Monday, January 10, 2011

PTINs a Pain for Some CPAs

As the start of tax filing season looms, some CPA preparers are reporting difficulties meeting the new IRS requirement to register and obtain or renew a preparer tax identification number (PTIN).

All paid tax return preparers, including CPAs, now must use a PTIN when signing all tax returns, forms or claims for refund (except for certain specified returns and forms—see Notice 2011-6), and must have obtained or renewed an existing PTIN to prepare returns after Dec. 31, 2010. In addition, persons who exercise discretion or independent judgment to prepare all or substantially all of a tax return, form or claim for refund (again, apart from certain specified ones) must likewise obtain or renew a PTIN, whether or not they sign the return, form or claim for refund. The PTIN requirement is part of the IRS’ broader effort to establish minimum standards for all paid tax preparers that will eventually include, for preparers who are not CPAs, attorneys or enrolled agents, testing and continuing education.

Many CPAs have reported no trouble renewing or obtaining a PTIN on the IRS’ Web pages since the system went live on Sept. 28. The IRS has acknowledged that the scope and newness of the registration effort alone has meant that the process will not be smooth in some cases. As of Friday, approximately 550,000 PTINs had been issued, IRS official David R. Williams said in an interview. Williams is the executive overseeing implementation of the new preparer regime. In this video, he describes the priorities of the Service’s new Return Preparer Office in his presentation to the AICPA National Tax Conference in October 2010.

But the IRS has acknowledged that online applicants may have problems validating their identity, especially where the address entered differs even slightly from that person’s last-known tax address on file with the IRS. Another commonly reported issue is authenticating the identity of the spouse on a jointly filed return, especially when the taxpayer’s and spouse’s last names differ. (On its website, the IRS suggests that if the husband’s name contains a suffix, such as “Jr.,” wives should try entering their last name with the suffix, too). A third issue has been delays beyond the four to six weeks the IRS has said to expect in processing the paper-based method of applying for a PTIN, on new Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application.

Although the IRS has worked to overcome glitches and program the system to better recognize addresses and spouses, validating applicants’ identities remains a paramount concern for security reasons, Williams said.

“We have a really rigorous authentication process in place, so as not to be aiding and abetting identity theft,” he said. “You have to be pretty precise about the information provided, and it has to match. We tell people they really do need to pull their last year’s return and type in exactly what they entered on that return.”

Causes for some reported frustrations have been harder to pin down.

CPA Jay Fox of Lakewood, Colo., obtained his PTIN on Jan. 5 after attempting to do so 37 times since September, he said. Each previous attempt on the online system ended with an error message.

“It was excruciatingly painful,” he said.

Once he got through to a person on the help line after a number of attempts, he was told he had three pending applications in the system. He was never able to find out for sure why the previous ones stalled, but the tech assistant was finally able to delete the extra applications and help him complete the process.

Thinking to avoid online glitches, CPA firm Davidson, Freedle, Espenhover & Overby in Kerrville, Texas, on Oct. 25 mailed 20 Forms W-12 for the firm’s preparers, member Richard B. Cox Jr. said. As the IRS had advised, the firm included a cover letter for all 20 forms but separate checks for each registration. The firm received its first PTIN nearly eight weeks later, on Dec. 18, and as of Friday—more than 10 weeks later—had received only 13 of them.

“Our preparers have been calling the help line, and sometimes they find out their numbers; sometimes there is no record of them in the system,” Cox wrote in an e-mail. Help line operators told him he was among the latter on Dec. 29 when, at their suggestion, he applied again, using the online system, only to get an error message. Calling the help line again, he was told his W-12 had been processed on Dec. 9, even though he had been told in at least two previous calls in the interim it was not in the system. The person on the line “said that she would try to get the charge to my credit card [from the online application] reversed, but that it would take about a month.”

Williams estimated “a couple of thousand” Forms W-12 have taken longer than six weeks to process, mostly because of the same authentication issues as online. Because of the longer wait and difficulty for applicants to learn the status of their W-12, “I think there’s some anxiety out there,” he said. Also, he said, the Service is waiting until it can validate the applicant’s identity and know it can issue a PTIN before cashing an applicant’s check. The Service is considering how it might offer relief in such cases “in the next week or two,” he added.

Although IRS news releases have said as many as 1 million paid return preparers need to obtain a PTIN for this tax season, Williams emphasized that “we really don’t know” the number. The IRS notified holders of existing PTINs of the need to renew, and signs suggest that those previously without one may have gotten the word as well.

“In the last few weeks, we’ve seen an uptick in folks who were obtaining PTINs for the first time,” he said.

In any case, the IRS will not reject returns for the sole reason that a preparer used a Social Security number or expired PTIN, he said.

“We don’t want to put that burden on taxpayers,” Williams said. “We’re going to identify the preparers, and, probably after filing season, we’ll send them a notice.”

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