Whether you are a taxpayer or tax preparer this is a year of sea change – 2010 is one for the books.
As a taxpayer, you need to get up to speed. The landscape is changing and there are things you should know about the individual or firm you select to prepare your tax returns.
The IRS, after years of consideration, is implementing sweeping changes to the world of tax preparers. There are presently two general categories of tax preparers – enrolled and unenrolled.
The enrolled group is composed of Enrolled Agents (EA), CPAs and attorneys. Enrolled Agents are a group designated and accredited by the IRS. They are admitted to practice before all collection and administrative levels of the IRS and can represent any taxpayer for any tax matter (audits, appeals, settlements, etc.) pending before the IRS. CPAs and attorneys, likewise, are in this group and can represent any taxpayer at any level. Attorneys have the added benefit of being able to represent clients on appeal to the U. S. Tax Court.
Enrolled Agents were originally a creation of the federal government. They were established by Congress after the Civil War to assist with the administration of citizen claims for damages resulting from the war.
EAs must pass a three part Special Enrollment Exam established by the IRS. It is based solely on tax knowledge – not accounting or the practice of law. Take my word – it is NOT an easy exam.
EAs exist under federal law and supervision. CPAs and attorneys are overseen by the state in which they practice. All are subject to U. S. Treasury Circular 230 regulations.
Unenrolled preparers up to this point have not been subject to oversight. That’s about to change. The IRS has mandated that all paid preparers, enrolled and unenrolled, must register with the IRS and secure a PTIN (Preparer Tax Identification Number) by Dec. 31, 2010. Effective Jan. 1, 2011, every paid preparer must register and have the PTIN.
The PTIN must be on every return prepared – no PTIN, no returns.
Hint to taxpayers: If you use a paid preparer to complete your return in 2011, BE SURE the PTIN is at the bottom of the signature page of the 1040, AND the preparer has personally signed the return. If either is missing, don’t accept the return. Each registered preparer will possess a distinct PTIN. If the return doesn’t have a PTIN don’t accept the return.
In spring or early summer of 2011, a certification exam for 1040 preparers will become available through an IRS third-party provider. Preparers who secure their PTIN before the exam becomes available, will have until the end of 2013 to take and pass the exam. When a preparer applies for a PTIN after the exam is available, he/she will have to pass the exam before being eligible to secure a PTIN.
The new designation for previously unenrolled preparers will be Registered Tax Return Preparer (RTRP).
These individuals will be registered with the IRS, have a PTIN, and be subject to Circular 230 Rules, including 15 hours each year of continuing professional education (CPE)
Hint: Ask your paid preparer if they are registered, and have a PTIN. Don’t accept any paid return that is unsigned by the preparer and/or does not have a PTIN. You don’t want to be involved with someone who is not registered, and is preparing returns illegally.
Tax Wisdom – Dear Tax Commissioner. Three years ago I cheated on my taxes. Since then I have been unable to sleep at night. Enclosed is $3,000. If I still can’t sleep, I’ll send the rest.