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- 1. IRS Recommends Increased Oversight of Federal Tax Return Preparers (Presenter name) (Presenter title) (Division or Function) (Date)
- 2. IRS Recommends Increased Oversight of Federal Tax Return Preparers (Presenter name) (Presenter title) (Division or Function) (Date)
- 9. * To avoid disruption of business, existing preparers will be permitted to obtain a PTIN and continue preparing returns during this transition period Once testing is available, new unregistered unenrolled preparers will be required to pass the competency test BEFORE they register, receive a PTIN, and begin preparing returns Testing available Registration begins* PTIN revoked if competency test not passed Year 1 Year 2 Year 3 Testing Timeline for Existing Unenrolled Preparers
- 16. www.irs.gov
- 19. www.irs.gov
Editor's Notes
- (Revised 1/27/10) Note to presenter: use this slide with background graphics as your title slide when projecting your presentation onto a screen. Hide the title slide that appears next, without the background. _____________ Today I am discussing the IRS’s recommendations for increased oversight of paid federal tax return preparers. Before many of the recommendations can be implemented, regulations must be issued and published. Over the next few months, the IRS will be following the administrative procedures for issuing regulations, including the statutorily required notice and comment period for the regulations. However, because these recommendations will have a significant effect on return preparers, we believe it is important to begin our outreach now.
- Note to presenter: when printing in black and white, hide the slide with the graphics background and use this one as your cover slide. When projecting your presentation onto a screen, hide this one and unhide the title slide featuring the background. ____ Today I am discussing the IRS’s recommendations for increased oversight of paid federal tax return preparers. Before many of the recommendations can be implemented, regulations must be issued and published. Over the next few months, the IRS will be following the administrative procedures for issuing regulations, including the statutorily required notice and comment period for the regulations. However, because these recommendations will have a significant effect on return preparers, we believe it is important to begin our outreach now.
- What led up to these recommendations? The recommendations are the result of an open review conducted by the IRS during the last half of 2009. During the review, we conducted three public forums and received more than 1,000 comments from organizations, individual preparers, taxpayers, and employees. Information about the review findings is available in the IRS Return Preparer Review Final Report (posted on IRS.gov). Why did the IRS commissioner launch the review last year? Several reasons: The IRS Strategic Plan for 2009-2013 contained two objectives related to preparers: Strengthen partnerships with tax practitioners, tax preparers and other third parties in order to ensure effective tax administration Ensure that all tax practitioners, tax preparers and other third parties in the tax system adhere to professional standards and follow the law In addition, various groups previously had called for increased oversight of return preparers. GAO and TIGTA had both conducted studies and made recommendations. The National Taxpayer Advocate has raised the issue since 2002. The IRS Advisory Council (IRSAC) has expressed concerns. The IRS Oversight Board has sponsored a public meeting on the issue. And legislative remedies have been proposed. Interest in the issue of preparer oversight has been growing for years, along with the rate at which taxpayers use preparers. For tax year 2007, 86% of individual returns were prepared either by paid preparers or by tax preparation software.
- The report includes recommendations that would apply to all individuals who prepare ANY federal tax return for compensation, but many of the recommendations that I am explaining today would apply only to SIGNING paid preparers. The recommendations would not apply to uncompensated preparers, such as volunteers. IRS guidelines already exist for volunteers through the IRS VITA and TCE programs. The recommendations would apply to all paid preparers regardless of the type of returns they prepare . For example, these recommendations would apply to persons who only prepare only federal payroll or estate or excise returns.
- Here are four recommendations from the report that will affect return preparers significantly. Before I begin an explanation of each one, please note that NONE of these recommendations are effective for the immediate filing season that began 1/4/2010. Registration, user fee, and Preparer Tax Identification Number (PTIN) usage requirements for all signing paid preparers. (Intended as the first phase to be implemented. The target start date is January 2011 for mandatory registration and PTIN usage, but many factors will impact this. When a final determination is made on the date, the IRS will ensure it is widely publicized.) Competency testing for signing paid preparers who are not attorneys, certified public accountants, or enrolled agents Continuing education requirements of 15 hours per year for signing paid preparers who are not attorneys, certified public accountants, enrolled agents, enrolled actuaries, or enrolled retirement plan agents Tax compliance verification of all signing paid preparers I will explain each in detail, but pay special attention to the words in bold and italics . Note that the first and last item are applicable to ALL signing paid preparers and the second and third would generally would apply only to those individuals who we usually refer to as unlicensed or unenrolled return preparers.
- Almost 90 percent of persons expressing an opinion on registration favored registering all paid tax return preparers. This recommendation would apply to all signing paid preparers including those who are attorneys, certified public accountants, enrolled agents, or unlicensed/unenrolled. All signing paid preparers would register and receive a PTIN which they would use on all returns they prepare. The existing choice of using a Social Security number in the Paid Preparer section of the return would no longer be an option. Individuals who already have a PTIN still must register but they will be reissued the same PTIN. The amount of the proposed user fee has not been finalized. The proposed registration process would be online, similar to the existing PTIN application but with additional data gathered such as professional certifications and additional contact information. The IRS target for launching an online registration system is September 1, 2010, but many factors will impact the actual availability date of online registration. When a final determination is made on the date, the IRS will ensure it is widely publicized. Why are these recommendations in the best interest of taxpayers, tax administration, and the return preparer industry? Registration of all signing paid tax return preparers will enable the IRS to collect more accurate data. Registration also will help the IRS provide better service to the tax return preparer community and taxpayers generally. For example, the IRS will be able to track the number of persons who prepare and sign returns, the qualifications of those who are preparing returns, and the number of returns each person prepares. The IRS will also be able to send targeted updates to those tax return preparers who have clients that are most likely to be impacted by significant or late changes in the tax laws or IRS procedures. Additionally, registration will make it easier for the IRS to locate and review the returns prepared by a tax return preparer when instances of misconduct are detected.
- Currently anyone can prepare tax returns for a fee, regardless of their training. Several studies reveal that a number of return preparers do not always prepare accurate returns. (See “Tax Return Preparer Compliance Studies” in the Final Report.) Most public comments favored competency examinations for preparers, but there was a range on opinions on who should be tested. The IRS is recommending competency testing for tax return preparers who are not attorneys, certified public accountants, or enrolled agents. The IRS will consider expanding testing to those individuals in the future if data is collected that identifies a need for this testing.
- The individuals subject to testing would need to register and begin the mandatory use of a PTIN at the same time it becomes effective for all signing preparers, but they would have three years to pass the test once testing has begun. This transition period is to prevent business interruption for existing preparers and clients. After completion of the initial registration period and the first test is offered, NEW unenrolled preparers would be required to pass the competency test PRIOR to registering and receiving a PTIN. (Scenario/timeline on next slide) Individuals who pass one of the IRS competency exams would be permitted to prepare and sign tax returns as a paid return preparer. Tax return preparers who pass the return prepare competency examination would have limited representation rights. They would be able to represent taxpayers in Examination cases and only if they prepared the return under review. This is the same representational authority that an unenrolled preparer currently has. The enrolled agent testing and designation will still be available. Enrolled Agents would continue to prepare and sign returns and to represent taxpayers in Examination, Collection and Appeals cases. Individuals who are enrolled retirement plan agents or enrolled actuaries would need to take the competency test only if they intend to prepare and sign Form 1040 series returns for compensation.
- It is anticipated that registration would likely begin before testing is available. If so, unenrolled, signing return preparers would need to go ahead and register with the IRS, pay the required user fee, and obtain a PTIN. Once testing becomes available, these individuals would have three years to pass the competency test. They would be permitted to continue signing returns as a paid tax return preparer during this transition period as long as they have registered and obtained a PTIN. Once testing becomes available, any new unenrolled unregistered preparers would be required to pass the competency test BEFORE they register, receive a PTIN, and begin preparing returns.
- Licensing bodies in many professional fields impose continuing education requirements on members. The purpose of the requirements is to encourage the professionals to stay up to date on new developments, as well as expand their knowledge base in their field of expertise. Most who contributed public comments supported continuing education requirements for tax return preparers who were not already required to complete continuing education. The IRS agrees that all tax return preparers have an obligation to stay current on the tax laws and, therefore, is recommending that unenrolled return preparers complete 15 hours of continuing professional education (CPE) annually. Of the 15 hours of continuing professional education, the IRS recommends that three hours cover federal tax law updates, two hours cover ethics, and 10 hours cover general federal tax law topics. Preparers who are not attorneys, CPAs, EAs, enrolled retirement plan agents, or enrolled actuaries would be required to self-certify completion of the required CPE when they renew their IRS preparer registration online every three years. The IRS will perform random verification by asking a sample of them to provide documentation.
- A tax compliance check is not an audit, but a limited review of the preparer’s filing and payment compliance history to determine if the preparer has filed his or her federal personal and business tax returns and that the tax due on those returns has been paid or the tax return preparer has reached an acceptable agreement with the IRS to satisfy any outstanding balances. The IRS believes that all individuals who are advising and assisting others in tax return preparation should be compliant with their own tax obligations. During the initial registration period, the IRS does not intend to conduct tax compliance checks as a condition of registration. But the checks will be conducted after registration and before renewal time. Opportunities to explain or resolve potential violations would be made available to preparers as well as an appeals process. Eventually, the intention is that new preparers would be required to be in compliance with their tax obligations prior to being issued a PTIN.
- The tax compliance checks will be conducted on all paid signing preparers, not just a sample, and will be done initially and then again periodically.
- There are other IRS recommendations in the commissioner’s report: Apply Circular 230 ethical standards to all signing and nonsigning paid preparers – Like the four major recommendations I discussed previously, this recommendation will require administrative action. IRS will be working with Treasury to amend Circular 230 to incorporate this recommendation which would result in preparers we currently refer to as unenrolled being subject to Circular 230, including the duties and restrictions relating to practice in subpart B of Circular 230. The other four recommendations do not require regulations: Develop a comprehensive return preparer enforcement strategy – Beginning this filing season, the IRS is increasing the number of due diligence visits and “knock and talks” to preparers. After the new recommendations are finalized, the IRS will be developing a comprehensive strategy to identify and address individuals who fail to comply with the new IRS paid preparer requirements. The strategy would include: Establishing new policy guidance for Exam and Collection that applies significant audit and collection resources to focus on preparer tax compliance Enhancing both traditional enforcement efforts and policies as well as incorporating alternative intervention, i.e. soft notices, shopping visits, and enhanced use of injunctive action on preparers Strengthening the relationships and coordination between OPR, Exam, and Collection relating to overall tax preparer compliance issues and the complaint process Develop a public awareness campaign to educate taxpayers, preparers, and employees on the new requirements and standards – This presentation is part of what will be extensive outreach efforts. Right now we are focusing on educating return preparers about how they will be impacted by these recommendations. This will be an ongoing effort with many phases. Create a 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.
- Establish an IRS task force that seeks the input of the software industry to address identified risks on software dependence and the possibility of establishing industry standards – Taxpayers self-prepared and electronically filed 32 million tax returns using consumer tax preparation software during the 2009 filing season. Preparers used commercial software to prepare an additional 61.8 million returns. Despite large volumes of returns prepared using consumer and commercial tax preparation software, quality control over these products rests exclusively with the software publishers. These software packages are tested by the IRS for transmission suitability (i.e. does the software interact appropriately with IRS systems to enable the electronic filing of the return). There is, however, no direct evaluation of software packages for accuracy or usability. Convene a working group to review the refund settlement product industry and explore opportunities to improve efficiency of refund delivery – An estimated 20.5 million taxpayers purchase products that provide them quicker access to the amount of their expected tax refunds. Many of those who commented expressed concern about these products (i.e., refund anticipation loans, refund anticipation checks). The concerns are, the taxpayers who elect these products have an average income considerably lower than that of other taxpayers, and have a significantly higher incidence of receiving the earned income tax credit. Consumer advocacy groups suggest that taxpayers who purchase these products may not comprehend the true costs of the product (which vary widely – anywhere from 36 to 500 percent in a GAO study). Although no action is proposed immediately, the IRS will analyze the issue of refund settlement products more thoroughly. The IRS will perform additional research to understand the refund settlement product industry, the various participants, its interaction with consumers, and possible strategies to protect consumers from any unfair practices that may be discovered. The IRS will assess the effectiveness of the debt indicator program and will consider changes to the program, including its possible elimination. The IRS also will explore additional opportunities to improve the efficiency of refund delivery.
- These recommendations in the report will take several years to fully implement and will not be in effect for the current 2010 tax season. In the meantime, the IRS is taking immediate action to step up efforts for the 2010 filing season. An enhanced outreach effort to help make sure taxpayers choose a reputable preparer is ongoing this filing season. (See Fact Sheet 2010-3) In addition, the IRS is sending letters to 10,000 paid preparers nationwide. These preparers are among those with large volumes of specific tax returns where the IRS typically sees frequent errors. Specifically, the letters will encourage return preparers to: Review pertinent books and records of Schedule C filers. Determine the correct itemized deductions of Schedule A filers. Make sure those who claim dependents and the EITC are entitled to do so. Ask first-time homebuyers the right questions to make sure they qualify for the First Time Homebuyer Credit. The letters will also remind tax return preparers of the consequences of filing incorrect returns. This includes monetary penalties, suspension or expulsion from participation in IRS e-file, civil injunctions barring the return preparer from preparing tax returns and referral for criminal investigation. IRS representatives will visit thousands of tax return preparers who received these letters to discuss many of the issues described. This is part of a broader effort by the IRS to step up its efforts to ensure paid tax return preparers are assisting taxpayers appropriately. Separately, the IRS will be conducting other compliance and education visits with return preparers on a variety of issues. In addition, the IRS will more widely use investigative tools during this filing season aimed at determining tax return preparer non-compliance. One of those tools will include visits to return preparers by IRS agents posing as a taxpayer. Plus, the IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate. Every year, hundreds of criminal investigations are initiated against problem return preparers. In 2009, 124 were sentenced, with the average incarceration rate running 18 months.
- Visit the Tax Professionals page on IRS.gov for the most up-to-date information on the regulations of return preparers. New information will be centralized on this page as regulations are issued, effective dates are determined, and other details are finalized.
- One final topic to share with you…Signed by the President on 11/6/09, the ‘Worker, Homeownership, and Business Assistance Act of 2009’ included an amendment to IRC Section 6011 mandating electronic filing by return preparers who file more than 10 individual or trust returns after 12/31/2010. The statutory language is very brief and leaves many issues that IRS will need to address through regulations. Exact language is: SPECIAL RULE FOR TAX RETURN PREPARERS (A) IN GENERAL.—The Secretary shall require than any individual income tax return prepared by a tax return preparer be filed on magnetic media if— (i) such return is filed by such tax return preparer, and (ii) such tax return preparer is a specified tax return preparer for the calendar year during which such return is filed. (B) SPECIFIED TAX RETURN PREPARER — For purposes of this paragraph, the term ‘specified tax return preparer’ means, with respect to any calendar year, any tax return preparer unless such preparer reasonably expects to file 10 or fewer individual income tax returns during such calendar year. (C) INDIVIDUAL INCOME TAX RETURN.—For purposes of this paragraph, the term ‘individual income tax return’ means any return of the tax imposed by subtitle A on individuals, estates, or trusts. You will note the language does not specify a penalty for violations of the mandate, but an enforcement mechanism will be part of what IRS addresses through regulations. When further guidance is available, it will be widely publicized on the IRS.gov Tax Professionals page and to our partner tax professional organizations.
- In the meantime, if you are not already enrolled to e-file and if you file 10 or more individual or trust returns, you can be preparing for implementation by applying to be an ERO. There is no cost. Whether the rules will apply to you for 2011 or whether the mandate ends up being phased in, there’s no need to wait to become an authorized e-file provider. On IRS.gov, click on the e-file logo. Then on the “Tax Professional” link in the chart “Becoming an Authorized e-file Provider”.
- Here is the specific page where you can find more on how to apply to be an e-file provider. And as more information is available, you will find updates here on the preparer e-file mandate.