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IRS Proposes To Amend Rules Regulating Tax Professionals

August 23, 2010 · 22 comments

If you’ve ever received an email or a notice from a tax professional, you’ve probably seen something tacked onto the bottom that looks like this:

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, we at The Erb Law Firm, PC, must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.

That little gem is required to be attached to any written materials (and that includes email) that could be considered a “reliance opinion” – in other words, if an attorney recommends or suggests that a client might win on a tax issue. It’s called tax advice. And it’s kind of what we do as tax professionals. In 2005, the IRS, fearing that taxpayers might be swayed by our good looks and extremely cool personas, required that tax professionals warn clients that our advice is not intended to help them cheat. Hence, the notice. Cause you know, clients would never get it otherwise – you read that notice, right? Every time.

Making matters more confusing, a bunch of other professionals – including attorneys that never do tax work – started tacking it onto their signatures, too, mostly because they didn’t understand the rule and they’re scared of the IRS. They even made it longer and started adding references to the Tax Code. Better, right? Of course not. What they did, really, is just ensure that nobody ever actually reads the notice.

The notice is still required, though, in certain circumstances as part of the rules that govern tax professionals. The IRS publishes this guidance as Circular 230, also known as “Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers before the Internal Revenue Service.” Brevity was never one of the strong suits of the IRS.

Anyhow, Circular 230 is the publication that reminds tax professionals not to cheat. Always good to have that in writing, no?

The IRS wants to amend a number of the Circular 230 provisions, including extending the reach of Circular 230 to all include all tax return preparers; currently unenrolled tax return preparers aren’t in the list (we know this because they don’t appear in the Circular 230 title). Under the proposed regulations, all tax return preparers who work for compensation and not otherwise already classified would be part of a new category of professionals called “registered tax return preparers.” Registered tax return preparers would be able to prepare tax returns and claims for refunds as well as other documents for submission to the IRS. They would not, however, be permitted to represent taxpayers before the IRS except during an examination (and then only if the registered tax return preparer signed the return or claim for refund under examination).

In order to become a registered tax return preparer, formerly unenrolled tax preparers would have to pass an exam and obtain an PTIN (preparer tax identification number) from the IRS. The exam will focus specifically on forms 1040 and will include questions about wages, small business income and nonbusiness income. CPAs, tax attorneys and enrolled agents also have to get a PTIN but won’t have to sit for the exam – the IRS is counting on the fact that those professions are already regulated by industry and require exams for professional designations. This is true but also a little overreaching – I know tons of attorneys who don’t know a thing about tax beyond what they learned in “baby tax” in law school. And trust me, you don’t want those folks working on your forms 1040. But hey, if they have JD after their names, the IRS thinks it’s okay. That should be good enough for you.

Oh, and no cheating. That’s another rule. And it’s new (sort of). Makes your head spin a little bit, right?

You can learn more about the proposed requirements on the IRS web site. For specifics on the changes to Circular 230, you can download REG-138637-07 here as a pdf. Tax professionals and other interested parties have until October 7, 2010, to submit comments regarding the proposed regulations.

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{ 7 comments… read them below or add one }

1 Urbie August 23, 2010 at 9:32 am

As an unenrolled tax preparer, I’m a little torqued off that CPAs are exempt from the new testing requirement — as with lawyers, a lot of CPAs are not tax specialists; I know many who don’t do their own taxes. I’m hoping whatever test the IRS dreams up will be reasonable — open-book is a good start. When I’m doing someone’s tax return, it’s open-book — I can and do consult Pub 17, irs.gov, and numerous other resources (including just asking other preparers). This doesn’t make me a bad preparer — I would argue it makes me a good one. Frankly, I don’t understand the need for preparer testing — after all, tax prep is something you’re allowed to do yourself, with no training or license, so why should I have to take a test to do someone else’s? Results speak for themselves — either my returns are valid or they aren’t. The existing PTIN system already gives (or should give) the IRS enough tracking ability so they can find unscrupulous preparers. (Banning RALs might make more sense, in terms of curbing tax-prep abuse.)

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, Urbie the Unenrolled Tax Preparer must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.

2 dave August 23, 2010 at 4:08 pm
3 ThomasT August 23, 2010 at 11:50 pm

Is this in some part a reaction to the Breitbart civilian entrapment scheme (aka the ACORN Scandal)?

4 Jbruce41 August 24, 2010 at 3:15 pm

Re: lawyers don’t know all the law.
I teach in the real estate field. I know that every attorney has had to sleep through a course on “property” in law school. I also know that ALMOST every attorney knows little or nothing about real estate law. Real estate law can be peculiar. If you have a real estate question MAKE SURE you deal with an attorney who DOES know real estate law; don’t just assume that any old attorney will do.

5 Oxnate August 25, 2010 at 12:17 pm

Not to mention the new yearly fee for PTINs. $64.25!!!

$50 for the IRS and $14.25 for their “partners”

http://www.irs.gov/newsroom/article/0,,id=226697,00.html

6 Frank Woodman Jr September 28, 2010 at 4:54 pm

Again the IRS does the dirty work for the big tax prep companies by making the small preparers meet new requirements . All this new regulation does is cause additional charges to tax preparers. And while I can see the argument for testing but let it be testing for all. To assume that lawyers and CPS’s are all tax savvy is both incorrect and unfair. The IRS offered the same PTIN program for years and did it for free but now they need to charge. Now we are all required to pony up 64.25 (strange number) to get the same PTIN number we’ve always had. And what will they use that money for…. to fund the cost of implementing even more regulations and programs that preparers will be forced to follow and to pay for. That taken with the requirement that all preparers go thought the process of registering and sending returns electronically will put many small preparers out of business while not protecting the public as promised. Sadly there is little we can do as preparers to stop this encroachment on our business but pony up and live with it.

7 D May 3, 2011 at 4:02 pm

I sent my 2007 taxes in for my tax professional in February of this year to amend as she missed my education expense. She continued to push it off and said the necessary paperwork was not included when everything was in fact included. On April 13th she gave it to another tax professional to work on. She ironically had no problem finding all the necessary paperwork but did not complete it until April 16th. She later notified me on April 16th that the amendment had to be submitted within 3 years of my tax filing for the year I am amending or else my refund is forfeited. How can I fight this as I have written notification from my original tax professional pushing off the amendment with no indication of the 3 year rule? I will lose ~$5000 in refund because of their mistake!!! Please help!

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