IRS Finalizes Circular 230 Regulations

The IRS issued final regulations May 31 (T.D. 9527) implementing components of its initiative to register and regulate all paid tax return preparers. The regulations, which finalize proposed regulations issued in August 2010 (REG-138637-07), revise regulations under Title 31, part 10, commonly known as Circular 230, which govern the practice of taxpayer representatives before the IRS.

All paid tax return preparers must register by obtaining a preparer tax identification number (PTIN) and passing a tax compliance and suitability check. Preparers who are not federally authorized tax practitioners must also pass a competency examination and fulfill continuing education requirements. Federally authorized tax practitioners include CPAs, attorneys and enrolled agents. The final regulations’ preamble includes a “plain-language summary” of the requirements for becoming a registered tax return preparer or continuing education provider.

The final regulations adopt the proposed new designation of “registered tax return preparer.” They set forth procedures and requirements for renewing that designation, including the composition of continuing education, if required. The continuing education must be 15 hours annually, of which at least three hours are federal tax law updates, with two hours of tax-related ethics and 10 hours of federal tax law topics.

In the preamble, the IRS noted it was adopting the term “registered tax return preparer” despite objections to the designation from some commentators, which included the AICPA. However, also on May 31, the IRS issued Notice 2011-45, which places restrictions on the use of the term by preparers. Specifically, individuals with a provisional PTIN, that is, who have not fulfilled all requirements including some still under development, may not represent that they are registered tax return preparers or have passed the competency exam.

Registered tax return preparers also must comply with applicable rules in Circular 230 regarding advertising and solicitation, which will be amended to require individuals who represent themselves as a registered tax return preparer in any paid advertising involving print, television or radio to include in any such display or broadcast the statement “The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.”

The IRS Office of Professional Responsibility (OPR) will continue to enforce the Circular 230 provisions relating to practitioner conduct and discipline, but the final regulations generally remove references to OPR with respect to registered tax preparers, to “allow flexibility to adjust responsibility appropriately between [OPR and IRS functions enforcing Internal Revenue Code requirements] as the return preparer initiative is implemented.” The IRS has established a Return Preparer Office, which will be charged with general administration of the registered tax return preparer program.

Continuing Education Delayed, No Preapproval of Courses

In response to recommendations by the AICPA and others, and to allow sufficient time to develop procedures and mechanisms, the IRS in the final regulations postponed its implementation of continuing-education requirements for at least the first year of preparer registration, which began September 30, 2010. The regulations provide that education providers must be qualified and must obtain a qualified continuing education provider number. However, in response to recommendations, the IRS will recognize as qualified any provider that has been recognized and approved by a qualifying organization that has minimum education standards comparable to those in Circular 230.

The final regulations did not finalize a proposed rule that would have required IRS preapproval of individual continuing-education programs. But besides obtaining a qualified provider number, providers must obtain a number for each program they offer. The regulations authorize the IRS to require preapproval of courses in the future, if deemed necessary. The regulations also authorize the IRS to charge a user fee for obtaining a provider or program number, although the IRS is not currently proposing to charge a fee in either case.

Competency Testing to Go Forward

The IRS did not adopt suggestions by some commentators, including the AICPA, that it delay implementation of the testing requirement, although it noted that the examination will not be available until sometime after the effective date of the final regulations. The regulation preamble states that the examination initially will be limited to Form 1040 series tax returns.

Nonsigning Tax Preparers and Interns

The AICPA and other commentators suggested that nonsigning preparers and interns supervised by a federally authorized tax practitioner be exempt from testing and continuing education requirements. The final regulations do not provide any additional exemption for nonsigning preparers beyond that already provided in Notice 2011-6, which allows individuals to obtain a PTIN and prepare returns under the supervision of an attorney, CPA, enrolled agent or other federally authorized tax practitioner. Regarding interns, the final regulations’ preamble notes that under PTIN requirements, anyone who prepares all or substantially all of a tax return for compensation must obtain a PTIN, so an intern who does not receive compensation is not required to obtain a PTIN.

The regulations will generally apply 60 days after the date of publication in the Federal Register.