Basics and Beyond Income Tax Seminars

In June 2009, IRS Commissioner Doug Shulman called for a comprehensive review of the paid tax return preparer industry, drawing on all relevant data and input from interested parties. The goal was to produce a comprehensive set of recommendations to better leverage the tax return preparer community, fostering higher compliance with the law by taxpayers and better service to taxpayers through higher standards of conduct by paid return preparers. In two announcements issued early in January, the Commissioner gave the tax preparation community its first look at some of the IRS plans for increasing its oversight of paid tax preparers.

Letters. The Commissioner announced that the IRS will be sending letters to more than 10,000 of the nearly one million paid preparers. The preparers are among those with large volumes of specific tax returns where the IRS often sees frequent errors. Specifically the letters will encourage the preparers to (1) review pertinent books and records of Schedule C filers; (2) determine the correct itemized deductions of Schedule A filers; (3) make sure that those who claim dependents and the EITC are entitled to do so; and ask first-time homebuyers the right questions to make sure that they do qualify for the First-time Homebuyer Credit.

Visits. During the 2010 tax filing season, IRS representatives will visit thousands of tax return preparers who received these letter to discuss many of the issues described above. This is part of a broader effort to insure that tax preparers are assisting taxpayers appropriately. Among the other steps planned for this tax season by the IRS are visits to return preparers by IRS agents posing as a taxpayer.

Major Changes Coming for Future Filing Seasons. Based on a series of public meetings held in 2009 to review paid preparer oversight and on over 500 comments received by the IRS, the IRS has issued an outline of a number of steps that it plans to implement for future filing seasons. These steps will not be in effect for the current 2010 filing season. These IRS plans are summarized below.

Registration: The IRS intends to require individuals who are required to sign a federal tax return as paid return preparer to register with the IRS and pay a user fee. Registration renewals and user fee payments would be required every three years. Registration and PTIN requirements would not apply to volunteer or other uncompensated preparers.
Competency Testing: Paid tax return preparers who are not attorneys, certified public accountants or enrolled agents will have to take a competency test. To avoid business interruption for existing preparers and clients, a transition rule would give existing preparers approximately three years to meet the competency testing requirement. The IRS does not intend to “grandfather” any tax return preparer from the testing requirement based on return preparation experience.
Continuing Education: Paid preparers who are not attorneys, certified public accountants, enrolled agents, enrolled actuaries, or enrolled retirement plan agents would be required to complete 15 hours of continuing education annually.
Public Database: The IRS will develop a searchable database of tax return preparers that have registered and passed the competency examination. This will allow the public to see whether a preparer has taken appropriate tests and has registered with the IRS.
Compliance Checks: The IRS plans to require all signing paid tax return preparers be subject to verification of personal and business tax compliance every three years. For those individuals who are registered and have a PTIN, the IRS intends to refer potential tax compliance violations discovered at renewal to the IRS Office of Professional Responsibility for investigation and possible disciplinary sanctions.
Ethical Standards: The IRS recommends making all signing and non-signing tax return preparers subject to the provisions of Treasury Department Circular 230, which will make them subject to discipline for unethical and unprofessional conduct. The authority granted to those individuals who either do not have professional licenses or and who are not enrolled agents, enrolled actuaries or enrolled retirement plan agents will be limited to preparing tax returns and representing their clients as currently permitted during the examination of any return prepared by that tax return preparer.

When will these recommendations be effective? None of the recommendations are effective for the immediate filing season. Proposed and final regulations are necessary for implementation of many of these recommendations, and further information will be available as these are developed. However, the IRS will immediately increase its education and enforcement presence in the return preparer community this filing season.

You can download a pdf file containing both IRS announcements by clicking on the following button: