Thursday, May 6, 2010

Sign Me Up, Boys!

In January the IRS announced their tax preparer initiative that will require some 1.2 million (that’s the IRS’s estimate) unenrolled tax preparers to successfully complete competency testing and mandatory continuing professional education. Attorneys, CPAs and enrolled agents will be exempted from the competency testing.

So is such a program really needed? Evidentially the answer is YES. On April 8, 2010 the Feds charged 26 New York tax preparers with allegedly filing some 35,000 suspected fraudulent income tax returns. Generally here is what they are proposing:

1. All paid signing preparers, regardless of their license, must register with the IRS and obtain a preparer tax identification number (PTIN). Note: the IRS will charge a fee for registration and renewal. The amount is yet to be determined. Tentative introduction of the program for registration is September 1, 2010.

2. Unenrolled preparers will be required to complete competency testing and mandatory continuing education. No one will be grandfathered in so an unenrolled preparer’s work experience will not exempt them from taking the tests.

3. There will be at least two tests; one on wages and non-business 1040 preparation and one on wages and small business preparation.

4. Existing preparers will have approximately three years to pass the competency testing requirement. Passing the exam is similar to the CPA exam in that you only need to pass the exam once.

5. Once a preparer passes the exam they will be required to obtain 15 hours of continuing professional education annually. The training must me composed of three hours of federal tax law update, two hours of ethics and 10 hours of other income tax related topics.

6. All tax return preparers will be required to comply with Circular 230 ethics requirements relating to practice standards that every tax professional must follow if they want to represent clients before the IRS.

There are still a lot of unanswered questions that will have to be addressed before we really know what is going to be required by the initiative but it is obvious that the IRS is determined to reduce the amount of fraudulent returns that are filed each year so stay tuned.

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