How Much Does Your Tax Preparer Really Know

How much does your tax pre­parer really know? In the past, any­body, whether they knew what they were doing or not, could pre­pare taxes for money. In 2011 the IRS began a pro­gram designed to bring unli­censed pre­par­ers into the fold. All tax pre­par­ers are now sub­ject to Cir­cu­lar 230, but imple­men­ta­tion does not hap­pen over night. In advance of test­ing tax pre­par­ers for their knowl­edge, the IRS issued a num­ber of pro­vi­sional Pre­parer Tax Iden­ti­fi­ca­tion Num­bers (PTINs), so that peo­ple in the tax prepa­ra­tion busi­ness could con­tinue to work, while they waited for the RTRP com­pe­tency exam to come online. Hun­dreds of thou­sands of unli­censed tax pre­par­ers renewed their PTINs in advance of the test­ing start date, obtain­ing the abil­ity to pre­pare tax returns with­out demon­strat­ing their com­pe­tency. Peo­ple who obtain pro­vi­sional PTINs have until Decem­ber 31, 2013 to pass the Reg­is­tered Tax Return Pre­parer (RTRP) Exam.

The IRS rolled out RTRP exam some time ago, and once the exams started the IRS stopped issu­ing pro­vi­sional PTINs. Only peo­ple who pass the exam can use the RTRP des­ig­na­tion. Just like Enrolled Agents (EAs), the IRS main­tains a list of peo­ple who hold the RTRP des­ig­na­tion as well, so you can check to see if your pre­parer is licensed. Right now there is no search­able online data­base, but the IRS says one is com­ing soon.

The RTRP exam only cov­ers series 1040 tax returns. Those PTIN hold­ers who swear they will not pre­pare series 1040 tax returns will still be able to pre­pare other kinds of tax returns with out demon­strat­ing their com­pe­tency to pre­pare those other kinds of tax returns, as the IRS has not cre­ated exams for those other kinds of tax returns and may not do so for some time to come.

How many RTRPs are there now? The Mem­ber Con­nect por­tion of the National Soci­ety of Accoun­tants Web site reported that as of late Sep­tem­ber 2012, the Return Pre­parer Office of the IRS had issued 20,514 cer­tifi­cates to new RTRPs and the total num­ber of peo­ple who still needed to pass the com­pe­tency exam was 327,000. Those pro­vi­sional PTIN hold­ers are not break­ing down the doors to prove they know what they are doing; since licens­ing started, only 6% of pro­vi­sional PTIN hold­ers have both­ered to get licensed.

What do you need to know to pro­tect yourself?

If your paid tax pre­parer does not have a PTIN and refuses to sign with one, you need to be very sus­pi­cious; they are break­ing the law.

Even if your paid tax pre­parer has a PTIN, but they do not have a license, such as an EA, or RTRP, they have not demon­strated their com­pe­tency to pre­pare your indi­vid­ual tax return. All pro­vi­sional PTIN hold­ers can pre­pare any tax return through 2013; sure, they are sup­posed to know what they are doing, and can lose their PTIN if they wind up in front to the IRS for doing a bad job, but that will not help you, after the fact.

Remem­ber, if you have other kinds of tax returns you need pre­pared, and if you want to be sure the tax pre­parer has demon­strated some com­pe­tency to pre­pare that kind of tax return, you will want to hire an EA, the tax spe­cial­ists, or CPA or attor­ney who spe­cial­izes in tax issues. An RTRP or unli­censed PTIN holder has not demon­strated com­pe­tency to pre­pare these other kinds of tax returns can still do so; again, even an unli­censed tax pre­parer is sup­posed to know what they are doing, and can lose their PTIN if they wind up in front to the IRS for doing a bad job, but that will not help you, after the fact.

You are the one sign­ing that the tax return is true and cor­rect to the best of your knowl­edge; you will be respon­si­ble for what­ever your tax pre­parer does with your tax return.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness. If you need help with taxes, or other ser­vices, Please give Art & Busi­ness Con­sult­ing a call. We would love to engage you as a client.

Jake Beck­man, EA & Chief Small Busi­ness Prob­lem Solver at Art and Busi­ness Consulting LLC