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An In-Depth Look: IRS Unveils Voluntary Return Preparer Education Program.
(Parker Tax Publishing July 10, 2014)
The IRS is launching a new, voluntary Annual Filing Season Program, designed to encourage tax return preparers who are not attorneys, certified public accountants (CPAs), or enrolled agents to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns. Rev. Proc. 2014-42 (6/30/14).
Last year, the IRS began a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. However, that program was suspended when the D.C. Circuit Court, in Loving v. IRS, 2014 PTC 73 (D.C. Cir. 2014), affirmed a lower court ruling and held that the IRS did not have the legal authority to require education and testing. As a temporary substitute, the IRS is now launching a new voluntary program called the Annual Filing Season Program. In Rev. Proc. 2014-42 (6/30/14), the IRS provides guidance on the new program and what practitioners have to do to earn a "Record of Completion," which tells the public that that the tax return preparer has met the applicable IRS requirements with respect to tax returns or claims for refund prepared and signed during the calendar year for which the Record of Completion is issued.
OBSERVATION: As part of its efforts to get the word out about the new voluntary program, the IRS will be rolling out a public awareness campaign for the 2015 tax season to help educate the public about the value that competent, qualified return preparers provide. This will include highlighting the importance of either being a credentialed preparer like a CPA, enrolled agent (EA) or attorney, or participating in the IRS's voluntary program.
While Rev. Proc. 2014-42 is generally effective as of June 30, 2014, one section of the procedure significantly modifies current rules for unenrolled tax return preparers and will not take effect until after December 31, 2015. Under that section, Rev. Proc. 81-38 is superseded for tax returns and claims for refund prepared and signed (or prepared if there is no signature space on the form) after December 31, 2015. Rev. Proc. 81-38 allows an unenrolled tax return preparer to represent a taxpayer during an audit if the tax return preparer prepared and signed the taxpayer's return that is under audit (or prepared the taxpayer's return that is under audit if there is no signature space on the form). As a result, unenrolled tax return preparers may not rely on Rev. Proc. 81-38 to represent taxpayers during an audit of a tax return or claim for refund prepared or signed after December 31, 2015.
In announcing the program last week, IRS Commissioner John Koskinen said that "about 60 percent of paid tax return preparers in the U.S. operate without regulation or oversight. Although many of them do a good job, we have found that others are poorly equipped to assist taxpayers in preparing returns." He also noted that the IRS has been urging Congress to enact a proposal in the President's Fiscal Year 2015 Budget that would give the IRS authority for mandatory oversight of return preparers. Koskinen said that the IRS is developing a database of qualified tax return preparers that will be available on the IRS website by January 2015. The database will include the unregulated preparers who choose to participate in the IRS's voluntary education program and will also include practitioners who already have higher levels of qualification and practice rights, and who don't need the IRS program. These include attorneys, CPAs, EAs, enrolled retirement plan agents, and enrolled actuaries who are registered with the IRS.
Annual Filing Season Program Requirements
Applicants must apply for the Annual Filing Season Program by using the online PTIN application system or by filing IRS Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal (or successor form). The applicant must sign the application under penalties of perjury and include any required supporting information and documentation. Applications must be received by April 15 of the year for which the Record of Completion is sought. The IRS will not consider applications received after April 15.
To qualify for the Annual Filing Season Program, applicants must be eligible for, and obtain, a paid preparer identification number (PTIN), or timely renew their existing PTIN. The PTIN must be valid for the year for which the Record of Completion is sought.
Only applicants who successfully complete an annual federal tax filing season refresher course that is administered by an IRS-approved continuing education provider are eligible to participate in the Annual Filing Season Program. The refresher course must generally cover tax law and filing requirements relevant to Form 1040 series returns and schedules. The refresher course must be six hours and must include a test of the material presented during the course that is given at the end of the course. The test must be a minimum of 100 questions. To successfully complete the refresher course, the applicant must pass the related test by answering 70 percent of the questions correctly (or a higher percentage if set forth in forms, instructions, or other appropriate IRS guidance).
The following applicants are not required to take the refresher course as a condition of eligibility to apply for a Record of Completion:
(1) attorneys, CPAs, and EAs described in Circular 230, Section 10.3;
(2) individuals who passed the registered tax return preparer (RTRP) examination; and
(3) tax return preparers who are licensed or registered by any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia after passing an exam covering federal tax matters; and tax return preparers who have passed an exam covering federal tax matters administered by an entity recognized by the IRS as an eligible entity for this purpose.
OBSERVATION: The RTRP exam mentioned above was the exam given by the IRS before the IRS's mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials was shut down. This provision in Rev. Proc. 2014-42 implies that preparers who took and passed that test will not have to take the refresher course as a condition of eligibility to apply for a Record of Completion.
Applicants required to complete the refresher course must successfully complete 18 hours of continuing education from an IRS-approved continuing education provider during the calendar year before the year for which the Record of Completion is sought. The total hours completed must consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics, and six hours of federal tax law updates.
OBSERVATION: Thus, for example, to receive a Record of Completion that will be effective for tax returns and claims for refund prepared and signed during the 2016 calendar year, an applicant must have completed 18 hours of continuing education meeting the applicable requirements during 2015.
Applicants exempt from the refresher course must successfully complete 15 hours of continuing education from an IRS-approved continuing education provider during the calendar year before the year for which the Record of Completion is sought. The total hours completed must consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics, and three hours of federal tax law updates.
Effective Dates for a Record of Completion
The Record of Completion is effective for one calendar year. Once issued, the Record of Completion is effective for tax returns and claims for refund prepared and signed from the later of January 1 of the year covered by the Record of Completion or the date the Record of Completion is issued, until December 31 of that year. For example, if an application is submitted on February 15, 2015, and a Record of Completion is issued on February 25, 2015, the tax return preparer's 2015 Record of Completion will be effective for tax returns and claims for refund prepared and signed from February 25, 2015, through December 31, 2015.
Transition Rule
Applicants for the Annual Filing Season Program for the 2015 calendar year must complete 11 hours of continuing education during 2014. For applicants who must complete the refresher course, the refresher course will satisfy six hours of the 11-hour requirement; the other five hours must consist of three hours of federal tax law topics and two hours of ethics or professional responsibility. Applicants not required to take the refresher course must complete eight hours of continuing education consisting of three hours of federal tax law updates, three hours of federal tax law topics, and two hours of ethics or professional responsibility.
Consent to be Subject to Circular 230
As a prerequisite to participating in the Annual Filing Season Program and receiving a Record of Completion, an applicant must consent to be subject to the duties and restrictions relating to practice before the IRS and Section 10.51 of Circular 230 for the entire period covered by the Record of Completion.
Individuals Ineligible to Participate in the Annual Filing Season Program
The following individuals are ineligible to participate in the Annual Filing Season Program:
(1) An individual who is disbarred, suspended, or disqualified from practice before the IRS under Circular 230, during the period for which the individual is disbarred, suspended, or disqualified.
(2) An individual who has been convicted of a felony involving a financial matter, tax matter, or other violation of the public trust within the five-year period preceding the date of the application to participate in the Annual Filing Season Program.
(3) An individual who is enjoined from representing persons before the IRS, preparing tax returns, or engaging in other conduct subject to injunction under Code Sec. 7407, for the period during which the injunction is in effect.
(4) An individual who engaged in misconduct that would have violated Circular 230 if the individual were subject to Circular 230, including knowingly providing false or misleading information, or participating in providing false or misleading information, to the IRS.
(5) An individual who is not in compliance with his or her personal federal tax obligations (including employment taxes for which the applicant is personally liable), for the period of that noncompliance. The fact that the applicant is in a dispute with the IRS regarding a federal tax liability or has entered into an installment agreement (that is not in default), an offer-in-compromise, or both to satisfy a federal tax liability will not be treated as noncompliant with a personal federal tax obligation for purposes of this rule.
(6) An individual who has his or her Annual Filing Season Program Record of Completion revoked, for the period that the IRS determines, based on the facts and circumstances, that the individual is ineligible.
(7) An individual who does not comply with the requirements of Rev. Proc. 2014-42.
Restrictions on the Use of Certain Terms in Connection with a Record of Completion
A tax return preparer who receives a Record of Completion cannot use the term "certified," "enrolled," or "licensed" to describe this designation or in any way imply an employer/employee relationship with the IRS. Nor can a tax return preparer make representations that the IRS has endorsed the tax return preparer. A tax return preparer who receives a Record of Completion for a calendar year may represent that he or she holds a valid Annual Filing Season Program Record of Completion for that calendar year and has complied with the IRS requirements for receiving the Record of Completion.
Changes for Unenrolled Tax Return Preparers
As previously noted, Rev. Proc. 2014-42 changes the rules for unenrolled tax return preparers. While Rev. Proc. 81-38 currently allows an unenrolled tax return preparer to represent a taxpayer before the IRS during an audit if the unenrolled tax return preparer prepared and signed the taxpayer's return that is under audit (or prepared the taxpayer's return that is under audit if there is no signature space on the form), this will no longer be the case for tax years after 2015.
For tax years after 2015, Rev. Proc. 81-38 is superseded, and only unenrolled tax return preparers who obtain a Record of Completion can represent taxpayers before the IRS during an audit of a tax return or claim for refund that they prepared and signed (or prepared if there is no signature space on the form), provided the individual:
(1) has a valid Annual Filing Season Program Record of Completion for the calendar year in which the tax return or claim for refund was prepared and signed; and
(2) has a valid Annual Filing Season Program Record of Completion for the year or years in which the representation occurs.
The representation permitted under Rev. Proc. 2014-42 does not allow an individual who has a Record of Completion to represent the taxpayer before appeals officers, revenue officers, Counsel, or similar officers or employees of the IRS.(Staff Editor Parker Tax Publishing)
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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