Thursday, January 7, 2010

IRS Proposes New Regs to Regulate Tax Preparers

Last June, the IRS Commissioner initiated a comprehensive review of the paid tax return preparer industry (the IRS estimates the number of paid tax return preparers in the US to be between 900,000 and 1.2 million).

On January 4, 2010, the IRS proposed new regulations as part of the findings of this study focusing on the testing and continuing education of tax return preparers. The new regulations are intended to “enhance the protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.” http://www.irs.gov/newsroom/article/0,,id=217781,00.html

In rolling out the IRS’s new initiative, expect the following actions and regulatory requirements:

1. 10,000 Letters and Visits. Starting this week the IRS is sending letters to 10,000 paid tax return preparers throughout the country. The letters are targeting large volume preparers who frequently make errors on their returns. The letters are meant to encourage and remind such preparers to be more careful in preparing returns. Many of the preparers receiving these letters can also expect to receive a visit from Revenue Agents before the end of tax season.

2. Registration Requirements. Mandatory registration requirements for all paid tax return preparers signing tax returns. Such individuals will be required to register with the IRS, receive a Preparer Tax Identification Number (PTIN), and pay a user fee. Current PTIN holders will have to re-register with the IRS so that the IRS can reissue their PTINs.

3. Competency and Continuing Education Requirements. All paid tax return preparers who are not attorneys, certified public accountants or enrolled agents will now have to take a competency test and be subject to continuing education requirements (15 hours annually). Attorneys, certified public accountants and enrolled agents are exempt from this requirement because of the already existing licensing exams and continuing education requirements required of them (however, the IRS notes that it will examine the accuracy of future return preparation by attorneys, certified public accountants and enrolled agents to determine whether they can remain exempt).

4. Other Noteworthy Items. The IRS will compile a searchable public database of tax return preparers that have registered with the IRS and are meeting the competency test and continuing education requirements to inform taxpayers as to whether their preparer is found therein. Treasury Department Circular 230 will extend to all signing and non-signing tax return preparers (this would make these individuals subject to discipline for unethical and unprofessional conduct). Compliance checks will be conducted by the IRS.

Because these are proposed regulations, many of the items noted above are not immediately effective for the current filing season. However, the IRS has stated that it will “immediately increase its education and enforcement presence in the return preparer community.”

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