IRS Finalizes Circular 230 Regulations

The IRS issued final regulations (TD 9527) implementing components of its initiative to register and regulate all paid tax return preparers. The regulations, which finalized proposed regulations issued in August 2010 (REG-138637-07) revise Circular 230.


Paid preparers of all or substantially all of certain tax returns and claims for refunds must register by obtaining a preparer tax identification number (PTIN) and passing a tax compliance and suitability check. Preparers who are not CPAs, attorneys or enrolled agents must also pass a competency examination and fulfill continuing education requirements. (Also exempt from testing and continuing education are nonsigning preparers working in firms under the supervision of a signing CPA, attorney or enrolled agent—see Notice 2011-6.)


The final regulations adopted the proposed new designation of “registered tax return preparer.” They set forth procedures and requirements for renewing that designation, including the composition of continuing education. The continuing education must be 15 hours annually, of which at least three hours are federal tax law updates, with two hours of tax-related ethics and 10 hours of federal tax law topics.


In a preamble, the IRS noted it was adopting the term “registered tax return preparer” despite objections to the designation from some commenters, which had included the AICPA. However, the IRS also simultaneously issued Notice 2011-45, which places restrictions on the use of the term by preparers. Specifically, preparers with a provisional PTIN, that is, those who have not fulfilled all requirements including some still under development, such as the competency exam, may not represent that they are registered tax return preparers. Registered tax return preparers also must comply with applicable rules in Circular 230 regarding advertising and solicitation, which will be amended to require individuals who represent themselves as registered tax return preparers in any paid advertising involving print, television or radio to include in any such display or broadcast the statement “The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to”


The IRS Office of Professional Responsibility (OPR) will continue to enforce the Circular 230 provisions relating to practitioner conduct and discipline, but the final regulations generally remove references to the OPR with respect to registered tax preparers to “allow flexibility to adjust responsibility appropriately between [OPR and IRS functions enforcing Title 26 requirements] as the return preparer initiative is implemented.” The IRS has established a Return Preparer Office, which will be charged with general administration of the registered tax return preparer program.


Continuing education delayed, no preapproval of courses. In response to recommendations by the AICPA and others, and to allow sufficient time to develop procedures and mechanisms, the IRS in the final regulations postponed its implementation of continuing education requirements for at least the first year of preparer registration, which began Sept. 30, 2010.


Competency testing to go forward. The IRS did not adopt suggestions by some commenters, including the AICPA, that it delay implementation of the testing requirement, although it noted that the examination will not be available until sometime after the effective date of the final regulations (Aug. 2, 2011). The preamble states that the examination initially will be limited to Form 1040 series tax returns.


Preparer penalties. The regulations also finalized rules governing standards of practice, harmonizing section 10.34 of Circular 230 with the preparer civil penalty standards of IRC § 6694(a) requiring “substantial authority” for a tax position to be considered reasonable.


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