In mid-2009, IRS announced ambitious plans to require all individuals who prepare tax returns to register with IRS and obtain a Preparer Tax Identification Number (PTIN), and to subject tax return preparers who aren't attorneys, certified public accountants (CPAs), or enrolled agents (EAs) to greater IRS oversight. In addition to obtaining a PTIN, such preparers would have to undergo competency testing and fulfill annual continuing education (CE) requirements. However, the proposal has proved difficult to implement and has led IRS to permit what is, in effect, a three-year transition period. This two-part Practice Alert takes a close look at IRS's oversight of tax return preparers under current guidance. Part I, in this article, covers the requirement to obtain a PTIN and the different classes of individuals eligible to obtain a PTIN. Part II (¶4) covers what a tax return is for PTIN purposes, competency and CE requirements, and transition rules.
Guidance to date. IRS's guidance to date on oversight of tax return preparers has consisted of periodically supplemented Frequently Asked Questions (FAQs); proposed and final regs on the PTIN requirement; proposed Circular 230 regs creating a new class of practitioners called registered tax return preparers (RTPs); Notice 2011-6, 2011-3 IRB 315, significantly easing up on the PTIN requirements and providing interim rules; and assorted revenue procedures and announcements dealing with specialized topics such as how foreign tax preparers and domestic preparers obtain PTINS (not covered in this article), and providing relief for preparers who made a good faith but unsuccessful effort to obtain a PTIN for the 2011 filing season.
Who Must Get a PTIN
The requirement to obtain a PTIN applies only to a “tax return preparer” who prepares or helps prepare a “tax return” after Dec. 31, 2010.
Who is a tax return preparer. For purposes of the requirement to obtain a PTIN, a tax return preparer is any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax. (Reg. §1.6109-2(g))
Observation: An individual may be a tax return preparer even though the returns he prepares are signed by someone else.
Observation: A tax return preparer need not be a credentialed professional, such as an attorney or CPA.
Factors to consider in determining whether an individual is a tax return preparer include, but are not limited to:
... the complexity of the work performed by the individual relative to the overall complexity of the tax return or claim for refund of tax;
... the amount of the items of income, deductions, or losses attributable to the work performed by the individual relative to the total amount of income, deductions, or losses required to be correctly reported on the tax return or claim for refund of tax; and
... the amount of tax or credit attributable to the work performed by the individual relative to the total tax liability required to be correctly reported on the tax return or claim for refund of tax. (Reg. §1.6109-2(g))
Preparing a form, statement, or schedule, such as Schedule EIC (Form 1040), Earned Income Credit, may constitute the preparation of all or substantially all of a tax return or claim for refund based on the application of the above factors. (Reg. §1.6109-2(g))
The regs illustrate the above principles by way of four examples:
(1) An individual who performs clerical work only, including inputting client data in tax preparation software and filing returns electronically, is not a tax return preparer. (Reg. §1.6109-2(g), Ex. 1)
(2) The individual in (1) would be a tax return preparer if he also: conducts client interviews obtaining information for return filing; determines the amount and character of return entries and whether client data is sufficient to prepare the return; and for some clients obtains information and makes determinations that constitute all or substantially all of the tax return. (Reg. §1.6109-2(g), Ex. 2)
(3) An individual is a tax return preparer if he obtains the information to prepare a return, makes determinations about whether tax rules apply to the information to determine tax liability, and prepares the return, even if someone else signs the return. (Reg. §1.6109-2(g), Ex. 3)
(4) A tax preparation firm is employed to prepare a corporate return, which includes among many other items a possible tax credit. The firm consults with an outside expert to determine if the corporation is eligible for the credit and, if so, how much of a credit may be claimed. The outside expert is not a tax return preparer. (Reg. §1.6109-2(g), Ex. 4)
A series of “Scenarios” in FAQs dealing with the PTIN requirements make similar points: bookkeepers or administrative assistants working for a tax return preparer aren't tax return preparers and aren't required to obtain PTINs, and neither are paid accounting interns who do data entry and assemble documentation but don't offer tax advice, answer tax questions, or prepare returns. (FAQs on New PTIN Requirements, “Scenarios” 1–3)
A tax return preparer does not include individuals such as volunteers, those who do tax counseling for the elderly, those preparing returns for their employers, and those preparing returns for free. (Reg. §1.6109-2(g))
Classes of Individuals Eligible to Obtain a PTIN
In general, to obtain a PTIN, a tax return preparer must be:
... an attorney;
... a CPA;
... an EA;
... a certain nonsigning return preparer working under proper supervision or signing preparer of non-Form 1040 returns (described below); or
... a registered tax return preparer (RTP) authorized to practice before IRS under 31 USC §330 (Reg. §1.6109-2(d)).
Observation: Prop regs that would amend the Circular 230 rules governing practice before IRS create a new class of practitioner called a RTP. A RTP will be able to prepare tax returns, claims for refund, and other documents for submission to IRS, and represent taxpayers before revenue agents, customer service representatives, or similar IRS officers and employees during an examination, if he or she signed the return or refund claim for the tax year or period under examination. To become an RTP, a person will have to meet competency testing, CPE, and ethical standards.
Under a rule in the regs allowing IRS to prescribe exceptions to the PTIN requirements (Reg. §1.6109-2(h)), IRS will allow individuals who aren't attorneys, CPAs, or RTPs to obtain a PTIN, and to prepare, or assist in the preparation of, all or substantially all of a tax return, if they fall into one of two classes: (1) nonsigning return preparers working under proper supervision; and (2) signing preparers of non-Form 1040 returns. (Notice 2011-6, Sec. 1.02(a))
Observation: The rules in Notice 2011-6 essentially represent temporary, interim guidance until the RTP regs are finalized, and until IRS issues details on competency testing and CE requirements.
(1) Nonsigning return preparers working under proper supervision. Notice 2011-6 provides that until further guidance is issued, under the following circumstances, individuals 18 years or older who are not attorneys, CPAs, EAs, or RTPs, may pay the applicable user fee, obtain a PTIN, and prepare, or assist in the preparation of, all or substantially all of a tax return (or claim for refund) for compensation:
(a) the individual is supervised by an attorney, CPA, EA, enrolled retirement plan agent, or enrolled actuary authorized to practice before IRS under sections 10.3(a) through (e) of Circular 230;
(b) the supervising attorney, CPA, EA, enrolled retirement plan agent, or enrolled actuary signs the tax returns or claims for refund prepared by the individual;
(c) 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; and
(d) the individual passes the requisite tax compliance check and suitability check (when available).
A recognized firm is a partnership, professional corporation, sole proprietorship, or any other association other than a law firm or certified public accounting firm, that has one or more employees lawfully engaged in practice before IRS and that is 80% or more owned by one or more attorneys, CPAs, EAs, enrolled actuaries, or enrolled retirement plan agents authorized to practice before IRS under sections 10.3(a) through (e) of Circular 230, respectively.
Observation: The liberalized rule does not apply to an individual who works under the supervision of a tax return preparer who isn't an attorney, CPA, EA, enrolled retirement plan agent, or enrolled actuary.
Individuals applying for a PTIN under this liberalized rule must (a) certify that they are supervised by an attorney, CPA, EA, enrolled retirement plan agent, or enrolled actuary who signs the tax return or claim for refund prepared by the individual and (b) provide a supervising individual's PTIN or other number if prescribed by IRS. Such individuals may not: sign any tax return they prepare or assist in preparing for compensation; represent taxpayers before IRS in any capacity; or represent to IRS, their clients, or the general public that they are a RTP or a Circular 230 practitioner.
Although not practitioners under Circular 230, individuals qualifying for the liberalized PTIN rule are subject to the duties and restrictions relating to practice in subpart B of Circular 230.
(2) Signing preparers of non-Form 1040 returns only. Until further guidance is issued, any individual 18 or older may pay the applicable user fee and obtain a PTIN if he: (a) certifies that he 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 RTPs administered under IRS oversight (1040 series until further notice); and (b) passes the requisite tax compliance check and suitability check (when available). (Notice 2011-6, Sec. 1.02(b))
Observation: This liberal rule applies whether or not the non-Form-1040 preparer works under the supervision of someone else, such as an attorney or CPA.
Illustration: An individual may obtain a PTIN without passing a competency test or meeting CE requirements if his return preparation work consists solely of preparing Form 5500, Annual Return/Report of Employee Benefit Plan (Info Copy Only), and Form 5500-EZ, Annual Return of One Participant (Owners and Their Spouses) Retirement Plan.
Although not practitioners under Circular 230, signing preparers of non-Form 1040 returns are, by preparing or assisting in the preparation of a tax return for compensation, acknowledging that they are subject to the duties and restrictions relating to practice in subpart B of Circular 230.
Such individuals who obtain or renew a PTIN may sign the tax returns or claims for refunds that they prepare for compensation as the paid preparer and represent taxpayers before revenue agents, customer service representatives, or similar IRS officers and employees during an exam if the individual signed the tax return or claim for refund for the tax year under examination. They may not, however, represent to 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. (Notice 2011-6, Sec. 1.02(b))
No comments:
Post a Comment