Wednesday, February 8, 2012

IRS Indicates 2012 Filing Season Brings Many New Changes

The 2012 filing season brings in many changes for tax return preparers and taxpayers, reported IRS officials Preston Benoit, deputy director of Return Preparer Office, and Jason Langley, lead tax law specialist of Tax Forms and Publications.

At a January 10 webcast hosted by Tax Talk Today, Benoit outlined the format of the registered return preparer competency exam, which is required for return preparers who want to be designated as Registered Tax Return Preparers. Langley also discussed changes to existing forms and the introduction of new tax forms for the 2012 filing season.


Some of the new forms are Form 8949 for reporting capital gains and losses, and an updated Form 1040-EZ and Form 1040-NR-EZ, which will reflect the payroll tax cut legislation when they are released in the next few months.

Competency Test

As part of its initiative to improve the return preparer industry, the IRS, in 2011, began requiring that return preparers who are not attorneys, CPAs or enrolled agents, must obtain a Preparer Tax Identification Number (PTIN). The second prong of the initiative requires that return preparers pass the registered tax return preparer competency test by December 31, 2013.

"The exam is a basic minimal competency exam," Benoit explained. "The examination is 120 questions; they're all mostly multiple choice or true and false." Exam takers are not allowed to bring prepared materials or notes with them into the exam, but the IRS will provide several resources such as Publication 17, the Tax Guide, and the long version of Form 1040 and its instructions. Benoit cautioned that the exam "is structured in such a way that, if a taker has to look up each and every answer, there may be trouble." The IRS will provide review materials on its website (, and the likelihood of commercial study courses arising in the next two years should enable exam takers to more than adequately prepare for the test. For those who do not pass the exam on the first try, Benoit explained, "They can take the exam as many times as necessary."


In the meantime, return preparers who have not yet applied for their PTIN must do so. Benoit reported that the IRS has released applicants from the controversial fingerprinting requirement, although they are still subject to checks on their tax compliance status.

Registered Tax Return Preparer Status

Registered Tax Return Preparers who have passed the competency exam must maintain their status by annually renewing their PTIN and obtaining a minimum of 15 continuing education credits. These include two hours of ethics or professional conduct, three hours of federal tax law updates and 10 hours of federal tax law topics. Attorneys, CPAs and enrolled agents are subject to requirements of their own states, bar associations or other professional organizations and are generally not required to fulfill the IRS continuing education requirements. They must, however, still annually renew their PTINs.

2011 Tax Form Changes

There will be fewer processing delays for the 2011 tax year than there were for 2010. The delays in 2011 were due mainly to the last-minute tax legislation passed by Congress in 2010. "Because there is a lot of last-minute give-and-take to reach a deal, sometimes behind closed doors, we never know what the final legislation is going to be," said Langley. But he offered his assurances: "We don't expect to have any delays for 2011."

Some important changes to the 2011 tax forms include:

Form 1040. Form 1040 now has several blanks where taxpayers may directly input their foreign addresses, eliminating the need to file that information on a separate form.

Schedule L. Schedule L will no longer be required to figure the standard deduction.

Form 1040 and Individual Tax Return Identity Theft. The IRS has included a box for the identity theft protection PIN for victims of identity theft. It appears on the bottom of the second page, to the right of the blank for the spouse's occupation. Taxpayers who suffered identity theft (that is, someone whose information was used to file a fraudulent tax return and not simply someone whose credit cards were stolen) should have received a letter from the IRS at the end of 2011 that contained their PIN. Langley warned e-filers that they must include their PIN. "If they don't enter the PIN, and they received the letter, the return will probably be rejected." Additionally, ‘if they have lost the PIN, there is nothing they can do."

Foreign Financial Assets. Form 8938, Statement of Specified Foreign Financial Assets, has been released. Because of the penalties associated with the failure to file this form when required, preparers and taxpayers should familiarize themselves with the form and its instructions. "They define exactly what a foreign financial asset is, which I think is going to confuse a lot of people," said Langley.

Capital Gains and Losses. Schedule D, which traditionally was used to report capital gains and losses, has been replaced by Form 8949. Schedule D is now a recapitulation of items appearing elsewhere. The new system may change in the future as the IRS receives feedback. "We did focus test the 8949 as we developed it…and Schedule D as well," said Langley. "And depending on the feedback…there will be further changes, I'm sure, to tweak this."

Refundable Credits. Finally, Langley stated that taxpayers who qualify for some refundable credits, such as the adoption credit or the first-time homebuyer credit, must file their returns on paper.

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