Effective January 1, 2011 the Internal Revenue Service requires all tax preparers that charge a fee for tax preparation services to have a PTIN. PTIN stands for Preparer Tax Identification Number.
In the past, anyone with the appropriate tax preparation software could prepare taxes for someone else and charge a fee. Such individuals were not necessarily licensed CPAs nor did they have a background in accounting or tax preparation. They were able to buy the professional software such is TurboTax or TaxCut, install it on their computer, follow the software’s prompts and prepare federal tax returns for friends, family and clients.
IRS Return Preparer Initiative
As part of the IRS’ Return Preparer Initiative, individuals who charge a fee for tax preparation services must have a current PTIN. The long-term goal with this initiative is to hold paid tax preparers to a higher standard.
The PTIN requirement is the first step towards standardizing and ensuring that tax preparers have the credentials, experience and the background knowledge required to prepare tax returns for a fee. According to the IRS website, the next steps in the Return Preparer Initiative is to require paid tax preparers to pass a competency test, undergo a background check and take continuing education courses (as of this writing the exam and continuing education requirements have yet to be implemented).
Situations/Cases Exempt from IRS PTIN
There are situations/cases where PTINs are not required. Three such cases are listed below:
- VITA volunteers who provide tax preparation services for low-income individuals and do not collect compensation for the service are not required to have a PTIN.
- Administrative Assistants who perform data entry, client servicing in the form of phone calls, record copying and data input, but who do not prepare the tax forms are not required to have a PTIN.
- Reporting agents who do not offer professional tax advice in the preparation of tax returns do not need to have a PTIN. If the services rendered are strictly typing, reproduction or other such assistance in preparing the return. The key here is not exercising any “discretion, independent judgment or tax advice to clients.”
If you’re not sure whether or not you are required to have a PTIN, contact your local IRS office and inquire.
Electronic Filing Requirement
Along with the PTIN requirement, the IRS is phasing in a two-year approach to electronic filing. Effective January 1, 2011 tax preparers who anticipate preparing 100 or more tax return forms 1040, 1040A, 1040EZ and 1041 during the calendar year must file the returns electronically.
Effective the following year, 1/1/2012, the tax filing number drops from 100 per year to 11 or more per year. Therefore, if you anticipate preparing 11 or more tax forms (1040, 1040A, 1040EZ or 1041) during the year you must file the returns electronically.
Keep in mind that you must become an authorized e-file provider in order to use the e-filing services. If you think you’ll need to file returns electronically, apply now to become an e-file provider as there is a 45-day authorization process.
As a tax professional, you should sign up for the IRS QuickAlerts e-newsletter. By subscribing you’ll receive the latest IRS tax information and it will be delivered right to your inbox. For more information regarding PTIN and professional tax prepares, visit IRS.gov/taxpros.