CPA-Supervised Nonsigning Preparers Exempted From Exam, Continuing Education

The IRS issued guidance on new regulations governing tax return preparers (Notice 2011-6), and provided an exception to its return preparer regulation plan for nonsigning preparers supervised by a CPA, attorney, enrolled agent or other Circular 230 practitioner. The notice also provides an exception for individuals who prepare returns that are not covered by the IRS’ planned competency exams.

As part of the new regime, Treas. Reg. § 1.6109-2(d) provides that beginning Jan. 1, 2011, a tax return preparer must be a CPA, attorney, enrolled agent, or “registered tax return preparer” to obtain a preparer tax identification number (PTIN), which is required for all preparers who for compensation prepare all or substantially all of a tax return. “Registered tax return preparer” is a new category comprising return preparers who have met the IRS’ competency testing and continuing education requirements, or will, once those are developed.

Supervised nonsigning preparers. In Notice 2011-6, the IRS carved out an AICPA-advocated exception from the competency examination and continuing education requirements allowing nonsigning preparers who are 18 or older and for compensation prepare, or assist in the preparation of, all or substantially all of a tax return or claim for refund to obtain a PTIN if:

• The individual is supervised by a Circular 230 practitioner (that is, an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary authorized to practice before the IRS);
• The supervising Circular 230 practitioner signs the tax returns or claims for refund prepared by the individual;
• The individual is employed at the law firm, CPA firm or other recognized firm of the tax return preparer who signs the tax return or claim for refund; and
• The individual passes the IRS-required tax compliance check and suitability check (when available).

The notice provides definitions of “law firm,” “CPA firm,” and “recognized firm” for purposes of the exception. A CPA firm is “a partnership, professional corporation, sole proprietorship, or any other association that is registered, permitted, or licensed to practice as a certified public accounting firm in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia.” A “recognized firm” is any similar entity other than a law firm or CPA firm that “has one or more employees lawfully engaged in practice before the IRS and that is 80 percent or a greater percent owned by one or more” Circular 230 practitioners.

Individuals who receive PTINs under this exception will not be required to meet the competency examination or continuing education requirements that will be imposed on registered tax return preparers. However, such individuals must not sign any tax returns that they prepare or assist in preparing for compensation. They cannot represent taxpayers before the IRS, and they cannot claim to be either a registered tax return preparer or a Circular 230 practitioner.

The IRS warns that nonsigning preparers who qualify under this exception are subject to the duties and restrictions in subpart B of Circular 230, even though they are not Circular 230 practitioners.

Preparers of returns not covered by competency exam. At least initially, the IRS will test preparers only on Form 1040 returns. Notice 2011-6 provides that individuals may obtain a PTIN without passing the competency examination if they certify that they do not prepare or assist in preparing the Form 1040 series (or other returns covered by future examinations) and they pass the required tax compliance check and suitability check (when available). These individuals will also be excused from the continuing education requirements, although the IRS says that it may require them to meet those requirements in the future.

Forms that do not require a PTIN. The regulations specify that the PTIN requirement applies to any return, claim for refund or tax form submitted to the IRS unless specifically excluded. The notice listed 28 forms or series of forms not subject to the PTIN requirement. They include some common information reporting forms, such as Forms W-2 and W-7 and the Form 1099 and 1098 series, as well as several types of applications and requests.

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