Monday, October 4, 2010

New Registration Requirements for Tax Return Preparers

The Department of the Treasury has recently announced that its new registration system is up and running. The IRS will now require everyone that prepares “all or substantially all” of a tax return to register with the IRS and receive a Preparer Tax Identification Number (“PTIN”).

The requirement is part of a broad ethics reform that has taken place over the last 10 years amidst such accounting scandals as Enron and Worldcom. In 2005, the reforms amended the ethics rules governing tax practice before the IRS (known as Circular 230). The revisions to the ethics rules at that time principally affected the tax profession and the impact on most other people was that they now saw a “Circular 230 Disclosure” attached to any email from an accountant or tax lawyer. The new rules will again principally affect the tax profession but the impact could be much broader.

The new rules require that anyone that is paid for preparing "all or substantially all" of a tax return must register for a PTIN. The requirement that any tax return preparer register and obtain a PTIN may catch a large group by surprise including:

• Staff accountants working for accounting firms who prepare returns but do not sign or have ultimate responsibility for what the returns say.

• Paralegals working for attorneys that have as a part of their job requirements the preparation of tax returns.

• Interns or seasonal employees hired by accountants to help complete tax returns before the April 15th due dates.

• The friendly neighbor that prepares your tax return for a few dollars.

Understandably the accounting profession is somewhat troubled by these requirements. It is their position that only those accountants that sign the tax returns (and thereby take responsibility for what the return says) should have to register. A rule that only required signing preparers to register would appear to achieve the IRS’ goal of encouraging ethical return preparation. So far, however, the government has refused to modify the rule.

There is an economic component to this registration requirement as well. The annual fee for registering is $64.25. Of this amount $50 will go to the IRS for technology, compliance and outreach. With an estimated 600,000 registering this will result in an astounding $30,000,000 outreach program.

Even more controversial is whether these staff accountants, paralegals, etc. will be subject to the competency testing and continuing education requirements on which the IRS is busily drafting rules. We’ll have to stay tuned to see exactly how this part ends up playing out.

Registration and additional information is available online at

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