PTIN News

A PTIN is a Preparer Tax Identification Number. Paid preparers of most federal returns must have one and include it on the return along with their signature in order to avoid penalties. The IRS can use the PTIN to track returns prepared by particular individuals (years ago they had to use the preparer's SSN). PTINs are part of a system rolled out in 2010 where the IRS planned to regulate all preparers of individual returns and a few others. The system was found contrary to Section 330 of Title 31. Basically, the IRS can't regulate preparers who do not represent clients before the IRS and preparing a return is not considered representation before the IRS. [IRS categories of preparers - here]

Recent news:

1. The annual fee to obtain or renew a PTIN has been reduced from $50 to $33 starting on September 9, 2016. This likely presents the fact that the IRS doesn't need as much money if it won't be regulating about half of preparers - the roughly 350,000 preparers who are not an attorney, Enrolled Agent or CPA.  [TD 9781 (8/10/16) + IRS preparer stats]
2. Preparers need to protect their PTIN. On August 11, the IRS alerted people of phishing schemes where someone pretending to be from a tax software company, aiming to get the preparer's PTIN. [IR-2016-103]

More work is needed by the IRS and Congress to get all paid return preparers subject to rules of conduct (beyond penalty provisions of the law). I think that is what most taxpayers expect. The law is complex, even for Form 1040EZ. Preparers need to keep up to date with changes (there were over 120 statutory changes in 2015!).   How this is to be done remains a topic of discussion.

What do you think?

Directory of preparers and Annual Filing Season Program (AFSP)

Source: 2014 National Taxpayer Advocate report

Remember back in 2010, the IRS rolled out its plan to regulate all return preparers. Those who were not a CPA, attorney, Enrolled Agent or non-signing/supervised preparer would have to pass a test and complete continuing education from IRS approved providers. That plan though was shot down in the DC Circuit in the Loving decision (click here for IRS response). The IRS even had to reinstate some practitioners it had previously suspended from practice because these individuals were only preparing returns (they were not otherwise representing taxpayers before the IRS).

The court found that Title 31 of the US Code, Section 330, did not give IRS authority to regulate preparers who did not "represent" taxpayers before the IRS. So, one solution would be for Congress to modify Section 330. There are proposals, but no action yet. In fact, Senator Wyden introduced a proposal in January 2015 - the Taxpayer Protection and Preparer Proficiency Act of 2015 (S. 137).

Soon after the loss in Loving, the IRS announced a voluntary system called the Annual Filing Season Program.  Individuals need 18 hours of continuing education from IRS approved providers including 6 hours of tax updates that include items specified by the IRS. The 6 hours must include passing a 100 question exam created by the provider. Individuals who passed the Registered Tax Return Preparer (RTRP) exam before the IRS had to shut it down, as well as preparers regulated by California, Maryland or Oregon, were exempt from the exam and 6-hour refresher course, but had to complete 15 hours of continuing education from IRS approved providers, to obtain the AFSP.

What are the benefits of obtaining the AFSP Record of Completion?  The IRS will include you in a searchable database, just released 2/5/15 (it also lists CPAs, attorneys and Enrolled Agents who have a PTIN). The IRS will also promote this designation to the public (along with other designations). The AFSP folks must also agree to be subject to Circular 230 which also enables them to represent clients before the IRS in an examination if they prepared the return (they may not represent a client in a collections or appeals matters) (click here for more details).

Well, how many preparers signed up for the AFSP?  Per recently released IRS stats, 42,179!  That's a lot, but the total population of preparers who are not CPAs, attorneys, or Enrolled Agents is just over 300,000 (so about 14% signed up).

I used the database to see that within 5 miles of my home, there are this many individuals with a PTIN:

• 170 AFSPs (a few are also Enrolled Agents)
  
• 882 CPAs (likely because I'm within 5 miles of downtown San Jose)
  
• 108 attorneys
  
• 353 Enrolled Agents

The database doesn't link me to the preparer. A web search is needed to find the person (or perhaps they are in the phonebook!).

Is this voluntary system a good idea?  Well, 18 hours of continuing education including 6 hours on new law, is a good idea. In comparison, California CPAs need to have 80 hours every two years. It is not unusual to find tax update courses that are 8 to 16 hours long. I co-teach such a course for CalCPA (16 hours) and we can't delve too deeply into everything in that time allotment, so 6 hours is a bit short. Also, agreeing to be subject to the rules of conduct under Circular 230 is a good thing. It means that these preparers are not worried about being subject to extra rules of competence, due diligence and more.

I think the IRS should be allowed to do more. The tax law becomes more complex every year. This current filing season (for 2014 returns) will be one of the more complex due to individuals dealing with two new complex Affordable Care Act provisions (the Premium Tax Credit and the Individual Shared Responsibility Payment). Individuals should have some level of assurance that the person they hire to prepare their return knows something about the tax law, compliance and current issues and rules.

What do you think?

Additional links from the IRS:

IR-2014-75, June 26, 2014 -- New IRS Filing Season Program Unveiled for Tax Return Preparers

FS-2014-8, IRS Unveils Filing Season Program for Tax Return Preparers, Answers Frequently Asked Questions

Revenue Procedure 2014-42

More from Professor Nellen:

• http://www.21stcenturytaxation.com/Federal.html#Compliance

 

 

 

Can IRS Regulate All Return Preparers?

That's the question that was before the Circuit Court of Appeals in DC a few weeks ago in the IRS appeal of the Loving decision. I think both parties made some good arguments for why the 1884 law the IRS used to expand its regulatory reach is and is not suitable or intended for the broader reach.  A lot has changed in the tax preparation world since 1884!  I'm guessing that the preparers will win again on appeal, but that Congress will enact legislation to make it clear the IRS and Treasury have authority to regulate all paid preparers of federal tax returns.

I've got a short article in today's AICPA Tax Insider with more details (and links) on what is going on - I hope you'll take a look and post a comment here on what you think about these events.  Thank you.

Tax scams and how is our complex and odd tax system partly to blame

On March 2, 2012, the IRS issued a news release warning people about various tax scams including one that tells people they are entitled to an education credit for the taxes paid on groceries (IR-2012-29). Some scammers are apparently using the refundable portion of the American Opportunity Tax Credit to get refunds for people who are not incurring any college costs. Some are promising stimulus payments. Scammers often get the fee from the client and then skip town.

Should taxpayers know better?  Of course. If something sounds too good to be true, it probably is.  Is it difficult to tell fact from fiction with respect to provisions of our federal tax system?  Yes, I think it often is. In 2009 when we had Economic Recovery Payments and recovery rebate credits, didn't that sound too good to be true?  The government was going to give you money?  We are still in an economic downturn. Should someone who received an economic stimulus payment a few years ago be surprised if someone tells them they can get another one? I don't think so?

If someone has claimed a $1,000 child credit or $2.500 America Opportunity Tax Credit (even if their income is too high to qualify for needs based scholarships), should they be surprised that the government wants to give them even more money?

But what about getting a college tax credit for paying taxes on groceries?  Only 7 states even impose a tax on groceries (FTA). Even in those states, that one seems a bit of a stretch. The IRS news release suggests people read a website about education tax benefits (it is 3,600 words long!) and at the end refers to a few other links including to Publication 970 which is almost 100 pages long.  Is the average taxpayer supposed to understand all of this?  Complexity like this creates a breeding ground for scammers.

The IRS offers these tips to all taxpayers:

"To avoid becoming ensnared in this scheme, the IRS says taxpayers should beware of any of the following:

• Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
• Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
• Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
• Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or for economic stimulus payments. 
• Unsolicited offers to prepare a return and split the refund. 
• Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area."

Will the new paid return preparer oversight program help?  I don't think so. If someone wants to break the law, they will continue to do so and either not sign the returns they prepare or use a bogus name and PTIN.

Scammers will only become less of an issue when;

• The tax law is simpler so more people can understand it without having to read a 100 page publication that is only about higher education expenses.
• The tax law is not used for economic recovery payments. When people get "free money" from IRS or Treasury, why not just tell yourself anything is possible in our tax law?
• Greater taxpayer education that needs to start in high school. Students should learn about local, state and federal taxes - why these jurisdictions have taxes, types of taxes, basic tax concepts, how to prepare a state and federal income tax return by hand and with software, how to get information, how to get qualified help, etc.
• The IRS needs to have a website where people can go and phone numbers people can call to verify someone's name and PTIN (sounds like a photo would also be a good idea - perhaps for a future PTIN renewal requirement).
• Individuals need to be subject to a fine if they file a return for which they paid someone to prepare but that person does not sign it and put their PTIN on it.

What do you think?

The Competent Tax Return Preparer

I've been intrigued by a few aspects of the new IRS system to regulate all paid return preparers. In particular, what types of questions are they going to ask of preparers who are not CPAs, attorneys or Enrolled Agents (that is, they are not exempt from testing)? It would seem that the tests should be shorter and/or simpler than the tests (otherwise, why not make everyone become an EA)?

In the famous "10,000 letters" campaign the IRS started in the 2010 filing season - where they mail letters to some preparers reminding them of how to fulfil their preparer obligations and let them know they may get a visit from the IRS, the IRS says preparers should know substantive law. Yet, in describing the tests they just give the form numbers to be covered. So, do they expect that all preparers have access to the Internal Revenue Code and other primary authority and how to use it? Or is use of IRS publications and form instructions sufficient?

I've got a short article on this topic in the 3/10/11 AICPA Tax Insider - here. I hope you take a look and post here your ideas about the testing. Here a few of the questions I suggest they ask:

• How did you prepare to become a tax-return preparer?
• How do you find answers to tax questions?
• How do you access substantive law?
• What tax-preparation software do you use? If none, explain why.
• What is the review process for the returns you prepare?

What do you think?