IRS Releases Final Circular 230 Revisions Regulating Registered Tax Return Preparers

Jun 20, 2011   

After considering more than 50 written comments on the proposed Circular 230 revisions, the Treasury and the IRS released final regulations on May 31, 2011. Notably, the regulations establish a new “registered tax return preparer” designation. Sections 10.3-10.6 of Circular 230 describe the process for becoming a registered tax return preparer (“Registered Preparer”) and the limited practice rights associated with the designation.

Application Process

Generally, the process to become a Registered Preparer requires an applicant to: (1) be at least 18 years of age, (2) pass a one-time competency exam, (3) pass a suitability check, and (4) obtain a Preparer Tax Identification Number (“PTIN”). The competency exam will be administered under IRS oversight and will be similar to the special enrollment examination for enrolled agents. The suitability check, also conducted by the IRS, inquires whether the applicant has engaged in any conduct that would justify suspension or disbarment.

During the transitional period, an individual who obtains a provisional PTIN before the competency examination is offered may prepare any tax return or claim for refund until December 31, 2013, as long as the individual complies with all other requirements. After the examination is offered, only attorneys, CPAs, enrolled agents, and registered tax return preparers, or individuals defined in section 1.02(a) or (b) of Notice 2011-6 may obtain a PTIN.

Scope of Registered Preparer Designation

A Registered Preparer can represent taxpayers before revenue agents, customer service representatives, and other employees during an examination if the preparer signed the tax return for the period under investigation. Under no circumstances does the representation extend to proceedings before appeals officers, revenue officers, IRS counsel, or similar agents of the IRS or the Treasury. Moreover, a Registered Preparers practice dos not include the authority to advise clients beyond what is necessary to prepare a tax return, claim for refund, or other document intended to be submitted to the IRS. Thus, communications between a Registered Preparer and taxpayer are not privileged under IRC § 7525 because the advice is intended to be reflected on a tax return, not privileged or confidential.

Tax Return Preparation Standards

The revised Circular 230 Section 10.34 also provides the broad tax return preparation standards applicable to all practitioners, including CPAs and enrolled agents. According to the regulations,

A practitioner may not willfully, recklessly, or through gross incompetence, sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that: (A) lacks a reasonable basis; (B) is an unreasonable position as described in section 6694(a)(2); or (C) is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2).

The revised Circular 230 final regulations are posted by the Office of the Federal Register here.

The attorneys at Fuerst Ittleman have extensive experience in tax refund claims and all forms of tax controversy. Contact an attorney by emailing us at contact@fidjlaw.com.