IRS and tax preparer registration: Good for taxpayers

As of the 2011 tax year, the Internal Revenue Service (IRS) now requires that tax preparers who are paid to file tax returns must be certified and registered with the IRS.  The IRS outlines this program on the IRS website.

The IRS is establishing this requirement because too many tax preparers in the past, who advertised themselves as professionals, were in fact lacking in both the training and experience needed to file a tax return that was accurate and complete.  Many of these tax preparers were simply uninformed about the appropriate way to calculate tax returns and complete the filing process, but some were outright filing returns in a fraudulent manner (or simply failing to file returns, even though they were telling their clients the returns had been filed).  As a result, many taxpayers were left paying the penalty, literally, as the taxpayers had to deal with the fines and penalties handed down by the IRS because of the improperly filed tax returns.

This registration requirement applies to tax preparers whether they are filing tax returns for individuals or businesses.  This requirement primarily affects individual tax preparers who do not already hold a certification related to tax matters.  Certified Public Accountant (CPA) and tax lawyers are exempt from this registration process, as the IRS deemed that the respective professional organizations of these individuals were already holding these individuals to an appropriate standard, in part because they must complete continuing education courses that keep the individuals apprised of current tax laws and filing requirements.  In addition, the registration process only applies to people who charge for their services.  This means that volunteers who prepare returns for the elderly or others who cannot afford to pay for tax preparation services do not have to adhere to the registration process.

To become a registered tax preparer, an individual must pass a certification exam, pay a filing fee, and adhere to the annual renewal process.  When a tax preparer becomes certified, the IRS assigns that individual a registration number known as a Preparer Tax Identification Number (PTIN).  The PTIN serves two main purposes.  First, the tax preparer must provide their PTIN to the IRS when they file a tax return.  This allows the IRS to track all of the returns prepared by a given tax preparer and monitor those returns for issues, such as a large number of errors or other signs that may be indicative of a lack of knowledge or fraud.  Second, it allows a taxpayer to verify that a tax preparer is registered before they chose to use that tax preparer to file their taxes.  The tax preparer can simply look up the PTIN in a database maintained by the IRS to confirm the tax preparer is registered and in good standing with the IRS.

The PTIN is good for taxpayers for two reasons.  First, it should improve the quality of service taxpayers receive from tax preparers.  The PTIN program increases the minimum standard of training that all tax preparers must adhere to, which should translate to fewer fines and penalties handed out by the IRS to taxpayers for tax returns with mistakes or other problems.  Second, it should reduce the cost of having a professionally prepared tax return.  While some may believe that tax preparers will attempt to pass on the certification costs to their customers, as more and more individuals gain certification as registered tax preparers, the presence of increased competition in the market will ultimately drive down the cost.  Whereas before a taxpayer had to go to a CPA or tax lawyer to have their tax return prepared by a certified individual, there is now a third group of individuals—those with the PTIN designation—who are certified tax preparers.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.