IRS Preparer Competency Exam | Who, Why, and When?

Why is the tax return preparer competency test required?

The IRS Income Tax Preparer Competency Exam came about after the IRS conducted a Return Preparer Review which was published in December 2009. The review, found here, was the result of a dialogue between the Internal Revenue Service and interested parties including professional industry groups, consumer advocates, IRS advisory groups, tax software vendors, and according to the IRS, income tax return preparers of all types.

The recommendation for a preparer competency exam was only a part of the plan to increase over-site of tax return preparers. The Internal Revenue Service is also requiring electronic registration of all paid tax preparers under an expanded PTIN program, increasing compliance checks and bringing paid tax preparers under the same US Treasury ethical standards that IRS employees and other tax return professionals are held to currently. (Treasury Department Circular 230)

Who will have to take the Preparer Competency Exam?

Final regulations are still pending, but the IRS has signaled their intent to test all paid income tax preparers except:

  • Attorneys
  • Certified Public Accountants
  • Enrolled Agents

Professional CPA groups and associations are lobbying the Internal Revenue Service to also exempt their employees who prepare but do not sign returns.

When will Income Tax Preparer Competency testing begin?

Currently, exams are scheduled to begin in June of 2011 for the Form 1040 series of examinations. There will be two levels of testing:

  • Wage and non-business Form 1040 series
  • Wage and Small Business Form 1040 series

There has also been discussion of a third level of testing which would cover Business Tax Preparation, but apparently that will not happen until the first two categories of competency testing are fully implemented.