The IRS will delay and reconsider its fingerprinting requirement for tax return preparers, IRS Commissioner Doug Shulman told the AICPA National Tax Conference on November 8.
“We have decided to hold off fingerprinting while we consider issues that have been raised and have further discussions with interested parties,” Shulman said during his keynote address to the conference in Washington, D.C.
Shulman said the IRS would move forward with other aspects of its return preparer regulation plan, including competency testing and continuing education requirements for preparers who are not CPAs, attorneys, or enrolled agents. Shulman did not say how long the IRS would delay fingerprinting.
The IRS informally discussed fingerprinting throughout the summer and then formally proposed the requirement in September as part of user fee rules (REG-116284-11). In hearings on the proposed regulations on October 7, AICPA Tax Executive Committee Chair Patricia Thompson urged the IRS to eliminate the fingerprinting requirement because of its cost and burden, saying it duplicated hiring background checks used by some CPA firms. She also reiterated the AICPA’s position that CPAs should continue to be exempt from fingerprinting because of their regulation by state boards of accountancy. The AICPA’s concern with fingerprinting related to nonsigning staff working under the supervision of a CPA, and they recommended an alternative background check involving consumer reporting agencies. Other preparer groups also objected, saying fingerprinting imposed an undue financial burden, especially since it would have to be done at a limited number of physical locations. An IRS news release (IR-2011-96) said the fee for fingerprinting would be between $60 and $90.
Shulman, in his speech, acknowledged these concerns. “While we all share the same goal of ensuring that there is adequate due diligence on people entering this field, the AICPA and others have made a number of important points that we need to think through regarding how best to do this,” he said.
After Shulman’s speech, Thompson said the delay in fingerprinting will serve the IRS as well as practitioners. “It’s a good thing for the program,” Thompson said. “We do think there are easier ways for the IRS to get the information they’re looking for.”
Feedback from stakeholders including the AICPA has helped shape the registration regime in other ways, too, Shulman noted: by exempting nonsigning preparers supervised by a CPA, attorney, or enrolled agent from testing and continuing education requirements; by requiring registered tax return preparers to include a disclaimer in their advertisements that they are not endorsed by the IRS; and by providing flexibility in the approval process for providers of continuing education materials under the program.
In a conference session earlier on November 8, David Williams, director of the IRS Return Preparer Office, said the competency test will be made available “in the next week or two.” Holders of provisional PTINs—unenrolled preparers who will be subject to the testing requirement—will have until 2013 to pass it. The test covers “minimal competency” on the Form 1040 series of returns only. Those who exclusively prepare returns other than those in the Form 1040 series will not have to take it. The IRS has issued about 745,000 PTINs to date, of which 62% were to unenrolled preparers, Williams said.
Shulman and Williams both said a priority going forward will be to identify “ghost preparers”—those who prepare returns for compensation but do not sign them and have not obtained a PTIN.
Uncertain Tax Positions
In his speech, Shulman also described some results of the first full year of requiring Schedule UTP, Uncertain Tax Position Statement, on which large corporate taxpayers must now disclose their uncertain tax positions. The IRS received approximately 1,500 Schedules UTP making about 3,500 disclosures. About half of the schedules disclosed only a single tax position, Shulman said. The top three Code sections associated with these uncertain positions were Sec. 41, the credit for increasing research activities; Sec. 482, relating to transfer pricing; and Sec. 162, providing for the deductibility of ordinary and necessary trade or business expenses.
“This has clearly been a learning year for taxpayers, and it’s been a learning year for the IRS,” he said. “A dialogue between us and taxpayers will be crucial as we both learn from this new process.”