Guest Article

(From the January 31, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

More Clarification on Tax Preparer Identification Numbers

New IRS guidance clarifies the requirements for - and availability of - preparer tax identification numbers (PTINs). A new notice identifies the specific tax forms for which PTINs are not required, allows supervised preparers to obtain PTINs under specific circumstances, and provides interim procedures by which preparers of returns that are covered by a competency examination can obtain provisional PTINs. The notice clarifies that preparers of the Form 5500 series do not have to have a PTIN.

Notice 2011-6 supplements recently issued regulations under Code § 6109 regarding the requirement for PTINs. Code § 6109 requires PTINs when prescribed by Treasury regulations. Recently issued regulations essentially require all "tax return" preparers to have a PTIN beginning after December 31, 2010. However, they reserve considerable authority to the Internal Revenue Service to carve out exceptions, and to designate the returns that qualify as "tax returns." See Treas. Reg. § 1.6109-2(h).

Pursuant to that broad grant of authority, the IRS issued Notice 2011-6 which specifically carves out certain tax forms from the requirement, allows for supervised preparers to obtain a PTIN, allows for provisional PTINs to be issued until competency exams are offered, and prescribes the conditions that apply to the holders of such PTINs.

Forms Not Requiring a PTIN

The Notice identifies the following forms as not requiring the preparer to have or provide a PTIN:

Such individuals, although they have a PTIN, may not: sign any return, represent taxpayers before the IRS, or hold themselves out to the IRS, clients or the public as a registered tax return preparer or a Circular 230 practitioner (although they are subject to some of the duties and restrictions of a Circular 230 practitioner).

Returns Not Covered by Competency Examinations

Although proposed regulations will require a registered tax return preparer to pass a minimum competency examination, the IRS expects that the competency area will initially be limited to individual income tax returns (i.e. the Form 1040 series and schedules). Therefore, as a condition of obtaining a PTIN, individuals will not be required to pass a competency exam on tax returns that are not prepared by the individual. Any individual eighteen years or older can obtain a PTIN if the individual: (1) certifies he or she does not prepare or assist in preparing tax returns covered by the competency exams, and (2) passes the requisite tax compliance and suitability check (when available).

Unlike supervised preparers, these individuals may sign the tax returns or claims for refunds that they prepare for compensation, and may represent taxpayers before the IRS. Like the supervised preparers, however, they may not hold themselves out to the IRS, clients or the public that they are a registered tax return preparer or a Circular 230 practitioner. (Although enrolled retirement plan agents or enrolled actuaries who obtain a PTIN under this provision may continue to practice and represent as provided in Circular 230.)

Returns Covered by Competency Examinations

The IRS does not expect to offer the competency exam (i.e. on the Form 1040 series and schedules) before mid-2011. In the interim it will allow individuals who are not attorneys, certified public accountants, or enrolled agents to obtain a provisional PTIN (i.e., by applying on the PTIN online system, or submitting a Form W-12 Application). Provisional PTINs must be renewed annually, and will not be issued once the competency examinations are offered. After 2013, provisional PTINs will not be renewed.

Preparers who obtain a provisional PTIN before the initial competency exam will be permitted (subject to the requisite tax compliance and suitability check, when available) to prepare tax returns and claims for refunds until December 31, 2013. Like the individuals not covered by a competency exam, the individuals who hold a provisional PTIN may not hold themselves out as a registered tax return preparer (or as having passed the competency exam to become a registered tax return preparer).

To obtain a PTIN after the initial competency test offering date, the individual must pass the competency exam and be designated as a registered tax return preparer.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.