of 29 states to determine if the registered (or licensed) public accountants in those states have the same rights and privileges as a CPA, Minnesota is not one of those 29 states. Accordingly, the registered public accountants in Minnesota should review their own state laws to determine whether they have the same rights and privileges as a CPA. until the Office of Professional Responsibility has an opportunity to formally consider whether Minnesota's registered public accountants are qualified to practice as CPAs.

How will the conditions to practice before the IRS be changed by the new regulations? Currently tax practitioners that are not attorneys, certified public accountants, or enrolled agents have limited practice before the IRS. (posted 1/22/10)

The new category of preparers who pass the competency test will have the same limited practice rights that an unenrolled preparer currently has.

Will the recommendations apply to individuals who only prepare payroll or other non-1040 series returns? (revised 3/29/10)

All paid tax return preparers will be required to obtain a preparer tax identification number (PTIN). If the preparer is not an attorney, certified public accountant, or enrolled agent, the preparer will need to satisfy the competency test and continuing education requirements. The preparer will need to pass the complex test if they prepare business returns.

Will Electronic Return Originators (EROs) who only transmit tax returns and do not prepare returns be subject to the new review recommendations? (revised 3/29/10)

Although individuals who assist in the transmission of tax returns electronically are subject to other IRS rules and regulations currently, individuals who assist in the transmission of tax returns electronically, but do not prepare all or substantially all of a federal tax return or claim for refund for compensation are not the focus of the recommendations in the report. 

Will preparers who are registered by the states of California or Oregon (California Tax Return Preparers and Oregon Licensed Tax Preparers/Consultants) be exempt from testing and continuing education requirements? (posted 1/22/10)

Only attorneys, certified public accountants and enrolled agents will be exempt from testing and continuing education requirements.

Preparer Designation

Will there be a distinction between enrolled agents and the new category of preparers who will be required to take the new competency test? (posted 1/22/10)

Yes. The practice of enrolled agents before the IRS will not be limited. The practice of the new category of preparers will be limited to preparing tax returns for compensation and representing taxpayers in Examination when the return under examination was a return that they prepared.

Will there be a new designation for preparers who pass the competency test? (posted 1/22/10)

Yes, more information regarding this new designation will be made available at a future date.

PTIN Requirements

I already have a Preparer Tax Identification Number (PTIN).  Will I need to take any action this year? (posted 5/26/10)

Yes.  All federal tax return preparers, even those who already have a PTIN, will need to register in the new system which will be available in approximately September 2010.  As long as the IRS can validate the ownership of the existing PTIN, the same number will be reassigned once the appropriate information is provided and the user fee is paid.

Because a Preparer Tax Identification Number (PTIN) is going to be mandatory in the future, can I go ahead and get one now? (revised 5/26/10)

Yes, you may obtain a PTIN if you do not already have one and begin using it now. However, once the new online preparer registration system becomes available, you will still need to register and pay a fee. The system will ask if you already have a PTIN and it will reassign you the same number.

Will individuals who are active attorneys, certified public accountants or enrolled agents be required to obtain a PTIN if they do not prepare all or substantially all of any tax return? (revised 5/20/10)

Attorneys, certified public accountants and enrolled agents do not need to obtain a PTIN unless they prepare for compensation all or substantially all of a federal tax return or claim for refund.

Testing

Will paid tax return preparers be limited to preparing only the types of tax returns that they have successfully tested on? (posted 3/29/10)

Yes, for Form 1040 series tax returns. The IRS will issue additional guidance or instructions for other tax returns. 

What language(s) will the competency test be available in? (revised 4/22/10)

At least initially, the test will only be available in English.

Will the testing be done by the same firm that administers the enrolled agent exam? Or will IRS be doing the testing? (posted 1/22/10)

The testing likely will be done by an external vendor(s). The vendor(s) is unknown at this time.

Will a CPA who keeps his or her license current but is considered inactive be subject to testing? (posted 1/22/10)

Yes. Only attorneys, certified public accountants, or enrolled agents who are active and in good standing with their respective licensing agencies are exempt from competency testing.

Will the tests be open book or resource assisted? (posted 1/22/10)

This has not been determined. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.

The two competency tests are described as covering:  1) Wage & non business 1040 and 2) Wage and Small Business 1040. What does small business include? And how would this impact those who prepare other business returns? (posted 1/22/10)

For competency testing purposes, small business will include Form 1040 Schedules C, E and F and various other 1040 related forms. Appendix I of the Return Preparer Review report contains a detailed list.

Even if they do not prepare 1040 returns, preparers of business returns who are not attorneys, certified public accountants or enrolled agents will be required to pass the Wage and Small Business 1040 test.

The IRS plans to add a third test with regard to business tax rules after the three-year implementation phase is completed.

What is the required percentage to pass the competency test? (posted 1/22/10)

This has not been determined. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.

What will happen to an unenrolled return preparer who registers with the IRS as a part of the initial registration of return preparers but does not pass the competency test within three years from the implementation date? (posted 1/22/10)

The IRS will contact them proposing to deactivate their PTIN and remove them from the list of registered preparers, as well as, explaining the appeals process.

CPE Requirements

What is the process for becoming a qualified sponsor for continuing education? (revised 6/14/10)

Circular 230  section 10.6(g) outlines the current process. To qualify as a sponsor, a program presenter must:

• Be an accredited educational institution;

• Be recognized for continuing education purposes by the licensing body of any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia;

• Be recognized by the Director of Office of Professional Responsibility as a professional organization or society whose programs include offering continuing professional education opportunities; or

• File a sponsor agreement with the Director of the Office of Professional Responsibility and obtain approval of the program as a qualified continuing education program ( Form 8498, Program Sponsor Agreement for Continuing Education for Enrolled Agents ).

As part of the new oversight program, the IRS is revamping the continuing education approval process.  Additional information will be available at a future date.

Attorneys and certified public accountants in some states are not subject to continuing education requirements. Will this impact the application of the proposed IRS rules for those individuals? (posted 1/22/10)

No. The lack of continuing education requirements for attorneys or certified public accountants in a specific state will not impact the exception. All attorneys and certified public accountants will be exempt from IRS CE requirements.

However, as stated in the Return Preparer Review report, the IRS believes that all tax return preparers have an obligation to stay current on the tax laws and continuing education serves to help individuals remain current and to expand their knowledge within their field of expertise. Such courses are important to tax administration given the complexity of the tax laws and the frequent changes made to the Internal Revenue Code and the rules and regulations implemented to assist in the administration of the Code.

The IRS will consider requiring continuing professional education from additional individuals if data is collected in the future that identifies such a need. Additionally, the IRS plans to reach out to licensing authorities to encourage them to support annual continuing professional education that includes federal tax law topics and updates and ethics for those individuals who are licensed by them and who prepare federal tax returns.

Fees

Enrolled agents currently pay $125 for enrollment and renewal. Attorneys and certified public accountants pay similar fees to their oversight organizations. Will the fee for obtaining a PTIN be applicable to all enrolled agents, attorneys and CPAs in addition to their other fees? (revised 3/29/10)

Yes. All paid tax return preparers will have to pay a fee to obtain and renew their PTINs. This fee is in addition to any fee that paid tax return preparers must pay for any other certifications or licenses they hold. Because attorneys, CPAs and enrolled agents are exempt from testing, they will not be required to pay the separate testing fee.

What will be the amount of the fee for obtaining a PTIN (if I don't already have one) or registering an existing PTIN ( if I already have one), once the new online preparer registration system becomes available? (posted 5/26/10)

The fee will be the same regardless of whether you are obtaining a PTIN or re-registering an existing PTIN but the exact amount of the fee has not been determined.  An estimate is that it will be in the range of $25-100 annually per individual (or $75-300 for the three year renewal period of a PTIN).

Public Database

Who will be included in the public database of return preparers? (posted 1/22/10)

At a minimum, it will include the preparers who have passed the competency exam. Other information about who would be included is not yet available. Stay tuned to the IRS.gov Tax Professionals page for information on this issue.

Implementation Timeline

What is the best estimate for when the new regulations will be implemented? (revised 6/14/10)

September 1, 2010, is the current target date for an on-line registration system and all preparers will need to be registered on the new system and have a Preparer Tax Identification Number (PTIN) prior to filing any return after Dec. 31, 2010. Final determination of these dates is dependent on many factors and will be widely publicized as soon as available.

Testing will not be implemented until after registration and mandatory PTIN usage are in place.

Foreign Preparers

What will foreign preparers who do not have a social security number need to do to comply with the new requirements? (posted 3/29/10)

Instructions for foreign tax return preparers are in development and will be available before tax return preparers will be required to obtain a PTIN.

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