Income tax compliance is an essential financial activity for almost every American. And for an overwhelming majority of the population, income taxes are too complex to be done by the individual taxpayer; IRS data indicates that over 80% of Americans use a tax preparer or tax software to file their returns. In consideration of the reliance of taxpayers on expert assistance, a series of new tax-preparer regulations have been implemented to bring standardization to the field.
The first change, which took effect on January 1, 2011, required all paid tax-return preparers to have a Preparer Tax Identification Number (PTIN). This identification is included as part of the preparer information recorded in the signature section of a return. Paid tax preparers must renew their PTIN each year.
In November 2011, the IRS unveiled a 120-question tax competency test that certain preparers are required to pass by Dec. 31, 2013, in order to stay in business. (CPAs, Enrolled Agents and attorneys are exempt from the test because they already have met other testing requirements as part of their credentials.) Preparers who meet these requirements will be given a new designation: Registered Tax Return Preparer (RTRP). Even if they have not yet passed the competency test, paid tax-return preparers must also complete 15 hours of continuing education each year, beginning in 2012. RTRPs must also pass a compliance check regarding their own tax status and be fingerprinted.
The end result of these new standards:
• By 2014, only Registered Tax Return Preparers, Enrolled Agents, CPAs and attorneys will be authorized to prepare individual income tax returns for compensation.
• The ethical requirements that previously applied only to CPAs, EAs and attorneys now apply to all paid return preparers.
• The IRS intends to compile a publicly searchable database that will allow taxpayers to see if their tax preparers have met IRS standards or to find a tax preparer in their zip code area.
Potential Impact to Taxpayers
As of May 2012, approximately 4,800 people had completed the requirements to be certified as Registered Tax Return Preparers. Yet the IRS estimates some 340,000 paid providers still have a testing requirement that must be satisfied by December 31, 2013. In March 2012, the Institute for Justice, a nonprofit group, filed a suit against the IRS, arguing that the effort to regulate tax-return preparers is unlawful. Although it is hard to objectively quantify, many independent preparers have indicated these new compliance standards may put them out of business. If the number of preparers decreases, most observers expect the cost of return preparation will rise.
An established relationship with an authorized tax preparer is a must for most financial households. If your current tax preparer does not meet these new certification standards, it would be prudent to begin the process of securing a new preparer as soon as possible.
Ben Franklin asserted the only two certainties in life were death and taxes. The complexity of current tax regulations results in another near-certainty: You require the services of a tax preparer. April 15, 2014, is not a long way off, and if you haven’t retained the services of an IRS-approved Registered Tax Return Preparer, now might be a good time to start your search.
Elozor Preil is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). He can be reached at epreil_ wagroupllc.com. See www.wagroupllc.com/epreil for full disclosures and disclaimers.
Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
By Elozor M. Preil