Prior to 2011, the IRS did not specifically require tax preparers to be certified in order to charge a fee to prepare tax returns. Oregon and California were alone in requiring licensure for their in-state preparers. That all changed this year, and we have yet to see exactly how it will shake out and affect the public at large.
Why are Tax Preparers being regulated now? Without getting in to the political or philosophical debate, basically the IRS found that not all paid preparers were thoroughly trained, acting ethically, keeping records as required, or doing as good a job as you would hope with preparing people’s tax returns. And not all paid preparers were using a PTIN on their prepared returns. This made it hard for the IRS to reliably track which preparers were doing a better or worse job than others.
For some folks (myself as an attorney included), this change will not make any difference in how we practice, what certifications we carry, how we deal with clients, or what we have to do to continue to prepare taxes and work with taxes and with the IRS. Those folks are the same folks who are generally exempted from special licensure with the IRS: Attorneys, CPAs, and Enrolled Agents. These folks have (at least presumably) more experience and more qualifications to deal with tax situations than the average tax preparer. These are the same folks who are able to deal with the IRS on most tax matters, without special permissions, and who are bound by the IRS Circular 230 on “Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers before the Internal Revenue Service”. Of course, anyone who deals with the IRS on any issue for any reason should become familiar with Circular 230. Live it, love it, and get over it. It is a slog to get through, and very much in legalese, but it is the defining rules for who can talk to the IRS, about what, when, how, and why. It also covers the expectations of a tax professional in dealing with both the IRS and with clients. In short- be truthful, don’t hide assets, respond timely, and support your requests with documentation.
For other folks, especially those who may be seasonal tax preparers, these changes may mean the difference between having a job next tax season or not. As the IRS announces new information on the tax preparer licensure and testing, it will likely show up on the IRS website for Tax Professionals. But really this means that there will be an extra step before new preparers can find jobs with tax preparations firms or hang out their shingles. We don’t know yet whether this will really impact the tax preparation industry or the availability of tax preparers to the public come the 2011 filing season. Personally, I think it means that prices may go up on professionally prepared tax returns, and that folks with an active PTIN will be more in demand, since the pool will be smaller, at least initially. That might hurt lower income families.
Oregon and California still plan on maintaining their state licensure requirements. The Oregon Board of Tax Practitioners describes the 2 types of licenses: a Licensed Tax Preparer and a Licensed Tax Consultant, with the Licensed Tax Preparer requiring at least an 80 hour basic tax course and passing an exam. The California Tax Education Council (CTEC) licenses in California, and requires: a 60 hour tax course, 20 hours of yearly continuing education, and the maintenance of a $5,000 preparer bond. Preparers in these states will not only have to maintain their state licensure, but will also have to meet the IRS requirements.
In short, tax preparers who charge a fee to prepare returns have to have a PTIN (Preparer Tax Identification Number). You now have the privilege of paying $64.25 per year for this, though the IRS assures us that only $50 goes to them and the rest goes to the credit card processor. If you already have an active PTIN, as long as you keep paying for it, you keep the same number. If you need to get certified and already had a PTIN before the competency test is available you have until the end of 2013 to pass the test. If you wait until after the IRS rolls out the competency test, you have to pass the test BEFORE you can get your PTIN. The word we got at the end of last year was that the IRS was planning on having the tests ready by June 2011, but that is now pushed back to “approximately October 2011” per the IRS. All paid return preparers will also have to complete 15 annual hours of Continuing Professional Education. And remember that as of 2011, paid preparers are almost all required to e-file tax returns, which requires obtaining e-file from the IRS. This is different than getting a PTIN. Each person in an office has to have their own PTIN. The owner or manager of an office can have the e-file authorization for everyone who they supervise.
If you are thinking of becoming a tax preparer, you will now likely need to find some class or training program so that you can review to pass the IRS exam. A variety of options are available, including online courses, such as The Income Tax School or the Tax Preparer Study Guide. Since this is all new, I can’t vouch for any particular program. Having both taken and taught the CTEC 60 hour basic tax preparation course in California, my suggestion would be to find a comprehensive program that covers all the schedules, especially A (Itemized Deductions) and C (Self Employment), take the most complete IRS test you can successfully pass, and start work as a paid and licensed/certified tax preparer. Preferably find someone who can mentor you in that first season or two. Do not expect to know everything by having taken a 60 hour course. It takes a lot of return preparation and a lot of researching the oddball situations before any tax preparer can handle anything. I still end up doing a lot of research whenever I don’t know off the top of my head how to complete the return. As do most of the professionals I know.
I guess we will see over the next year or so if regulation of tax professionals is a good thing for the industry. Regardless, I don’t see it going away, so hopefully, if it doesn’t work out well, the IRS will be savvy enough to make some changes.