With the 2012 tax filing season fast approaching, many CPAs might find themselves bewildered by the dimension of change that took place over the past year with respect to federal tax administration. Tax return preparers had to cope with new mandated preparer tax identification number (PTIN) and individual tax return e-file programs during the 2011 filing season. With respect to the PTIN program alone, over 700,000 tax return preparers (including CPAs) registered for PTINs over the past 12 months, authorizing these signing and nonsigning preparers to prepare tax returns during the 2011 filing season.
Beginning in October 2011, the IRS PTIN database will be available for CPAs (and their employees) to obtain or renew their PTINs for the 2012 filing season. In addition, the IRS expects to launch a written competency examination and continuing education requirements for prospective registered tax return preparers during fall 2011. Licensed CPAs and individuals who work in CPA firms generally will not be subject to testing and IRS-approved continuing education.
CPA firms need to ensure that the signing and nonsigning tax return preparers within their firms obtain or renew PTINs for the upcoming filing season. In general, any individual who is compensated and prepares or assists in the preparation of “all, or substantially all” of a tax return or claim for refund of tax must obtain or renew his or her PTIN on an annual basis. Once it is determined that an individual within the CPA firm is obligated to obtain a PTIN, he or she invariably faces the obligation of paying the IRS the yearly PTIN user fee of $64.25. Many CPA firms voluntarily reimburse employees who have paid the fee.
Unfortunately, while this rule may seem fairly straightforward for CPAs who sign as preparers, it is not so straightforward when determining who among the nonsigning staff within the CPA firm is required to obtain a PTIN. Regs. Sec. 1.6109-2(g) provides four examples of who is considered a nonsigning preparer. Example (1) describes an individual employed by Preparer B. This individual answers telephone calls, makes copies, and enters client tax information into data fields of tax preparation software. The example also states that although the employee “must exercise judgment regarding which data fields in the tax preparer software to use, [the employee] does not exercise any discretion or independent judgment as to the clients’ underlying tax positions.” Under Example (1), the employee is viewed as someone who performs “clerical or incidental services” and thus is not required to apply for a PTIN.
Regs. Sec. 1.6109-2(g), Example (2), describes a firm employee who is determined to have prepared all or substantially all of a tax return and therefore must register for a PTIN. While this employee performs a number of clerical or incidental services, he also interviews clients and determines the amount and character of entries on the return and whether the information is sufficient for purposes of preparing returns. The facts under Example (2) seem to turn on the premise that the employee is interviewing clients and, for at least some tax returns prepared by the firm, making independent judgments or determinations that rise to the level of preparing all or substantially all of one or more returns for the firm.
Regs. Sec. 1.6109-2(g), Example (3), confirms that an employee who obtains information necessary for preparing the tax return during a meeting with the client, makes determinations about the proper application of the tax laws to the information in order to assess the client’s tax liability, and completes the tax return but does not sign it is a tax return preparer subject to the PTIN requirement. Another employee who reviews the completed return and signs it is also a tax return preparer subject to the PTIN requirement.
Example (4) in the regulation describes a subject matter expert who (1) reviews a corporate tax return, (2) makes recommendations about whether the corporation qualifies for a newly enacted tax credit, and (3) does not sign the tax return. This example suggests that the subject matter expert’s recommendations about the credit do not constitute preparation of all or substantially all of the corporate return, so he or she does not have to apply for a PTIN.
In addition to the examples described in Regs. Sec. 1.6109-2(g), CPA firms need to consider the applicability of the PTIN regulations to retired CPAs and interns hired by the firm. For retired CPAs, it is critical to determine whether the retired CPA’s license is active or has lapsed. If the CPA’s license is active, he or she will merely need to apply for or renew his or her PTIN in order to prepare and sign returns during the upcoming filing season. On the other hand, if the CPA’s license has lapsed, he or she is treated no differently than an unenrolled tax return preparer. That is, to the extent that CPAs have not renewed their CPA license, they will not be permitted to sign returns for the CPA firm unless they do in fact renew their license or follow through on the procedures to become a registered tax return preparer (RTRP). If they do not sign tax returns, those CPAs may be treated as acting under the supervision of a CPA and would not be required to become RTRPs.
With respect to interns, if the CPA firm does not pay compensation to its interns, then the firm’s interns are not subject to the PTIN regulations. If the firm pays compensation, it will be required to do the analysis described above to determine whether each individual intern’s work rises to the level of preparation of all or substantially all of just one tax return.
For more information on PTINs and the IRS’s program to register tax return preparers, AICPA members are referred to Hodes et al., “Regulation of Tax Return Preparers,” 42 The Tax Adviser 326 (May 2011). In addition, the IRS posts frequently asked questions on the topic.
Benson Goldstein is senior technical manager (taxation) at the American Institute of CPAs in Washington, DC, and is staff liaison to the AICPA ’s IRS Practice and Procedures Committee. For more information about this column, contact Mr. Goldstein at email@example.com.