[Federal Register: March 26, 2010 (Volume 75, Number 58)]
[Proposed Rules]
[Page 14539-14545]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr10-17]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-134235-08]
RIN 1545-BI28
Furnishing Identifying Number of Tax Return Preparer
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations under section 6109
of the Internal Revenue Code (Code) that provide guidance to tax return
preparers on furnishing an identifying number on tax returns and claims
for refund of tax that they prepare. These proposed regulations provide
guidance on the identifying number of a tax return preparer for tax
returns and claims for refund filed before and after the proposed
effective date. The proposed regulations describe how the IRS will
define the identifying number of tax return preparers. Additional
provisions of the proposed regulations provide that tax return
preparers must apply for and regularly renew their preparer identifying
number as the IRS may prescribe in forms, instructions, or other
guidance. This document also invites comments from the public regarding
these proposed regulations.
DATES: Written or electronic comments and requests for a public hearing
must be received by April 26, 2010.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-134235-08), Room
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
134235-08), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC 20224, or sent electronically via the
Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-
134235-08).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Stuart Murray at (202) 622-4940 (not a toll-free number); concerning
submissions of comments and requests for a hearing, Richard Hurst at
richard.a.hurst@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
[[Page 14540]]
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on the collection of information should
be received by April 26, 2010.
Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs of operation, maintenance,
and purchase of service to provide information.
The collection of information in these proposed regulations is in
Sec. 1.6109-2(d) and (e). This information is required in order for
the IRS to issue identifying numbers to tax return preparers who are
eligible to receive them. Tax return preparers will need to apply for
an identifying number as prescribed in forms, instructions, or other
guidance. The use of a prescribed identifying number by tax return
preparers on tax returns and claims for refund of tax will enable the
IRS to accurately identify tax return preparers, to match tax return
preparers to tax returns and claims for refund that they prepare, and
to generally administer the internal revenue laws. The collection of
information is mandatory. The likely respondents are tax return
preparers and employers of tax return preparers.
Estimated total annual reporting burden: 300,000 hours.
Estimated average annual burden hours (or fraction of an hour) per
respondent: varies from 10 to 20 minutes, with an estimated average of
15 minutes.
Estimated number of respondents: 1.2 million.
Estimated annual frequency of responses: once every three years.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by the Office of
Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains proposed amendments to regulations under
section 6109 of the Code relating to furnishing a tax return preparer's
identifying number on tax returns and claims for refund of tax. Section
6109 was added to the Code in 1961 (Pub. L. 87-397, 75 Stat. 828) and
authorizes the Secretary to prescribe regulations for the inclusion of
identifying numbers on a return, statement, or other document required
to be filed with the IRS. In addition, section 6109(c) authorizes the
Secretary ``to require such information as may be necessary to assign
an identifying number to any person.'' Section 6109(a)(4) as originally
enacted by section 1203(d) of the Tax Reform Act of 1976 (Pub. L. 94-
455, 90 Stat. 1520) required return preparers to furnish on income tax
returns and claims for refund of income tax an identifying number, as
prescribed, to identify the preparer, the preparer's employer, or both.
Section 8246(a)(2)(D)(i) of the Small Business and Work Opportunity Tax
Act of 2007 (Pub. L. 110-28, 121 Stat. 112), amended section 6109(a)(4)
to allow the IRS to prescribe that tax return preparers furnish
identifying numbers on any tax returns or claims for refund they
prepare. As currently prescribed in regulations, the identifying number
of a tax return preparer who is an individual is the preparer's Social
Security number (SSN) or alternative number as prescribed by the IRS.
The proposed regulations provide that the identifying number of a tax
return preparer is exclusively the number prescribed by the IRS. The
proposed regulations will implement some of the recommendations made in
Publication 4832, Return Preparer Review (Rev. 12-2009), published at
the end of last year (the Report). The IRS and the Treasury Department
believe that the implementation of the Report's recommendations,
including the recommendations implemented by these regulations, will
increase tax compliance and allow taxpayers to be confident that the
tax return preparers to whom they turn for assistance are
knowledgeable, skilled, and ethical.
1. Identifying Numbers Generally
Because an identifying number is unique to the person to whom
assigned, the IRS is able to use the number to correctly identify the
taxpayer or the tax return preparer. The use of identifying numbers
allows the IRS to accurately and timely process returns and issue
refunds, centralize information, post information to the correct
taxpayer's account, and effectively administer the rules relating to
tax return preparers.
2. Requiring Identifying Numbers From Tax Return Preparers
Tax return preparers generally must provide an identifying number
on the tax returns they prepare and sign. Specifically, under Sec.
1.6695-1(b), a signing tax return preparer, as defined under Sec.
301.7701-15(b)(1), must sign a return of tax or claim for refund after
it is completed and before it is presented to the taxpayer for
signature. A signing tax return preparer under Sec. 301.7701-15(b)(1)
is a tax return preparer who has primary responsibility for the overall
substantive accuracy of the preparation of a return of tax or claim for
refund.
Under Sec. 1.6109-2(a)(1), a tax return preparer who must sign a
tax return or tax refund claim must also include an identifying number
with the preparer's signature. A return of tax includes an information
return described in Sec. 301.7701-15(b)(4). If a signing tax return
preparer has an employment arrangement or association with another
person, then that other person's employer identification number (EIN)
must also be included on the tax return or refund claim.
The identifying number of a signing tax return preparer, and the
identifying number of any person with whom the preparer has an
employment arrangement or association, must be included on
electronically filed tax returns, as well as paper returns. Further,
because of recent statutory changes, tax return preparers who prepare
and file individual income tax returns (Form Series 1040) for their
clients will soon be required to electronically file the returns,
unless the tax return preparer reasonably expects to file only 10 or
fewer individual
[[Page 14541]]
income tax returns for the calendar year. See Section 17 of the Worker,
Homeownership, and Business Assistance Act of 2009, Public Law 111-92,
123 Stat. 2984, 2997 (adding Code section 6011(e)(3)).
Tax return preparers who are required but fail to include their
identifying number on a tax return or refund claim, or fail to include
the identifying number of any person with whom they have an employment
arrangement or association, are subject to a penalty under section
6695(c). A tax return preparer is not liable for the penalty if the
failure to include an identifying number is due to reasonable cause and
not due to willful neglect.
3. Preparer Tax Identification Numbers
Section 6109(a) initially provided that the identifying number of a
tax return preparer was the individual's SSN. Section 3710(a) of the
IRS Restructuring and Reform Act of 1998 (Pub. L. 105-206, 112 Stat.
685) (RRA '98), allowed the IRS to prescribe an identifying number for
tax return preparers other than the preparer's SSN. In response to
section 3710(a) of RRA '98, the IRS developed and began to issue
preparer tax identification numbers (PTINs). Tax return preparers
currently may apply online for a PTIN using the e-services PTIN process
on the IRS Web site at http://www.irs.gov or by filing Form W-7P,
``Application for Preparer Tax Identification Number.'' Applying online
is faster, and return preparers are encouraged to apply online. In the
future, the IRS will prescribe the method to apply for a PTIN
consistent with these proposed regulations. Currently, under Sec.
1.6109-2(a)(2), a tax return preparer may use as an identifying number
on a tax return or claim for refund either the preparer's SSN or an
``alternative number'' prescribed by the IRS, including a PTIN. But an
EIN, an Electronic Filing Identification Number (EFIN) (which is an
identification number assigned to IRS e-file providers), or an
Electronic Transmitter Identification Number (ETIN) (which is an
identification number assigned to IRS e-file providers who
electronically transmit tax returns to the IRS) is not a valid preparer
identifying number.
4. Regulation of Tax Return Preparers
In June 2009, the IRS initiated a comprehensive review of tax
return preparers, and in December 2009 the IRS published the Report
describing its findings from that review. The Report recommended, in
part, that tax return preparers be required to obtain and use a PTIN as
the exclusive preparer identifying number and undergo a tax-compliance
check. As discussed below, the proposed regulations implement those
recommendations.
Under current law, any individual may prepare a tax return or claim
for refund. The Report recommended that the IRS establish new
eligibility standards that an individual must meet in order to prepare
tax returns--including testing, continuing education, and tax
compliance checks. The Report contemplates that only attorneys,
certified public accountants, enrolled agents, as well as tax return
preparers who pass a minimum competency exam and meet other
requirements (referred to as ``registered tax return preparers'') will
be eligible to prepare and sign tax returns and claims for refund.
These proposed regulations do not establish the requirements to become
a registered tax return preparer, which primarily will be set forth in
future guidance under Treasury Department Circular No. 230, 31 CFR part
10. After a transition period, however, it is intended that only
individuals who satisfy the eligibility standards may obtain and use a
PTIN as a tax return preparer.
Explanation of Provisions
1. Requiring the Use of PTINs
The proposed regulations provide that for tax returns or refund
claims filed after December 31, 2010, the identifying number that a tax
return preparer must include with the preparer's signature on tax
returns and refund claims is that prescribed by the IRS in forms,
instructions, or other guidance. Tax return preparers will not be able
to use an SSN as a preparer identifying number unless specifically
prescribed by the IRS in forms, instructions, or other guidance.
Instead, to the extent provided in forms and instructions, a tax return
preparer will be required to use a PTIN as the identifying number
unless the IRS prescribes in the future a replacement to the PTIN.
Forms and instructions will be revised accordingly. The use of PTINs as
the identifying number for tax return preparers will improve tax
administration and tax compliance, benefit taxpayers and tax return
preparers, and help maintain the confidentiality of SSNs.
For tax returns or claims for refund filed before January 1, 2011,
the identifying number of a tax return preparer will remain the
preparer's SSN or PTIN. In the case of tax returns for taxable periods
ending before January 1, 2011, and made on the appropriate forms
prescribed for the taxable periods, but which are filed on or after
January 1, 2011, tax return preparers must furnish on the returns the
identifying number prescribed on the forms to be filed and in
associated instructions.
For tax return preparation businesses and other persons having an
employment arrangement or association with a tax return preparer, the
business's or employer's EIN continues to be the identifying number
that must be included on tax returns and refund claims along with the
tax return preparer's signature and preparer identifying number. An
individual tax return preparer, however, may not use an EIN as a
preparer identifying number on a return, even if the preparer has an
EIN (for example, as a sole proprietor). Tax return preparers who use
their SSN, or an EIN, EFIN, or ETIN, instead of a valid PTIN, on tax
returns or claims for refund filed after the effective date may be
subject to the penalty under section 6695(c) unless the failure to
include a valid PTIN is due to reasonable cause and not due to willful
neglect.
2. Eligibility To Receive a PTIN
The proposed regulations provide that all tax return preparers must
apply for a PTIN or other prescribed identifying number at the time and
in the manner as may be prescribed by the IRS in forms, instructions,
or other appropriate guidance. The proposed regulations also authorize
the IRS to prescribe a user fee in connection with applying for, and
renewing, a PTIN (or successor number similar to a PTIN). Except as
provided in any transitional period, beginning after December 31, 2010,
to obtain a PTIN, an individual must be an attorney, certified public
accountant, enrolled agent, or registered tax return preparer under
future guidance to be provided in Circular 230.
Only for purposes of applying for and renewing a PTIN or other
prescribed preparer identifying number, the term tax return preparer
means any individual who is compensated for preparing, or assisting in
the preparation of, all or substantially all, of a tax return or claim
for refund of tax. A tax return preparer does not include an individual
who is not otherwise a tax return preparer as that term is defined in
Sec. 301.7701-15(b)(2), or who is an individual described in Sec.
301.7701-15(f). The proposed regulations provide several examples
illustrating who is a tax return preparer required to apply for a PTIN.
As part of the process of applying for a PTIN, a tax return
preparer may be subject to both an initial tax-compliance check and
subsequent periodic checks, which could include a review of a
preparer's history of compliance with personal and business tax filing
and
[[Page 14542]]
payment obligations. The tax-compliance check is intended to establish
whether a tax return preparer has timely filed required personal and
business tax returns and has paid taxes that are due or made other
acceptable arrangements with the IRS, such as an approved installment
agreement under section 6159. If a tax return preparer disregards any
applicable requirements to obtain a prescribed identifying number and
thereafter omits, when required to include, a valid identifying number
on a tax return or claim for refund filed after the effective date, the
preparer may be liable for the section 6695(c) penalty, unless the
failure to include a valid identifying number was due to reasonable
cause and not due to willful neglect.
The information a tax return preparer provides when the preparer
initially applies for a PTIN or other prescribed identifying number
will often become outdated or otherwise inaccurate. The IRS may require
tax return preparers to regularly renew their identifying numbers and
otherwise maintain updated information with the IRS. If a tax return
preparer who is required to include an identifying number on a tax
return or claim for refund filed after the effective date uses an
expired identifying number, the tax return preparer may be liable for
the section 6695(c) penalty, unless the use of the expired number was
due to reasonable cause and not due to willful neglect.
The proposed regulations provide that if necessary for effective
tax administration, the IRS may prescribe exceptions to any of the
requirements, such as for an interim period while procedures are being
implemented. For example, the IRS and the Treasury Department recognize
that the procedures for becoming a registered tax return preparer may
not be fully implemented when these regulations become effective. It is
anticipated that transitional interim guidance will be provided to
allow individuals who intend to become registered tax return preparers
to obtain an interim PTIN or other interim identifying number that may
be used as a preparer identifying number on tax returns and refund
claims until the procedures are fully implemented. After the interim
period, however, to obtain a PTIN, an individual will need to be an
attorney, certified public accountant, enrolled agent, or registered
tax return preparer authorized to practice before the IRS under
Circular 230.
Proposed Effective/Applicability Date
These regulations are effective after the date that final
regulations are published in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations.
It has been determined that an initial regulatory flexibility
analysis under 5 U.S.C. 603 is required for this notice of proposed
rulemaking. The analysis is set forth below under the heading,
``Initial Regulatory Flexibility Analysis.''
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Initial Regulatory Flexibility Analysis
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) requires the agency to ``prepare
and make available for public comment an initial regulatory flexibility
analysis'' that ``describe[s] the impact of the proposed rule on small
entities.'' 5 U.S.C. 603(a). Section 605 of the Act provides an
exception to this requirement if the agency certifies that the proposed
rulemaking will not have a significant economic impact on a substantial
number of small entities. A small entity is defined as a small
business, small nonprofit organization, or small governmental
jurisdiction. 5 U.S.C. 601(3)-(6). The IRS and the Treasury Department
conclude that the proposed regulations, if promulgated (together with
other contemplated guidance provided for in these regulations), will
impact a substantial number of small entities and the economic impact
will be significant. As a result, an initial regulatory flexibility
analysis is required.
Description of the reasons why the agency action is being
considered.
Taxpayers' reliance on paid tax return preparers has grown steadily
in recent decades. Today, paid tax return preparers assist a majority
of U.S. taxpayers in meeting their income tax filing obligations.
Beyond preparing tax returns, tax return preparers also help educate
taxpayers about the tax laws, and facilitate electronic filing. Tax
return preparers provide advice to taxpayers, identify items or issues
for which the law or guidance is unclear, and inform taxpayers of the
benefits and risks of positions taken on a tax return, and the tax
treatment or reporting of items and transactions. Competent tax return
preparers who are well educated in the rules and subject matter of
their field can prevent costly errors, potentially saving a taxpayer
from unwanted problems later on and relieving the IRS from expending
valuable examination and collection resources.
Given the important role that tax return preparers play in Federal
tax administration, the IRS has a significant interest in being able to
accurately identify tax return preparers and monitor their tax return
preparation activities. The proposed regulations are intended to
advance tax administration by requiring all individuals who are paid to
prepare all or substantially all of a tax return or claim for refund of
tax to obtain a preparer identifying number prescribed by the IRS.
Pursuant to the proposed regulations, the IRS will require individuals
who sign tax returns or claims for refund to report the preparer's
identifying number on a tax return or claim for refund when the return
or refund claim is signed. The proposed regulations also provide that
the IRS may require tax return preparers to apply for, and regularly
renew, their identifying numbers. Under the proposed regulations, the
IRS may prescribe a user fee payable when applying for a number and for
renewal.
Further, the IRS and the Treasury Department conclude that
taxpayers, tax return preparers, and overall tax administration will be
best served through increased oversight of the tax return preparer
industry. Mandating a single prescribed identifying number for all tax
return preparers and assigning a prescribed number to registered tax
return preparers is critical to effective oversight.
Statement of the objectives of, and the legal basis for, the
proposed rule.
The principal objective of the proposed regulations is to enable
the IRS to more accurately identify tax return preparers and the tax
returns and refund claims associated with each tax return preparer. The
proposed regulations do this by providing that the IRS may prescribe
the use of identifying numbers for tax return preparers and the
qualifications or other requirements necessary to obtain a valid
number. The legal basis for these provisions is section 6109 of the
Code, which authorizes the Secretary to prescribe the ``identifying
number for securing proper identification of'' a tax return preparer
and ``to require such information as may
[[Page 14543]]
be necessary to assign an identifying number to any person.''
Description and estimate (where feasible) of the number of small
entities subject to the proposed rule.
The proposed regulations apply to individuals who prepare tax
returns and claims for refund of tax. The estimated number of paid tax
return preparers is as high as 1.2 million, which means the proposed
regulations are likely to impact a large number of individuals. Most
paid tax return preparers are employed by firms. A substantial number
of paid tax return preparers are employed at small tax return
preparation firms or are self-employed tax return preparers. Any
economic impact of these regulations on small entities generally will
be on self-employed tax return preparers who prepare and sign tax
returns or on small businesses that employ one or more individuals who
sign tax returns.
The appropriate NAICS codes for tax return preparers are those for
tax return preparation services (NAICS code 541213) and other
accounting services (NAICS code 541219). Entities identified under
either of these two codes are considered small under the Small Business
Administration's size standards (13 CFR 121.201), if their annual
revenue is less than $7 million or $8.5 million, respectively. The IRS
estimates that approximately 70 to 80 percent of the individuals
subject to these proposed regulations are tax return preparers
operating as or employed by small entities.
Description of the projected reporting, recordkeeping, and related
requirements of the proposed rule, including an estimate of the classes
of small entities that will be subject to the requirements and the type
of professional skills necessary for preparation of the report or
record.
The proposed regulations do not directly impose any reporting,
recordkeeping, or similar requirements on any small entities. Rather,
the proposed regulations provide that the IRS may prescribe in forms,
instructions, or other guidance (including regulations) requirements
for identifying numbers for tax return preparers, regular renewal of
identifying numbers, and payment of a user fee when applying for or
renewing an identifying number. In addition, other guidance may require
certain tax return preparers to complete competency testing, complete
continuing education courses, and adhere to established rules of
practice governing attorneys, certified public accountants, enrolled
agents, enrolled actuaries, and enrolled retirement plan agents.
Applying for an identifying number and subsequent renewal will
require reporting of certain information, but are not expected to
require recordkeeping. These activities also will not require the
purchase or use of any special business equipment or software. To the
extent it will be necessary to apply for a PTIN (or similar identifying
number that replaces a PTIN) online at http://www.irs.gov, most if not
all tax return preparation businesses have computers and Internet
access. The IRS estimates that applying for a PTIN will take 10 to 20
minutes per individual, with an average of 15 minutes per individual.
Under other guidance that the IRS may issue, tax return preparers
who apply to be registered tax return preparers and who regularly renew
their status may be subject to recordkeeping requirements because they
may be required to maintain specified records, such as documentation
and educational materials relating to completion of continuing
education courses. These requirements do not involve any specific
professional skills other than general recordkeeping abilities already
needed to own and operate a small business or to competently act as a
tax return preparer. It is estimated that tax return preparers will
annually spend approximately 30 minutes to 1 hour in maintaining
records relating to the continuing education requirements, depending on
individual circumstances.
A separate regulation addressing reasonable user fees will be
proposed in the near future. Tax return preparers may be required to
pay a user fee when first applying for a PTIN and at every renewal.
Small entities may be affected by these costs if the entities choose to
pay some or all of these fees for their employees.
Under regulations to be issued in the future, tax return preparers
may also incur costs for commercial continuing education courses and
minimum competency examinations, plus incidental costs, such as for
travel and accommodations in order to maintain their status as
registered tax return preparers under Circular 230. Course prices can
vary greatly, from free to hundreds of dollars. Many small tax return
preparation firms may choose, as with the user fee, to bear these costs
for their employees. In some cases, small entities may lose sales and
profits while their employed tax return preparers attend training or
educational classes or are studying and sitting for examinations. Some
small entities that employ tax return preparers may even need to alter
their business operations if a significant number of their employees
cannot satisfy the necessary registration and competency requirements.
The IRS and the Treasury Department conclude, however, that only a
small percentage of small entities, if any, may need to cease doing
business or radically change their business model due to the proposed
regulations.
Although each of the reporting and recordkeeping requirements and
the costs identified above (in connection with the proposed regulations
and the other anticipated guidance necessary to implement the Return
Preparer Review) is not expected to singly result in a significant
economic impact, taken together it is anticipated that they may have a
significant economic impact on a substantial number of small entities.
Identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap, or conflict with the proposed rule.
The proposed regulations do not duplicate, overlap, or conflict
with any Federal statutes or other rules.
Description of any significant alternatives to the proposed rule
that accomplish the stated objectives of applicable statutes and
minimize any significant economic impact on small entities.
The IRS and the Treasury Department have determined that there are
no viable alternatives to the proposed regulations that would enable
the IRS to accurately identify tax return preparers, other than through
the use of a prescribed identifying number, as provided in the proposed
regulations.
More broadly, the IRS received a large volume of comments as part
of the Return Preparer Review on the issue of increased oversight of
tax return preparers generally and on the Report's proposed
recommendations, including requiring tax return preparers to use a
uniform prescribed identifying number. The comments were received from
all categories of interested stakeholders, including tax professional
groups representing large and small entities, IRS advisory groups, tax
return preparers, and the public. The input received from this large
and diverse community overwhelmingly expressed support for the proposed
requirements.
As to the proposed requirements recommended in the Report, the IRS
and the Treasury Department considered various alternatives in
determining the best ways to effectuate proposed changes with respect
to tax return preparers, including:
(1) Requiring all paid tax return preparers to comply with the
ethical standards in Circular 230 or an ethics code similar to Circular
230, but not requiring any paid preparers to
[[Page 14544]]
demonstrate their qualification and competency;
(2) Requiring tax return preparers who are not currently authorized
to practice before the IRS to register with the IRS, complete annual
continuing education requirements, and meet certain ethical standards,
but not to pass a minimum competency examination;
(3) Requiring all paid tax return preparers to pass a minimum
competency examination and meet other registration requirements; and
(4) Requiring all paid tax return preparers who are not currently
authorized to practice before the IRS to pass a minimum competency
examination and meet other registration requirements, but ``grandfather
in'' tax return preparers who have accurately and competently prepared
tax returns for a certain period of years.
After consideration of these and other alternatives and the
responses received in the public comment process, the IRS and the
Treasury Department conclude that the provisions of the proposed
regulations will most effectively promote sound tax administration. The
provisions in the proposed regulations for a single prescribed
identifying number for tax return preparers will enable the IRS to
accurately identify tax return preparers, match preparers with the tax
returns and claims for refund they prepare, and better administer the
tax laws with respect to tax return preparers and their clients. The
provisions, in combination with anticipated guidance described above,
also will ensure that qualified, competent, and ethical tax return
preparers will be assigned prescribed preparer identifying numbers. The
testing requirements that may be set forth in other guidance will
establish a benchmark of minimum competency necessary for tax return
preparers to obtain their professional credentials, while the
continuing education requirements are intended to ensure that tax
return preparers remain current on the Federal tax laws and continue to
develop their tax knowledge. The extension in other, prospective
guidance of the rules in Circular 230 to any paid tax return preparer
will require all practitioners to meet certain ethical standards and
allow the IRS to suspend or otherwise appropriately discipline tax
return preparers who engage in unethical or disreputable conduct.
Accordingly, the implementation of qualification and competency
standards is expected to increase tax compliance and allow taxpayers to
be confident that the tax return preparers to whom they turn for
assistance are knowledgeable, skilled, and ethical.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments that are submitted by the public will be
available for public inspection and copying. A public hearing will be
scheduled if requested in writing by any person who timely submits
comments. If a public hearing is scheduled, notice of the date, time,
and place for the public hearing will be published in the Federal
Register.
Drafting Information
The principal author of these proposed regulations is Stuart Murray
of the Office of the Associate Chief Counsel, Procedure and
Administration.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6109-2 also issued under 26 U.S.C. 6109(a) * * *
Par. 2. Section 1.6109-2 is amended by revising the section
heading, revising paragraphs (a)(2) and (d), and adding paragraphs (e),
(f), (g), (h), and (i) to read as follows:
Sec. 1.6109-2 Tax return preparers furnishing identifying numbers for
returns or claims for refund and related requirements.
(a) * * *
(2)(i) For tax returns or claims for refund filed on or before
December 31, 2010, the identifying number of an individual tax return
preparer is that individual's social security number or such
alternative number as may be prescribed by the Internal Revenue Service
in forms, instructions, or other appropriate guidance.
(ii) For tax returns or claims for refund filed after December 31,
2010, the identifying number of a tax return preparer is the
individual's preparer tax identification number or such other number
prescribed by the Internal Revenue Service in forms, instructions, or
other appropriate guidance.
* * * * *
(d) Beginning after December 31, 2010, all tax return preparers
must have a preparer tax identification number or other prescribed
identifying number that was applied for and received at the time and in
the manner, including the payment of a user fee, as may be prescribed
by the Internal Revenue Service in forms, instructions, or other
appropriate guidance. Except as provided in paragraph (h) of this
section, beginning after December 31, 2010, to obtain a preparer tax
identification number or other prescribed identifying number, a tax
return preparer must be an attorney, certified public accountant,
enrolled agent, or registered tax return preparer authorized to
practice before the Internal Revenue Service under 31 U.S.C. 330 and
the regulations thereunder.
(e) The Internal Revenue Service may designate an expiration date
for any preparer tax identification number or other prescribed
identifying number and may further prescribe the time and manner for
renewing a preparer tax identification number or other prescribed
identifying number, including the payment of a user fee, as set forth
in forms, instructions, or other appropriate guidance. The Internal
Revenue Service may provide that any identifying number issued by the
Internal Revenue Service prior to the effective date of this regulation
will expire on December 31, 2010, unless properly renewed as set forth
in forms, instructions, or other appropriate guidance, including these
regulations.
(f) As may be prescribed in forms, instructions, or other
appropriate guidance, the IRS may conduct a tax compliance check on a
tax return preparer who applies for or renews a preparer tax
identification number or other prescribed identifying number.
(g) Only for purposes of paragraphs (d), (e), and (f) of this
section, the term tax return preparer means any individual who is
compensated for preparing, or assisting in the preparation of, all or
substantially all of a tax return or claim for refund of tax. Factors
to consider in determining whether an individual is a tax return
preparer under this paragraph (g) include, but are not limited to, the
complexity of the work performed by the individual relative to the
overall complexity of the tax return or claim for refund of tax; the
amount of the items of income, deductions, or losses
[[Page 14545]]
attributable to the work performed by the individual relative to the
total amount of income, deductions, or losses required to be correctly
reported on the tax return or claim for refund of tax; and the amount
of tax or credit attributable to the work performed by the individual
relative to the total tax liability required to be correctly reported
on the tax return or claim for refund of tax. A tax return preparer
does not include an individual who is not otherwise a tax return
preparer as that term is defined in Sec. 301.7701-15(b)(2), or who is
an individual described in Sec. 301.7701-15(f). The provisions of this
paragraph (g) are illustrated by the following examples:
Example 1. Employee A, an individual employed by Tax Return
Preparer B, assists Tax Return Preparer B in answering telephone
calls, making copies, inputting client tax information gathered by B
into the data fields of tax preparation software on a computer, and
using the computer to file electronic returns of tax prepared by B.
Although Employee A must exercise judgment regarding which data
fields in the tax preparation software to use, A does not exercise
any discretion or independent judgment as to the clients' underlying
tax positions. Employee A, therefore, merely provides clerical
assistance or incidental services and is not a tax return preparer
required to apply for a PTIN or other identifying number as the
Internal Revenue Service may prescribe in forms, instructions, or
other appropriate guidance.
Example 2. The facts are the same as in Example 1, except that
Employee A also interviews B's clients and obtains from them
information needed for the preparation of tax returns. Employee A
determines the amount and character of entries on the returns and
whether the information provided is sufficient for purposes of
preparing the returns. For at least some of B's clients, A obtains
information and makes determinations that constitute all or
substantially all of the tax return. Employee A is a tax return
preparer required to apply for a PTIN or other identifying number as
the Internal Revenue Service may prescribe in forms, instructions,
or other appropriate guidance. Employee A is a tax return preparer
even if Employee A relies on tax preparation software to prepare the
return.
Example 3. C is an employee of a firm that prepares tax returns
and claims for refund of tax for compensation. C is responsible for
preparing a Form 1040, ``U.S. Individual Income Tax Return,'' for a
client. C obtains the information necessary for completing the
return during a meeting with the client, and makes determinations
with respect to the proper application of the tax laws to the
information in order to determine the client's tax liability. C
completes the tax return and sends the completed return to employee
D, who reviews the return for accuracy before signing it. Both C and
D are tax return preparers required to apply for a PTIN or other
identifying number as the Internal Revenue Service may prescribe in
forms, instructions, or other appropriate guidance.
Example 4. E is an employee at a firm which prepares tax
returns and claims for refund of tax for compensation. The firm is
engaged by a corporation to prepare its Federal income tax return on
Form 1120, ``U.S. Corporation Income Tax Return.'' Among the
documentation that the corporation provides to E in connection with
the preparation of the tax return is documentation relating to the
corporation's potential eligibility to claim a recently enacted tax
credit for the taxable year. In preparing the return, and
specifically for purposes of the new tax credit, E (with the
corporation's consent) obtains advice from F, a subject matter
expert on this and similar credits. F advises E as to the
corporation's entitlement to the credit and provides his calculation
of the amount of the credit. Based on this advice from F, E prepares
the corporation's Form 1120 claiming the tax credit in the amount
recommended by F. The additional credit is one of many tax credits
and deductions claimed on the tax return, and determining the credit
amount does not constitute preparation of all or substantially all
of the corporation's tax return under this paragraph (g). F will not
be considered to have prepared all or substantially all of the
corporation's tax return, and F is not a tax return preparer
required to apply for a PTIN or other identifying number as the
Internal Revenue Service may prescribe in forms, instructions, or
other appropriate guidance. The analysis is the same whether or not
the tax credit is a substantial portion of the return under Sec.
301.7701-15 of this chapter, and whether or not F is in the same
firm with E. E is a tax return preparer required to apply for a PTIN
or other identifying number as the Internal Revenue Service may
prescribe in forms, instructions, or other appropriate guidance.
(h) The Internal Revenue Service, through forms, instructions, or
other appropriate guidance, may prescribe exceptions to the
requirements of this section, including the requirement that an
individual be authorized to practice before the Internal Revenue
Service before receiving a preparer tax identification number or other
prescribed identifying number, as necessary in the interest of
effective tax administration.
(i) Effective/applicability date. Paragraph (a)(2) of this section
is effective for returns and claims for refund filed after the date
that final regulations are published in the Federal Register.
Paragraphs (d) through (h) of this section are effective after the date
that final regulations are published in the Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2010-6867 Filed 3-24-10; 11:15 am]
BILLING CODE 4830-01-P