The Tax Attic with Jerry Coon

Regulating tax return preparers

Congress and the Internal Revenue Service are both extremely interested in regulating all tax return preparers. In fact, they are downright serious. Apparently, there are return preparers out there who don’t follow the rules, don’t know the rules or don’t choose to follow the rules. Either way, it’s a problem for not only the IRS but also for the overwhelming majority of return preparers who do follow the rules, who do know the rules, and who choose to follow the rules.

Jerry Coon, Enrolled Agent

A three step process is being put into place that will give the IRS information about preparers; will require preparers to show certain levels of competency in order to prepare returns; and will require preparers to obtain continuing education credit hours each year. The whole idea, in the end, is to get a better class of preparers.

As of this coming September, all tax preparers must register and obtain a Preparer Taxpayer Identification Number (PTIN). There will also be a fee to be paid, of course. This fee is expected to be in the $75-$300 range and will have to be paid every three years. This is the first step in finding out exactly who is preparing tax returns.

Evidently, the IRS doesn’t have a good data base of return preparers. Many preparers, such as Enrolled Agents, CPAs, and Attorneys, already have PTINs but they will still have to go through the registration process. They will be re-assigned their current number, but the information collected in the registration process is not necessarily information the IRS has right now.

The IRS wants a complete data base of return preparers and, rest assured, they will get it. The hammer the IRS has in this process is that a preparer who does not register and obtain a PTIN by January 1, 2011 will not be allowed to prepare tax returns. That’s a big hammer. Accenture, the world-wide consulting firm who quickly dumped Tiger Woods, has contracted to develop the registration system.

The second step in the process of getting return preparers is to make them show they are competent. As of January 1, 2011, all preparers will have to pass tests in order to prepare returns. There are expected to be three tests. Test One covers wage and non-business 1040 tax returns. Test Two covers wage and small business 1040 tax returns, including Schedules C, E, and F and related forms. Test Three covers business tax returns and rules. Those who register and receive a PTIN by December 31, 2010 will have three years to pass the appropriate test in order to continue preparing returns. If the preparer can’t pass the test, they are out of business. Period.

These three tests have not been finalized at this point in time, but in the spring of 2011, the IRS says they will be ready to roll out at least the first two tests and the third test will be ready after the initial three year implementation period. It appears that preparers who register for a PTIN in 2011 and years following will have to pass a test before they can prepare returns. An independent third party will be contracted to administer these tests.

Step Three involves each and every preparer having to take a minimum of 15 total hours of Continuing Education every year. I believe that Step Three will have the most profound effect on the quality of returns being prepared. Taking fifteen hours of classroom study annually on tax subjects and ethics will have a positive effect on returns prepared.

The more a preparer knows, the higher quality of return that preparer should be able to prepare. At least ten hours will have to be taken on federal tax issues; three hours on federal tax updates; and two hours on the topic of ethics. By combining all three of these steps, the IRS will know who all of the return preparers are via the PTIN registration process; will know that they can demonstrate a certain minimum knowledge of taxes via the competency tests; and will know that those preparers are taking annual classes to keep their knowledge up to date via the continuing education requirement. These are good things. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Dr. in Rockford. Contact him at

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