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Guidance sets out details for IRS’s voluntary education program for preparers

Rev Proc 2014-42, 2014-29 IRB

Following up on its recent announcement in IR 2014-75, IRS has provided guidance in a Revenue Procedure on its new, voluntary Annual Filing Season Program designed to encourage tax return preparers who are not attorneys, certified public accountants (CPAs), or enrolled agents (EAs) to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns.

Background. In 2011, IRS issued regs that mandated testing and continuing education (CE) for paid tax return preparers and created a Registered Tax Return Preparer (RTRP) credential. The RTRP designation was for preparers with valid preparer tax identification numbers (PTINs) who passed an IRS competency test and completed 15 hours of CE.

Earlier this year, the Court of Appeals for the D.C. Circuit upheld a lower court’s determination that these regs were invalid. (Loving v. IRS, (CA DC 02/11/2014) 113 AFTR 2d 2014-867; see Weekly Alert ¶  10  02/13/14)

New education program. An applicant for the Annual Filing Season Program (Program) must apply using the online PTIN application system or on paper, using IRS Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal (or successor form), as set out in the form’s instructions. The application must be signed under penalties of perjury and include any required supporting information and documentation. Upon verification of completion of the requirements in Rev Proc 2014-42, Sec. 4, including having a valid PTIN, an applicant will be issued a Record of Completion which will be valid for tax returns or refund claims prepared and signed during the calendar year for which it is issued. To participate in the Program and receive a Record of Completion, an applicant must consent to be subject to the duties and restrictions relating to practice before IRS in subpart B and section 10.51 of Circular 230 for the entire period covered. (Rev Proc 2014-42, Sec. 4)

RIA observation: Tax return preparers who participate in the Program and receive a Record of Completion from IRS will be included in a database on IRS.gov that will be available to help taxpayers determine return preparer qualifications. The database will also contain information about practitioners with recognized credentials and higher levels of qualification and practice rights, such as attorneys, CPAs, EAs, Enrolled Retirement Plan Agents (ERPAs), and enrolled actuaries who are registered with IRS (see ¶ 33 ) .
RIA observation: This program has generated a surprising amount of controversy. For example, both the American Institute of CPAs (AICPA) and the National Association of Enrolled Agents (NAEA) strongly oppose the program as one that will only confuse taxpayers. The concern is that the program’s record of completion will be perceived as conveying IRS’s seal of approval and mislead taxpayers as to the preparer’s actual level of competency and experience. Perhaps to defuse this concern, Rev Proc 2014-42, Sec. 4.07 provides that a tax return preparer who receives a Record of Completion may not use the term “certified,” “enrolled,” or “licensed” to describe this designation or in any way imply an employer/employee relationship with IRS or make representations that IRS has endorsed the tax return preparer.

IRS emphasizes that the Program is voluntary and that no tax return preparer is required to participate. Rev Proc 2014-42 does not restrict any individual from preparing and signing tax returns and claims for refund, nor does it change the requirement that paid tax return preparers must obtain a PTIN. A Record of Completion isn’t required for an attorney, CPA, EA, enrolled actuary, or ERPA to represent taxpayers before IRS. Rev Proc 2014-42 doesn’t in any way affect or limit the ability of attorneys, CPAs, or EAs to represent taxpayers before IRS.

Except for those who are exempted (see below), only applicants who successfully complete an annual federal tax filing season refresher course (refresher course) that is administered by an IRS-approved continuing education provider (described in Rev Proc 2014-42, Sec. 5) are eligible to participate in the Program.

Transition rule for 2015. Applicants for the 2015 calendar year must complete 11 hours of continuing education during 2014. For applicants who must complete the refresher course (see below), the refresher course will satisfy six hours of this 11-hour requirement. The other five hours must consist of three hours of federal tax law topics and two hours of ethics or professional responsibility. Applicants not required to take the refresher course (see below) must complete eight hours of continuing education consisting of three hours of federal tax law updates, three hours of federal tax law topics, and two hours of ethics or professional responsibility.

Applicants who must take the refresher course. Other than those who are exempt, applicants must successfully complete 18 hours of continuing education from an IRS-approved continuing education provider during the calendar year prior to the year for which the Record of Completion is sought. The total hours completed must consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics, and six hours of federal tax law updates. The refresher course must generally cover tax law and filing requirements relevant to Form 1040 series returns and schedules. It must be six hours and must include a test of the material presented during the course; the test must be given at the end of the course and includes at least 100 questions. To successfully complete the refresher course, the applicant must pass by answering 70% of the questions correctly (or a higher percentage if so set out in forms, instructions, or other guidance). (Rev Proc 2014-42, Sec. 4)

Applicants exempt from taking the refresher course. The following aren’t required to take the refresher course to be eligible to apply for a Record of Completion: (1) attorneys, CPAs, and EAs; (2) individuals who passed the RTRP examination; and (3) tax return preparers who are licensed or registered by any state, territory, or possession of the U.S. , or the District of Columbia after passing an examination covering federal tax matters, and (4) tax return preparers who have passed an examination covering federal tax matters administered by an entity recognized by IRS as an eligible entity for this purpose. Applicants exempt from the refresher course must successfully complete 15 hours of continuing education from an IRS-approved continuing education provider during the calendar year prior to the year for which the Record of Completion is sought. The total hours completed must consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics, and three hours of federal tax law updates.

Representation of taxpayers before IRS. Under Rev Proc 2014-42, unenrolled tax return preparers who obtain a Record of Completion are allowed to represent taxpayers before IRS during an examination of a tax return or claim for refund that they prepared and signed (or prepared if there is no signature space on the form), if the preparer (a) had a valid Record of Completion for the calendar year in which the tax return or refund claim was prepared and signed; and (b) has a valid Record of Completion for the year or years in which the representation occurs. The representation so permitted under Rev Proc 2014-42 doesn’t allow an individual who has a Record of Completion to represent the taxpayer before appeals officers, revenue officers, Counsel, or similar officers or employees of the IRS. (Rev Proc 2014-42, Sec. 6)

Rev Proc 81-38, 1981-2 CB 592—which allowed an unenrolled tax return preparer to represent a taxpayer during an examination if the tax return preparer prepared and signed the taxpayer’s return that is under examination (or prepared the taxpayer’s return that is under examination if there is no signature space on the form)—is modified and superseded. Unenrolled tax return preparers can’t rely on Rev Proc 81-38 to represent taxpayers during an examination of a tax return or refund claim signed after Dec. 31, 2015. However, they can rely on Rev Proc 81-38 to represent taxpayers during an examination of a tax return or refund claim prepared and signed (or prepared if there is no signature space on the form) on or before Dec. 31, 2015. (Rev Proc 2014-42, Sec. 6)

Effective date. Except for Rev Proc 2014-42, Sec. 6, the Revenue Procedure is effective as of June 30, 2014. Rev Proc 2014-42, Sec. 6, is effective for tax returns and claims for refund prepared and signed (or prepared if there is no signature space on the form) after Dec. 31, 2015.

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