IRS Issues Details on Fingerprinting and Other Registered Tax Return Preparer Requirements

By Alistair M. Nevius, J.D.

From the IRS

The IRS provided more details of its still-developing requirements for all paid tax return preparers to be registered and undergo a background check, including fingerprinting. The IRS said CPAs are exempt from fingerprinting “at this time.” It also said it will not require individuals to be fingerprinted prior to obtaining a PTIN before April 18, 2012.

Preparers who are not CPAs or other practitioners authorized to practice before the IRS under Circular 230—attorneys, enrolled agents, enrolled actuaries, or enrolled retirement plan agents—must also pass a competency test and fulfill continuing education requirements, unless they are nonsigning preparers supervised by a signing Circular 230 practitioner in a CPA or law firm or certain other recognized firms or they do not prepare Form 1040. The IRS designates non–Circular 230 preparers covered by the requirement generally as registered tax return preparers (RTRPs).

The new guidance includes Notice 2011-80 on obtaining and renewing preparer tax identification numbers (PTINs) and planned implementation of the testing and continuing education requirement. The IRS also released proposed regulations (REG-116284-11) concerning IRS user fees for the competency exam and fingerprinting. The testing fee would be $27 and the fingerprinting fee $33. Vendors would also tack on their own fee (the amount of which has not been announced). The IRS estimated in an accompanying news release (IR-2011-96) that fees would total between $100 and $125 for testing and $60 to $90 for fingerprinting. PTIN annual renewal already carries another fee, $63 for 2012.

Fingerprinting

The IRS previously indicated that fingerprinting would be part of its “suitability check” for PTIN registration when fully implemented. In the news release, the IRS said that CPAs and other Circular 230 practitioners are expected to be exempt from fingerprinting at this time. However, it stated that they still would be required to answer the suitability questions on the PTIN application, such as whether they have been convicted of a felony in the past 10 years.

In a September 6 letter to David Williams, the director of the IRS Return Preparer Office, Patricia A. Thompson, the chair of the AICPA’s Tax Executive Committee, urged delaying the fingerprinting requirement, which would impose a burden on CPA firms, many of which already use criminal background checks in hiring. The IRS should explore less burdensome alternatives to fingerprinting, which as planned by the IRS would require preparers to physically visit a vendor location, Thompson wrote. Any such proposal should also take into account the fact that many CPA firm preparers are temporary staff and college interns employed for just a few months during the busy tax season, she said. “We believe that conducting background checks in this manner is overreaching and unnecessary to achieve the agency’s goals,” Thompson wrote.

On October 7, Thompson testified at an IRS hearing on the proposed regulations. “We have serious concerns regarding the level of burden that the user fee regulations will place on CPA firms, particularly small and medium-size CPA firms,” she told the IRS panel. According to IRS estimates, 70% to 80% of those affected by the fees are operating as or employed by small entities. Thompson’s testimony focused on the fingerprinting requirement for nonsigning staff working under the supervision of a CPA, and she said the IRS should consider an alternative that would allow CPA firms to use a consumer reporting agency instead. Under that scenario, the costs per applicant would be significantly below what the IRS is likely to charge and less burdensome to implement, Thompson said.

She also strongly reiterated the AICPA’s position that CPAs should remain exempt from fingerprinting because they are already regulated by state boards of accountancy and subject to state ethical and competency rules

The IRS said in Notice 2011-80 that it is working with third-party vendors to develop procedures to collect and process PTIN applicants’ fingerprints and check them against FBI records. Besides CPAs and other Circular 230 practitioners who are exempt from the requirement, it will not apply to PTIN applicants or participants in acceptance agent or authorized e-file provider programs who live in and are employed outside the United States. The IRS will not require individuals to be fingerprinted prior to obtaining a PTIN until at least April 18, 2012. When the IRS does begin requiring individuals to be fingerprinted before receiving a PTIN, it will give at least 30 days notice in a news release.

Provisional PTINs and Renewal

While the competency exam and continuing education are being developed, the IRS has since September 2010 been issuing provisional PTINs to those who otherwise would be required to fulfill those requirements. The notice said the IRS does not currently expect to offer the competency exam before this fall and will continue to provide provisional PTINs at least through the upcoming tax preparation season, until April 18, 2012. It will give at least 30 days’ notice of a final date for issuing provisional PTINs. However, provisional PTIN holders may retain the number through the end of 2013.

All PTIN and provisional PTIN holders must renew their numbers each calendar year via an online application or by filing Form W-12 after October 15 and before January 1 for the ensuing calendar year.

Continuing Education

The 15-hour continuing education requirement will take effect starting in 2012. Provisional PTIN holders who do not satisfy the continuing education requirement will not be allowed to renew their provisional PTIN and will have to pass the competency exam to become an RTRP. RTRPs and provisional PTIN holders must complete continuing education on a calendar-year basis starting in 2012. The 15 hours will be prorated monthly for the initial registration year for individuals who become RTRPs after January 31 of that year, although the education must include the full two credit hours of ethics regardless of when the individuals become RTRPs.

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