WASHINGTON — The Internal Revenue Service today announced that a new online application system for compensated tax return preparers is expected to go live in mid-September. The IRS has proposed to require all individuals who receive compensation for preparing all or substantially all of a federal tax return or claim for refund after Dec. 31, 2010, to have a Preparer Tax Identification Number (PTIN).

Under the proposed regulations, compensated tax return preparers will need to obtain, or reapply for, a PTIN and pay a user fee using this new comprehensive system, which is part of a series of steps planned to increase oversight of federal tax return preparation. Tax return preparers will be creating PTIN accounts with the IRS when they use the new system.

“This is an important first step because it lays the groundwork in our efforts to ensure the quality and integrity of professional tax return preparation, which most taxpayers rely on in one form or another,” said IRS Commissioner Doug Shulman.

Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

Under the proposed regulations, compensated tax return preparers will be required to renew their PTINs annually and pay the associated user fee. The amount of the fee may change in future years as the actual program costs are periodically reevaluated.

Under the proposed regulations, the requirement to sign up on the new system will apply to all compensated tax return preparers of federal tax returns regardless of whether they currently possess a PTIN. Tax return preparers who already have a PTIN generally will be reassigned the same number.  Any individual who plans to prepare all or substantially all of a tax return for compensation must obtain a PTIN even if the individual is not subject to the testing and continuing education requirements that will be required under Circular 230, according to the IRS’ proposed regulation.  Access to the online application system will be through the Tax Professionals page of IRS.gov.

The IRS previously announced its portion of the total annual fee in proposed regulations (REG-139343-08) and interested parties have until Aug. 23, 2010, to submit comments on the regulations.  A hearing on the proposed regulations is scheduled for Aug. 24, 2010.  The launch of the new online application system and proposed user fees are dependent on the publication of final regulations on user fees and final regulations of the requirement to obtain a PTIN.

 

WASHINGTON — The Internal Revenue Service today announced that starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with the “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

The IRS announcement would remove the debt indicator starting with the upcoming 2011 tax filing season. The IRS noted that taxpayers will continue to have access to information about their tax refunds and any offsets through the “Where’s My Refund?” service on IRS.gov.

RACs are temporary bank accounts established on behalf of a taxpayer into which a direct deposit refund can be received and out of which a bank typically issues a payment to the taxpayer.

With both RALs and RACs, tax preparation and product fees are subtracted directly from the refund, and the taxpayer does not make any “out-of-pocket” payments. They are frequently marketed to taxpayers who do not have cash to pay for professional tax preparation services.

In a related effort, the IRS plans to explore the possibility of providing a new tool for the 2012 tax filing season to give taxpayers a mechanism to use an appropriate portion of their tax refund to pay for the services of a professional tax return preparer. The IRS plans to engage with taxpayers, consumer advocates and the tax return preparer community to consider whether providing this option would be a cost-effective way for consumers to pay for tax return preparation services.

 

  

IRS Releases Proposed Regulations Related to Fees for Preparer Tax Identification Numbers

WASHINGTON — The Internal Revenue Service today released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN).  Proposed regulations that were issued in March would require certain tax return preparers to obtain a PTIN.  The IRS is working to finalize those proposed regulations, which are the first of a series of steps planned to increase oversight of federal tax return preparation.

The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program.  The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.

Agencies are directed by the Office of Management and Budget (OMB) to charge user fees to recover the cost of services that convey special benefits beyond those available to the general public, such as the authority to prepare federal tax returns for compensation.     

Tax professionals and other interested parties have until Aug. 23, 2010, to submit comments regarding the proposed regulations. The official publication date of these proposed regulations is July 23.

In January, IRS Commissioner Doug Shulman announced the results of a comprehensive six-month study of the tax return preparer industry, which proposed new registration, testing, and continuing education of tax return preparers.  With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

 

 

New Requirements for Tax Return Preparers

Return Preparer Review

In 2009, the IRS launched a return preparer review to strengthen partnerships with tax return preparers and tax practitioners and ensure that all preparers and practitioners adhere to professional standards. On Jan. 4, 2010, the IRS released the results of its review, with proposals for the regulation of return preparers. Some of the requirements include:

 

Mandatory Tax Return Preparer Registration

The IRS will require all individuals who are required to sign a federal tax return as a paid tax return preparer to register and obtain a preparer tax identification number (PTIN). 

 

Competency Examination Requirement

The IRS will establish competency testing for all paid tax return preparers required to register with the IRS who are not attorneys, certified public accountants or enrolled agents.

 

Continuing Professional Education

The IRS will require 15 hours of annual continuing professional education, including three hours of federal tax law updates, two hours of tax preparer ethics and 10 hours of federal tax law topics, for tax return preparers who are required to register. 

 

Competency testing will be required for all paid preparers who are not enrolled agents, CPAs, or attorneys. The IRS will offer two examinations both based on 1040 returns only: one exam will cover wage and non-business returns in the 1040 series and the other will cover wage and small business returns in the 1040 series. Return preparers will be required to take one of the two exams. We were pleased to note that the IRS is recommending that return preparers be given three years from the initial implementation date to pass the required exam. There will be no grandfathering of any kind based on years of experience.

We are pleased to announce that AmData Academy can help tax professionals prepare for the IRS exam. Click here formore information on how we can help.

Click here for the full IRS Preparer Review Report.