Three Things to Do Now to Prepare for New IRS Regulations
In tax year 2010, the IRS will begin implementing new regulations for paid tax return preparers who prepare all, or substantially all of a federal tax return. Preparers will be required to register with the IRS, pass testing, complete continuing education and e-file if filing more than 100 individual federal returns.
The IRS will implement the registration, testing and continuing education changes over three years, with a shorter phase-in period for e-filing.
The measures are intended to help protect taxpayers from incompetent and unethical preparers, promote greater tax law compliance and increase confidence in the tax system.
Summary of requirements
Registration. All paid tax return preparers will be required to register with the IRS, pay a registration fee and obtain a preparer tax identification number (PTIN) before January 1, 2011. If you already have a PTIN, you will still be required to register in order to revalidate your PTIN. Your PTIN will be required on all returns or claims for refund filed after December 31, 2010. If you are initially denied a PTIN, your application may be reconsidered by the IRS. Registration renewals and user fee payments will be required every 3 years. The fee will include a $50 non-refundable application fee to cover IRS costs of administering the PTIN application process.
Testing. All paid tax return preparers except attorneys, certified public accountants and enrolled agents must pass a competency exam for either: 1) wage and non-business Form 1040 series or 2) wage and small business form 1040 series. A third test for business series will eventually be added. The IRS will create a searchable, public database of all preparers who have registered and passed the exam. Preparers who register before the exams are available will have approximately three years to pass, while new and unregistered preparers will be required to pass the test before registering and obtaining a PTIN.
Continuing education. All paid tax return preparers except attorneys, CPAs and enrolled agents must complete 15 hours of continuing professional education per year, consisting of federal tax law updates, tax ethics and other federal tax law topics. Preparers will confirm completion during registration renewal.
Follow up. All preparers will undergo tax compliance checks every 3 years.
Circular 230 ethics standards. Currently, only attorneys, CPAs and enrolled agents practice these rules. The standards will be extended to all preparers.
E-filing. The Worker, Home ownership, and Business Assistance Act of 2009 included a federal e-filing mandate. Starting in the 2010 tax year, preparers must e-file if filing more than 100 individual federal returns per calendar year. The threshold will lower to 10 for tax year 2011.
What action should you take now?
- Obtain a PTIN if you don't already have one. You'll still be required to register after the IRS creates an online PTIN registration system. Apply for a PTIN by either using the IRS' e-Services – Online Tools for Tax Professionals or by mailing Form W-7P, Application for Preparer Tax Identification Number. Online applications processed in 7-14 days versus six weeks by paper.
- Apply for an EFIN if you don't have one already using the IRS' e-Services – Online Tools for Tax Professionals.
- Learn more about the requirements on the following IRS pages:
- Return Preparer Regulations homepage
- Jan. 4, 2010 IRS press release about the new requirements
- Frequently asked questions
- Return Preparer Review recommendations
You can also learn more on TaxACT's New IRS Requirements page.