New guidance on preparer registration taxnews
Recently issued guidance from the Internal Revenue Service provides answers to a number of
questions on tax return preparer registration, and fills in some of the details left unaddressed by
recent regulations.
To date, there are two sets of final regs: One
on Preparer Tax Identification Number requirements, while the other concerns the user
fees to apply for or renew a PTIN. There’s also
one set of proposed regulations addressing
competency testing requirements, continuing education requirements, and extension of
the ethics rules for tax return preparers.
The use of a notice — such as Notice 2011-6,
the recently issued guidance — allows the IRS
to get information out more quickly, said Ed
Karl, vice president for taxation at the Ameri-
can Institute of CPAs. “A notice goes through
a less formalized review process,” he said. “It’s
typically something they could change. Some
of the information could wind up in Circular
230, but when Circular 230 is finalized they
have to go through a longer review process.
This is a less intense way to get out the infor-
mation, and do it more quickly.”
The non-signing preparer issues, left open
by the regs, are addressed in Notice 2011-6.
“It says, in essence, that non-signers who
work for a CPA firm under the supervision
of a CPA have to register and get a PTIN if
they meet the definition of a preparer, but
they are exempt from testing and CPE,” ex-
plained Karl.
Until it issues further guidance, the IRS said
that it would permit any individual 18 years
or older to pay the applicable user fee and
obtain a PTIN permitting the individual to
prepare, or assist in the preparation of, all or
substantially all of a tax return or claim for refund for compensation if the individual is supervised by an attorney, CPA, enrolled agent,
enrolled retirement plan agent, or enrolled
actuary; the supervisor signs the return or
claim for refund; the individual is employed
at the law firm, CPA firm, or other recognized
firm of the tax return preparer who signs the
return; and the individual passes the tax compliance check and suitability check when it
becomes available.
BY RogeR RuSSell
The IRS clarifies the position of non-signers, firms and more
ship, professional corporation, sole proprietorship, or any other association that is registered, permitted or licensed to practice as a
CPA firm in any state, territory or possession
of the U.S., including a commonwealth, or the
District of Columbia.
A “recognized firm” is a partnership, professional corporation, sole proprietorship, or
any other association, other than a law or CPA
firm, that has one or more employees lawfully
engaged in practice before the IRS and that
is 80 percent or more owned by one or more
attorneys, CPAs, enrolled agents, enrolled actuaries or enrolled retirement plan agents.
The supervision exception is the one that
was most anticipated, according to Robert
Kerr, senior director of government rela-
tions at the National Association of Enrolled
Agents. “The firm carve-out applies equally to
law firms, CPA firms and ‘recognized firms,’
which includes EA firms,” he noted. “We
urged that enrolled agents be treated on a
par with their fellow legacy Circular 230 prac-
titioners and were pleased to see this even-
handed treatment.”
“The carve-out means that the supervising
person signs the return, and takes responsi-
bility for the contents of the return,” Kerr ex-
plained. “It’s important to note that you have
the choice to be a supervising attorney, CPA
or EA, but it’s not necessary. You can have
your staff get PTINs, take the test and meet
the CPE requirements, and sign the returns
themselves. At some point, you have to make
a business decision, since in some firms there
are market reasons for the principal to sign
the return.”
The other major exception under the no-
tice applies to individuals who only prepare
returns that are not covered by the compe-
tency examination. Individuals who obtain
a PTIN under this exception will not be re-
quired to satisfy the same continuing educa-
tion requirements that a registered tax return
preparer must complete, and may sign the tax
return as the paid preparer. However, they
must certify that they do not prepare or as-
sist in the preparation of all or substantially
all of any return covered by the competency
examination, and pass the tax compliance or
suitability check when it becomes available.
In the future, the IRS may require these indi-
viduals to complete continuing education to
renew their P TIN.
DEFINING THE CPA FIRM
PTIN EXCEPTIONS
The notice includes a list of forms that do not
require a preparer to have a PTIN, including information reports like Forms 1099,
certain applications for employer identification numbers, certain elections made on
behalf of clients, and extensions of time to
file. While Forms 940 and 941 are not on
the list, individuals who do not exercise any
discretion or independent judgment on the
client’s underlying tax positions and who do
not render tax advice are not return preparers
and consequently do not need a PTIN. Those
who provide advice — for example, on issues
such as whether a worker is an employee or
an independent contractor — would need
to obtain a PTIN but would not be currently
subject to testing or continuing education.
The notice makes it clear that the PTINs
obtained by individuals who are not attorneys, CPAs or EAs are provisional. After the
initial test date, provisional P TINs will not be
offered, but they may be renewed until Dec.
31, 2013. After that date the holder needs to
take and pass the competency examination.
The notice also confirms that there is no
continuing education requirement for registered tax return preparers or tax return preparers who obtain a provisional PTIN during the first year of registration, which began
Sept. 30, 2010.
“Our position is to ask the service to delay
the exam,” said Karl. “We’d like to see what
benefits come about from registration, and
do some tracking and see if it gets us toward
the goal of greater compliance. We’re pleased
that the service is making adjustments as it
goes along, and we encourage them to take
the time to get it right.” AT
IRS ADJUSTS RULES ON
HEALTH DEBIT CARDS
WASHINGTON, D.C. — The Internal Revenue Service has issued new guidance
allowing the continued use of flexible
spending arrangement and health
reimbursement arrangement debit cards
for the purchase of prescribed over-the-counter medicines and drugs.
The guidance modifies previous
guidance to permit taxpayers to continue using FSA and HRA debit cards to
purchase over-the-counter medications
for which they have a prescription. Effective after Jan. 15, 2011, this use of debit
cards must comply with procedures reflecting those that pharmacies currently
follow when selling prescribed medicines
or drugs.
The procedures include requirements
that a prescription for the medication
be presented to the pharmacy or the
mail-order or Web-based vendor that
dispenses the medication, and that
proper records be retained.
In accordance with the Affordable
Care Act, the cost of over-the-counter
medicines or drugs can be reimbursed
from a health FSA or HRA if a prescription has been obtained. The requirement
to obtain a prescription does not apply
to insulin.
The prescription requirement applies
to purchases made on or after Jan. 1,
2011, and not to purchases made in
2010, even if they were reimbursed after
Dec. 31, 2010. Because the requirement
applies only to over-the-counter medications, it does not apply to other health
care expenses such as medical devices,
eyeglasses or contact lenses.
The new guidance, IRS Notice 2011-5,
as well as answers to frequently asked
questions on IRS.gov, also contain further
details on health FSA and HRA debit
card purchases, including purchases from
health care providers other than pharmacies and mail-order and Web-based
vendors.
For guidance on health FSA and HRA
debit card purchases at “90 percent
pharmacies,” see IRS Notice 2010-59.
More information on health care reform
provisions can be found on the Affordable Care Act page on IRS.gov.
