Are You Ready? Navigating the New IRS Process and Competency Exams

Transcription

1 Presenting a live 110 minute webinar with interactive Q&A New Federal Tax Return Preparer Registration: Are You Ready? Navigating the New IRS Process and Competency Exams THURSDAY, OCTOBER 28, pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Rochelle Hodes, Managing Director, National Tax Quality and Risk Management, PricewaterhouseCoopers, Washington, D.C. Cathy Stopyra, Senior Manager, National Tax, BDO USA, Woodbridge, N.J. David Williams, Executive Lead, Return Preparer Regulations Implementation, IRS, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 New Federal Tax Return Preparer Registration: Are You Ready? Webinar Oct. 28, 2010 David Williams, IRS Rochelle Hodes, PricewaterhouseCoopers LLP Cathy Stopyra, BDO USA

5 Today s Program Relevant Background Slides 6-9 (David Williams) Who Can Prepare Returns And Refund Claims? Slides (Rochelle Hodes) The PTIN Process Slides (Cathy Stopyra) The New Registered Tax Return Preparer Slides (David Williams) 5

6 Relevant Background David Williams, IRS 6

7 The Past Year April 2009 IRS strategic plan included two objectives related to tax return preparers (Pub. 3774) June IRS launched a review of the return preparer industry (IR ) 2009 Jan IRS published findings and recommendations in Publication Return Preparer Review Sept 2010 IRS opened new online tax preparer registration system 7

8 Return Preparer Review Recommendations Mandatory y registration and PTIN usage Competency testing Continuing education Expansion of ethical rules Suitability checks Compliance strategy Public database and public awareness campaign 8

9 Regulations To Date Sept. 30, 2010: TD PTIN requirements (final regulations) Sept. 30, 2010: TD PTIN user fee (final regulations) Aug. 19, 2010: REG Circular 230 changes (proposed regulations) 9

10 Who Can Prepare Returns And Refund Claims? Rochelle Hodes, PricewaterhouseCoopers LLP 10

11 IRS Regulation Of Preparers Before 1/1/11 Anyone can prepare a return. - No minimum education requirement - No particular credential required Sect. 7701(a)(36) defines a tax return preparer as any person who prepares for compensation, or employs one or more persons to prepare for compensation, all or a substantial portion of a return or claim for refund. All Sect. 7701(a)(36) tax return preparers are subject to the following penalties: - Sect. 6694: Penalty with respect to understatements attributable to an unreasonable position (e.g., a position that does not have substantial authority) - Sect. 6695: Failure to sign, failure to provide a TIN, failure to provide a copy of the return to the taxpayer, EIC due diligence, etc. PwC Slide 11

12 IRS Regulation Of Preparers Before 1/1/11(Cont.) Practitioners are subject to Circular 230, including (due diligence) and (standards for returns, affidavits and other documents). - Practitioners include CPAs, attorneys, enrolled ed agents and enrolled ed retirement plan agents. - Unclear when tax return preparation services performed by a practitioner are covered Income tax return preparers (defined in regulations under Sect. 7216) are subject to civil and criminal penalties for disclosure of taxpayer information without consent. - This definition of tax return preparer includes any person who is engaged in the business of providing auxiliary services (e.g., software developer) and persons assisting in the preparation of income tax returns. PwC Slide 12

13 Treas. Reg Limit on who can prepare returns: The IRS has indicated that by 2013, only an attorney, CPA, enrolled agent or registered tax return preparer will be able to prepare p or assist in preparing p tax returns. - The term registered tax return preparer refers to a new IRS credential allowing individuals who are not attorneys, CPAs or enrolled agents to prepare or assist in preparing tax returns. - As discussed in more detail later, registered tax return preparers will be required to pass an IRS test and complete IRS-approved education. Make a PTIN the only number that may be used to satisfy the requirement under Sect. 6109(a)(4) that a signing tax return preparer put their identifying number on the return. Define who is a tax return preparer, for purposes of the PTIN regulations. PwC Slide 13

14 Who Is A Tax Return Preparer, For Purposes Of The PTIN Regulations? An individual is a tax return preparer for purposes of the PTIN regulations if the individual prepares, or assists in the preparing of, all or substantially all of a tax return or claim for refund of ftax for compensation. This definition of tax return preparer p is different from the definitions in Sect and Sect An individual id will not be a preparer for purposes of the PTIN regulations if the individual is not a paid preparer under Sect. 7701(a)(36). - E.g., VITA and low-income tax clinic preparers, fiduciaries, officers, general partners and employees of a taxpayer are not tax return preparers for purposes of both Sect. 7701(a)(36) and the PTIN regulations. PwC Slide 14

15 The All Or Substantially All Test What does preparation p or assisting in the preparation p of all or substantially all of a claim for refund mean? - Clearly, signing tax return preparers are covered by the PTIN regulations. - Who among the non-signing gpreparers p are covered by the PTIN regulations? Factors include, but are not limited to: - The complexity of the work performed by the individual relative to the overall complexity of the return or claim for refund - The amount of the items of income, deduction or losses or tax credit attributable to the work performed by the individual, relative to the total amount of these items or credit required to be correctly reported on the return or claim for refund. The regulations provide four examples. Frequently asked questions (FAQs) on the IRS Web site provide more examples. PwC Slide 15

16 What Is A Return Return, For Purposes Of The PTIN Regulations? Should Treas. Reg (b)(4)(i) and Rev. Proc , which define a tax return for purposes of the Sect preparer penalty rules, apply for purposes of fthe PTIN regulations? - If so, individuals who only prepare information returns (such as Forms 1099, Forms W-2, and Schedules K-1) would not be required to obtain a PTIN unless: They knew or had reason to know that the items reported on the information return were a substantial portion of a tax return (such as a Form 1040), and The individual prepared or assisted in preparing all or substantially all of the tax return. - Are individuals who only prepare Forms 5500 required to obtain a PTIN? PwC Slide 16

17 Are Non-Income Tax Returns Covered? The PTIN regulations are under Part 1 of Title 26 of the Code of Federal Regulations (i.e., ), which only apply to income tax and income tax returns. Yet, the IRS Web site infers that all types of tax returns are covered. PwC Slide 17

18 Reg. Example 1: Not Preparation Employee A provides clerical assistance or incidental services, so no PTIN is required - A is employed directly by a tax return preparer, not a firm. - A assists a preparer in: answering phones, making copies, inputting client information gathered by the preparer p into software, and using the computer to electronically file returns prepared by the preparer. - A exercises judgment regarding which data fields in the software to use, but does not exercise ecseany ydsce discretion or judgment asto the eclients underlying tax positions. PwC Slide 18

19 FAQ 1: Bookkeeper I am a tax return preparer, and I have a PTIN. My firm employs a bookkeeper. She gathers client receipts and invoices, and organizes and records all information for me. Although I use the information that our bookkeeper has compiled, I prepare my clients tax returns and make all substantive ti determinations ti that t go into computing the tax liability. Does my bookkeeper need to have a PTIN? (posted 9/28/10) No, she is not a tax return preparer and is not required to have a PTIN. PwC Slide 19

20 FAQ 4: Administrative Assistant I am a tax return preparer, and I have a PTIN. I have an administrative assistant in the office who also performs data entry during tax filing season. At times, clients call and provide him with information, which he records in the system. Using the data he has entered, I meet with my clients and provide advice as needed. I then prepare and sign their returns. Is my administrative assistant required to have a PTIN? (posted 9/28/10) No, the administrative assistant is not a tax return preparer and is not required to have a PTIN. PwC Slide 20

21 Reg. Example 2: Preparation Employee A obtains information and makes determinations that constitute all or substantially all of the return. So, Employee A must get a PTIN. - A is employed by a tax return preparer, not a firm. - A performs same tasks as in Example 1. - A interviews clients and obtains from them information needed for preparation p of the returns. - A determines the amount and character of entries on the returns. - A determines whether the information provided is sufficient for purposes of preparing the returns. - A is required to get a PTIN even if A relies on tax preparation software to prepare the return. PwC Slide 21

22 Reg. Example 3: All Or Substantially All C is employed by a firm that prepares returns and claims for refund for compensation. Return prepared is Form C is responsible for preparing the Form C obtains the information necessary for the preparation of the return during a meeting with the client. - C makes determinations with respect to the proper p application of the tax laws to the information in order to determine the client's tax liability - C completes the tax return. - C does not sign the return but instead sends the return to another firm employee, D, who reviews the return for accuracy before signing it. - C and D are preparers required to obtain a PTIN. PwC Slide 22

23 FAQ 2: Intern 1 I am a tax return preparer, and I have a PTIN. Every tax filing season, I hire two paid interns from the accounting program at a local college to help me during the busy season. The interns perform data entry from the tax organizer that my clients fill out, and assemble the documentation that the clients have submitted. Where clients have submitted incomplete information, or more information is needed, the interns may call clients to gather information missing from the tax organizer, but they are not allowed to provide advice or answer tax law questions. I prepare p and sign all my clients returns. Do my interns need to have a PTIN? (posted 9/28/10) No, the interns are not ttax return preparers, and are not required dto have a PTIN. PwC Slide 23

24 FAQ 3: Intern 2 Same facts as previously, but in order to help my interns get exposure to the tax system, I allow them to work with clients who have very simple tax situations, and prepare the Form 1040-EZ. Ireviewthe forms carefully, and sign them. Are my interns required to have PTINs? (posted 9/28/10) Yes, the interns are tax return preparers and are required to have a PTIN, regardless of whether they sign the returns. PwC Slide 24

25 FAQ 6: Associate I run a small tax return preparation business that is heavily softwarebased. I employ four associates who sit with taxpayers and walk through a step-by-step software program that uses an interview process that results in a draft tax return. I check and sign the returns, and I have a PTIN. Do my four associates need to have a PTIN? (posted 9/28/10) You will need to perform additional analysis to determine whether your four associates must have a PTIN. The answer depends on the specific circumstances of your firm. In general, if individuals prepare all or substantially all of a tax return (including making determinations that affect tax liability), they must have a PTIN. PwC Slide 25

26 Reg. Example 4: All Or Substantially All E is employed by a firm that prepares returns and claims for refund for compensation. The return prepared is Form E consults with F, an SMS, for advice on eligibility of a deduction and computation of the amount of the credit. PwC - E obtains documentation from the corporation relating to potential eligibility to claim a recently enacted tax credit. - Consultation with F is in preparation of the return. - E prepares the 1120 claiming the amount of the credit calculated by F. - The credit is one of many tax credits and deductions claimed on the return. - Determining the credit amount does not constitute preparation of all or substantially ti all of the return, and Fi is not a preparer required dto get a PTIN. - The answer is the same regardless of whether the credit is a substantial portion of the return (as opposed to substantially all of the return) or whether F is in the same firm as E. - E is a preparer required to get a PTIN. Slide 26

27 2010 PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way.

28 The PTIN Process Cathy Stopyra, BDO USA 28

29 How Do I Apply There are two ways to apply for your PTIN; Be watchful of the deadline when choosing 1.) Online 2.) Form W-12 HOW DO I APPLY? Client name - Event - Presentation title Page 29

30 PTIN Sign-Up System Four simple online steps Create your account Not the same as e-services Complete the online application Need tax return information Need professional credentials information Pay the fee $64.25 Credit card or direct debit Get your PTIN Keep in a safe place HOW DO I APPLY? Client name - Event - Presentation title Page 30

31 Form W-12 Be careful of fthe deadlinedli Be sure to use revised form October 2010 Fill out all information Missing information; form will not be processed Missing signature; form will not be processed Mail to IRS Tax Pro PTIN Processing Center Allow four to six weeks to receive PTIN by mail Client HOW name - Event DO -I Presentation APPLY? title Page 31

32 Paid Preparers Without SSNs U.S. citizen/conscientious objector Form 8945 Submit required documents Foreign persons Form 8946 Verify status HOW DO I APPLY? Client name - Event - Presentation title Page 32

33 Fee Current annual l fee is $64.25 Of the Fee: $ to IRS for educational, compliance and outreach purposes $14.25 to vendor for services HOW DO I APPLY? Client name - Event - Presentation title Page 33 One-year anniversary IRS to send a reminder

34 Confirmation PTIN application confirmation Your application for a PTIN has been accepted. The following are details about your PTIN. You must use this number on any tax return or claim for refund you sign as a paid tax return preparer on or after January 1, In the past, tax return preparers could choose to use their social security numbers when they signed tax returns or claims for refund they prepared for a fee. As of January 1, 2011, this practice is no longer allowed. You may wish to print this page for your records. Also, a welcome letter containing your PTIN and additional guidance will be ed to you generally within 24 hours. If you need further assistance with the online PTIN system, contact the IRS Tax Professional PTIN Information Line. Name: Cathy Stopyra PTIN: P Status: Active Expiration date: 09/30/2011 Client name - Event - Presentation title Page 34

35 Provisional PTIN Applicant not in compliance with federal taxes Individual id Corporate Business Employment Applicant convicted of a felony In the last 10 years Applicant has not satisfied testing requirements Testing due to beginning i mid-2011 The provisional status is temporary until the condition is resolved, or reviewed and cleared. HOW DO I APPLY? Client name - Event - Presentation title Page 35

36 Application Problems? IRS Tax Professional PTIN Information Line Toll-free: (877) 613-PTIN (7846) TTY: (877) International +1 (319) HOW DO I APPLY? Client name - Event - Presentation title Page 36 Monday through Friday 8:00 a.m. to 5:00 p.m. Central Time

37 The New Registered Tax Return Preparer David Williams, IRS 37

38 IRS Registered Tax Return Preparers Proposed requirements: Pass suitability Pass a competency test Wage and non-business Form 1040 returns Wage and small business Form 1040 returns Complete 15 hours of continuing education annually Three hours of federal tax law updates Two hours of ethics 10 hours of federal tax law Limit practice to return preparation and representation of clients in examination 38