Are You In Noncompliance With IRS Regulations?

About 1 out of every 8 of the nation’s professional tax return preparers
failed to comply with new regulations for 2011, according to data
released by the IRS.  Shame on them!  Didn’t their mommas teach them any better?

The IRS has announced that approximately 100,000 paid preparers
prepared federal tax returns in 2011 without being properly registered. About
712,2000 paid preparers did register properly with the IRS and obtain a new
Preparer Tax Identification Number (PTIN).

Improved oversight of paid preparers has been a goal of the IRS for some time
now. In 2009, the IRS publicly broached the idea of certifying tax
professionals resulting in a flurry of debates on the issue. The following
year, the IRS proposed amendments to existing rules which included
registration and continuing education requirements. The rules were made final in
fall of 2010 and the new PTIN online registration system opened for business.

As would be expected, online registration did not go smoothly in the early
stages. Typical of any mult-layered, bureaucratic organization, the right hand wasn’t aware of what the left hand was doing.  Bounced emails, error messages and lost PTINs were just some of the problems that plagued those trying to register.  In some cases, preparers could not access the system for days at a time. By January 2011 – firmly the start of tax season for most paid preparers – the IRS appeared to have eliminated most of the technical glitches and offered additional guidance regarding exams, education and exceptions.

There are exceptions to every rule and the tax professional world is no different than anywhere else.  More or less, anyone who is paid to prepare a tax return must be registered with the IRS and meet certain minimum requirements.  The requirements include passing a competency exam and maintaining 15 hours of annual continuing education.  Attorneys, Enrolled Agents and CPAs are exempt both from the competency exam and the mandatory continuing education requirements on the grounds that their respective professions already have high standards.  As far as the IRS Competency Exam goes, this exception makes sense because all three individuals have to pass rigorous examinations to begin with (attorneys must pass the bar exam, CPAs must pass the CPA exam, and Enrolled Agents have to pass a three-part Special Enrollement Examination).  All three professions also require a considerable amount of continuing education hours in order to retain their licenses.  Duplicating those efforts every year would be inefficient and costly.

However, a couple of points to ponder are that the Bar Exam for attorneys is not tax-specific and the continuing education requirements for them do not mandate any kind of tax law.  The Bar Exam may have some essay questions that focus on tax law, but then again, it may not.  Also, an attorney could, in fact, attend 15 hours of criminal law continuing education hours in order to meet their own state’s requirements and still be exempt from the IRS requirements without a lick of tax law.  Is that fair?  You be the judge!

The game got a little more interesting when the IRS announced that certain tax preparers who will not be signing returns would also be exempt from the exam and the continuing education requirements.  If you’re trying to figure out who that might apply to, let me help you out:   The Big 3 (and we don’t mean the old players in the auto industry).  Those exemptions are meant to give H&R Block,  Jackson-Hewitt, & Liberty Tax an out for their employees. For their part, many of those companies argued that their own standards, including exams and education, were much more stringent than those proposed by the IRS. The IRS agreed and exempted preparers who are 18 years old or older and both employed and supervised by a CPA, attorney, enrolled agent or other Circular 230 practitioner who actually signs the tax returns.

As with attorneys, Enrolled Agents and CPAs, a non-signing preparer must still obtain a PTIN. The IRS requires all individuals who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax to have a PTIN.

To try and bolster compliance, the IRS plans to send warning letters to those preparers who prepared returns in 2011 but failed to follow new requirements. The purpose of the letters is to sternly explain the new oversight program, inform preparers of how to register for a new PTIN, or renew an old PTIN, and where to get assistance.

Are you in compliance or is the big, bad wolf going to have to come and blow your house down?

The Tax Preparer Study Guide is now available. You will find information on how to order here.