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IRS summarizes current rules for federal tax return preparers, encourages AFSP status

IRS Publication 4938, “Federal Tax Return Preparers: What You Need To Know.”

IRS’s Return Preparer Office has revised its publication titled “Federal Tax Return Preparers: What You Need To Know.” It summarizes the state of play for tax return preparers and makes a pitch for noncredentialed preparers to obtain Annual Filing Season Program (AFSP) status as it’s the only way they can secure limited representation rights for their clients.

Background. In 2011, IRS issued regs that mandated testing and continuing education (CE) for paid tax return preparers and created the registered tax return preparer (RTRP) credential. However, in 2014, 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 2014-867113 AFTR 2d 2014-867, see Weekly Alert ¶  10  02/13/14)

In June of 2014, IRS announced a voluntary education program, the Annual Filing Season Program (AFSP), for unenrolled return preparers and others, that first went into effect for the 2014-2015 filing season. (IR 2014-75; see Weekly Alert ¶  33  07/03/2014) In brief, those who choose to participate meet the program’s requirements by obtaining 18 hours of continuing education, including a 6-hour federal tax law refresher course with test. The return preparer must also renew his or her preparer tax identification number (PTIN) for the upcoming year and consent to adhere to the obligations in Circular 230, Subpart B and section 10.51. A Record of Completion is sent to AFSP participants.

In IR 2015-123, IRS provided that, effective for tax returns and claims for refunds prepared and signed after Dec. 31, 2015, the limited right to represent clients before IRS held by noncredentialed tax return preparers will be accorded to only those preparers participating in the IRS AFSP.

State of play. Under the holding in Loving, anyone can prepare a tax return for pay as long as, says IRS, they register and obtain a PTIN. The fee to obtain or renew a PTIN is $50, and the PTIN renewal period begins each year in October for the upcoming year.

The Return Preparer Office’s summary of the current rules makes it clear that the key differences between the different types of preparers are: taxpayer representation; continuing education; and appearance on IRS’s list of preparers.

Taxpayer representation. Attorneys, CPAs, and enrolled agents have unlimited representation rights and are permitted to represent clients before IRS on any tax matters. However, AFSP participants have limited representation rights, meaning they can represent clients whose returns they prepared and signed, but only involving initial audits, customer service matters and before the Taxpayer Advocate Service. What’s more, to have limited representation rights for any tax return or claim for refund prepared and signed after Dec. 31, 2015, return preparers must participate in the AFSP both in the year of return preparation and the year of representation.

RIA observation: IRS has revised Form 2848, Power of Attorney and Declaration of Representative, to reflect the fact that, effective with respect to returns prepared and signed after Dec. 31, 2015, the only noncredentialed tax return preparers that can be assigned power of attorney are those that have a valid AFSP Record of Completion; see Weekly Alert ¶  30  01/17/2016.

PTIN holders without an AFSP – Record of Completion or other professional credential have limited representation rights for returns prepared before Jan. 1, 2016; for returns prepared after Dec. 31, 2015, they are only permitted to prepare tax returns, not to represent clients before the IRS.

Continuing education. CE is mandatory for credentialed tax return preparers—attorneys, certified public accountants (CPAs) and enrolled agents. Noncredentialed AFSP participants, as well as credentialed enrolled agents, must take courses from IRS approved CE providers. IRS says that CE is “encouraged” for all tax return preparers.

Appearance on IRS’s list of preparers. IRS provides a public listing on its website of certain tax return preparers. The searchable listing includes the name, city, state, zip code, and credentials of all attorneys, CPAs, enrolled agents, enrolled retirement plan agents and enrolled actuaries with a valid PTIN. It also includes current year AFSP participants, but not other noncredentialed preparers.

References: For who is a tax return preparer, see FTC 2d/FIN ¶  S-1117  ; United States Tax Reporter ¶  77,014.24; TaxDesk ¶  867,002  TG ¶  71753. For standards of practice, see FTC 2d/FIN ¶  T-10900; TaxDesk ¶  867,008  TG ¶  71758.