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