IRS Rule Estimated to Impact 80,000 California Tax Preparers

The Internal Revenue Service wants to keep closer watch on the tax preparation industry and plans to require all paid tax preparers who prepare and sign federal tax returns to register for a Preparer Tax Identification Number (PTIN). Tax preparer registration to obtain a PTIN is set to begin in mid-September.

In addition to the PTIN requirement, the IRS plans to set stricter standards on tax preparers who are not attorneys, certified public accountants (CPAs) or enrolled agents (EAs). Starting 2011, those tax preparers will have to complete courses on federal tax laws each year and pass an IRS competency exam within three years of initial registration.

California, New York and Oregon are the only states that oversee its paid tax preparers. California requirements will remain intact despite the new IRS regulation. State law requires anyone who prepares tax returns for a fee and is not a licensed attorney, CPA or EA to register with the California Tax Education Council (CTEC). Each CTEC-registered tax preparer (CRTP) must complete courses on state and federal tax laws each year, plus obtain a surety bond to protect clients against fraud.

CRTPs will not be exempt from the IRS education or exam requirements. The new mandate will impact 44,000 CRTPs. The Franchise Tax Board estimates the PTIN requirement to affect 80,000 tax preparers statewide (includes attorneys, CPAs, CRTPs and EAs).

California Consumers Should Know:

• Effective January 1, 2011, consumers will need to verify a tax preparer’s PTIN and professional designation before handing over their tax information, even if the tax preparer handled their taxes prior years. CRTPs, for instance, will have to meet CTEC and IRS requirements before they can prepare state and federal tax returns.
• Tax preparers in California who cannot be verified as either attorneys, CPAs, CRTPs, or EAs, are breaking state law. Illegal tax preparers can be reported at www.ctec.org.
• Effective January 1, 2011, tax preparers who do not have PTINs cannot prepare or sign federal tax returns for a fee and may face fines from the IRS.

CTEC is a nonprofit organization that was established in 1997 by the California State Legislature to protect taxpayers by ensuring unlicensed paid tax preparers are registered, educated and bonded. Please visit www.ctec.org or call (877) 850-2832.