IRS Tax News

  • 16 Sep 2011 1:10 PM | Anonymous

    Here are some frequently asked questions and answers for electronic accounting software records requests and submissions during Small Business/Self-Employed examinations

    Q1. Why is the IRS using electronic accounting records instead of continuing to use traditional paper books and records in examinations?

    A: Electronic information management has become the standard in the private sector and is now being used to enhance the IRS examination process. Obtaining accounting records in electronic format provides significant advantages:

    • Reduces burden because taxpayers and/or representatives don’t have to print records provided electronically.
    • Provides a complete set of the taxpayer’s accounting records, decreasing the number of items included in the initial document request and follow-up requests.
    • Increases efficiency of the examiner’s analysis and testing of the books and records.

    Q2. How and when will the IRS request electronic accounting software records?

    A: The IRS will request electronic accounting software backup files using Form 4564, Information Document Request (IDR), early in the examination. IRS will also request the administrator's username and password, as they are needed to read most data files.

    The backup file should be provided on a CD, DVD, or a flash/jump drive. E-mail must not be used to transmit electronic records to or from the IRS, a taxpayer, or their representative, to ensure security.

    Q3. What is the IRS doing to address concerns about sharing the accounting software administrator's username and password for the audit?

    A: The taxpayer can preserve any favorite password by changing the administrator's password to a temporary one, such as "IRS Audit." Create the backup file for submission and then change the password back to the original "favorite" one within the main accounting software working file.

    The temporary password must have administrator access to the backup file provided because the IRS needs to have the same access levels as the administrator. If the examiner does not have the administrative password, he or she will not be able to read the data as needed for the examination.

    Q4. What if a taxpayer uses an accounting software program that is not readable by the IRS?

    A: At this time, IRS has the ability to accept and read data files from accounting software programs that are used by most business taxpayers. Taxpayers should consult with the examiner before submitting any type of electronic files.

    Whenever possible, the IRS will work with the taxpayer and their electronic accounting records to reduce the number of information document requests (IDR's). However if the examiner is unable to read the electronic accounting records, he or she will determine the best course of action to complete the audit in a timely, efficient manner.

    Q5. Now that IRS has the ability to accept electronic information from accounting software programs, will backup files be requested in every examination where the taxpayer uses those programs to maintain their books and records?

    A: Using electronic records to conduct examinations should make the audit more efficient for everyone. Examiners will be requesting these files in the majority of cases where the taxpayer already uses electronic accounting software to maintain their books and records. However, if the audit is limited in scope, such as auditing one specific expense item, the examiner may determine that requesting the electronic accounting software file may not be necessary. In broader scope audits, such as when verifying gross income, the backup file will likely be requested by the examiner.

    The professional judgment of the examiner and his or her manager will be used on a case by case basis to determine whether it is appropriate for a particular examination.

    Q6. How will the electronic data be used?

    A: Most accounting software programs can generate a large number of pre-set reports. Each report can be modified to fit the examiner's needs. When working with these reports, the examiner can "drill down" to the underlying data and documents to further investigate items, as appropriate.

    The software also allows the examiner to test the integrity and veracity of the accounting records in making a determination as to the reliability of the records for examination purposes. However, the examiner may still need to request other documents when such records are necessary to properly test a return item or issue.

    Q7. What is the IRS's legal authority for requesting electronic files and other relevant accounting records? How does Revenue Procedure 98-25 impact the IRS' authority to request electronic records from small business taxpayers?

    A: The legal authority for requesting accounting records in electronic format is based on Internal Revenue Code section 7602(a), Internal Revenue Code section 6001, Regulation 1.6001-1(a) and -1(e) (PDF), Revenue Ruling 71-20 and Revenue Procedure 98-25.

    Note that, although Revenue Procedure 98-25 exempts certain taxpayers from the requirements of the Revenue Procedure, this does not create an exemption for any taxpayer from having to produce electronic books and records if they otherwise exist when a business chooses to use an electronic accounting software program to maintain their books and records.

    Q8. What if a taxpayer refuses to provide the IRS with an electronic accounting software backup file or any other type of electronic data file?

    A: Our tax system is set up in such a way that taxpayers fill out their own tax returns and are responsible for maintaining their own books and records.

    Under Internal Revenue Code section 6001 and Regulation 1.6001-1 (PDF), taxpayers are responsible for maintaining sufficient books and records to support the income and deductions claimed on their tax returns and for presenting this information to the IRS when requested to do so in an examination.

    Further, section 7602(a)(1) grants the IRS the authority to examine any books, papers, records or other data that may be relevant or material to a tax examination. Section 7602(a)(2) grants the IRS the authority to summons the books and records.

    If the taxpayer has concerns with providing a copy of their original accounting software backup file, they have the right to discuss the matter with the examiner's manager.

    If a taxpayer declines to submit the requested materials voluntarily, the IRS has the right to summons the information requested, use indirect methods to reconstruct income and/or disallow the items reported for lack of substantiation.

    If the taxpayer or the taxpayer's representative has concerns that the records contain sensitive or privileged information, please see Q&As #14 and #15 for guidance.

    Q9. What if the taxpayer's representative refuses to provide a copy of the taxpayer's electronic accounting backup file?

    A: If the taxpayer's representative chooses to decline to voluntarily submit the requested materials, the IRS has the right to summons the information and the representative could be in violation of Treasury Department Circular No. 230 (PDF).

    Subpart B, section 10.20(a)(1), of the Treasury Department Circular No. 230 (PDF) regulations states that "[a] practitioner must, on a proper and lawful request by a duly authorized officer or employee of the Internal Revenue Service, promptly submit records or information in any matter before the Internal Revenue Service unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged."

    If the taxpayer or the taxpayer's representative has concerns that the records contain sensitive or privileged information, please see Q&As #14 and #15 for guidance.

    Q10. What if the taxpayer or representative agrees to provide a copy of the taxpayer's company backup file; however, rather than providing an exact copy of the original file they create a new file for the IRS?

    A: If the taxpayer or representative creates or reconstructs a new company file, for example, by re-inputting the transactions for only the year under examination, this new file does not satisfy the requirements or needs of the Internal Revenue Service. The new or modified company file is not a copy of the books and records of original entry. The altered electronic file would not meet the requirements of the Information Document Request or a summons and the taxpayer's representative could be in violation of Treasury Department Circular No. 230 (PDF).

    If the taxpayer or representative wants to condense old or closed transactions for dates prior to the years under examination, see Q&A #13 for guidance.

    Q11. Why should a taxpayer submit an accounting software backup file rather than simply export selected reports to Excel? What are the advantages to using the backup file over Excel?

    A: The backup file is an exact copy of the original books of entry and allows the IRS to review and test the integrity of the original electronic records using the software program. This testing cannot adequately be performed on records that have already been converted into Excel spreadsheets. Examiners are required under IRM, Evaluating Taxpayer's Internal Controls, and the related subsections, to acquire an understanding of the accounting system for all types of business returns. An integral part of this process is an evaluation of the taxpayer's internal controls. Examiners use the information obtained during this process to determine the appropriate audit techniques to be used during the examination process.

    Through tests and analysis of the electronic records in their original format examiners can properly evaluate the accounting system (including internal controls) to consider the reliability of the books and records. This process is not unique to examinations where the electronic accounting records have been requested.

    The control structure of an accounting system is often times dependent on the size and nature of the business. Frequently, smaller businesses are not able to establish sophisticated control and accounting processes. This is unlike larger entities where resources are more likely to be available for systems and processes. An examiner will determine the appropriate method(s) for examination based on the accounting system and control structure of the business.

    By reviewing an exact copy of the original backup file, the examiner can view transactions to see the date the transaction was originally created, dates of subsequent changes, what changes were made, and the username of the person who entered or changed the transaction. This type of information is directly relevant to the evaluation of the taxpayer's accounting system and internal controls. If the various reports that are needed for the examination are only provided in spreadsheet format, there is a possibility that certain information, including metadata, could be lost or altered, leaving no reliable audit trail to identify these changes.

    Q12. The accounting software backup file can contain transactional data for several years that are outside the scope of the audit. What, if anything, will the IRS do with that information?

    A: If IRS is given a backup file that includes data for years not under examination, IRS will not utilize that data during the examination of the current year. If based on the results from the current year examination a decision is made to expand the scope of the examination to prior or subsequent years, the taxpayer will be notified. The records may be utilized after that notification.

    However, the examiner may review transactions that occurred in the month prior to and the month after the tax year or the tax periods before and after the ones under examination if the transactions in those timeframes are relevant to the examination. Examiners may also review any transactional data created or changed during the tax year under examination.

    For example, if a business under examination uses the accrual accounting basis, then it will be relevant for the IRS to examine transactions for the month prior to and the month after the tax years under examination to test the cut-off of reported income and expenses. The same is true if a taxpayer creates a transaction to record sales during the year under examination, but the actual transaction is dated in a prior or subsequent year, then the examiner can inquire as to why the taxpayer determined the transaction would not properly be recorded in the year under examination.

    As another example, if the IRS was exploring whether to reconstruct income by an indirect method (e.g., bank deposits or net worth method), then certain information for the tax periods immediately preceding and following the year under audit would clearly be relevant.

    An inspection of the tax returns which are prior or subsequent to the tax years under audit does not constitute an examination of books and records. Examiners are expected to inspect such tax returns in all examinations, and to compare them to the tax returns that are under examination.

    Q13. Can a taxpayer or representative condense or "clean up" the electronic accounting software data file before submission?

    A: Many accounting software programs will condense old, closed transactions occurring prior to a manually selected date. For example, the closing of a prior year. Often this is done to reduce the size of the company data file. The process essentially removes the details of those transactions from the data file and replaces them with summary journal entries, allowing monthly financial statements to be created for old years if needed.

    The ongoing data file (working file) will no longer have the details of old, closed transactions which occurred prior to the manually selected date. However, during the condensing process, the software creates a backup or archive copy of the company data file and this archive copy provides the original detailed records of each old transaction. If you do not have a complete understanding of your software's condensing feature, please contact your software provider for additional guidance before using it.

    Condensed data is not acceptable for the tax year(s) under audit. However, if you choose, the company data file can be condensed (through the clean up or purge feature) for dates prior to the year(s) under audit, as long as they do not include transactions created or changed for time periods under audit, or for transactions from prior years that have an effect on the years under audit.

    If the scope of an audit is expanded, the IRS may request another backup file that was created prior to the date the company file was condensed or request a copy of the archive file created during the condensing process.

    Q14. Accounting software backup files contain sensitive customer, vendor, or other information. Since it is possible that any release of this vital information would damage a business, what assurance does the IRS provide that this information is secure?

    A: The security and privacy of information provided by taxpayers is taken very seriously by IRS. Internal Revenue Code section 6103 prohibits the unauthorized disclosure of information obtained during the course of a tax examination (including any sensitive business information). IRS employees receive annual training on protecting taxpayer information from unauthorized disclosure and are reminded that they could face disciplinary action (up to and including removal) for such disclosures. Also Internal Revenue Code section 7213 provides for criminal penalties for willful violations of section 6103.

    In addition to the section 6103 restriction on disclosure, IRS has procedures in place for examiners on how to protect portable electronic media containing any taxpayer sensitive information. Once the IRS no longer has a business need for the portable electronic media, examiners can return the data to the taxpayer or dispose of it following internal procedures for destruction of sensitive portable electronic media. In addition, any copies made of the taxpayer's electronic files on the examiner's computer will be deleted once the case has been completely closed.

    Q15. What if the accounting software backup file contains privileged information or information that is protected from disclosure by statute?

    A: The issue of privileged communications is the same whether IRS is asking for electronic or paper records. IRM, Privileged Communications and Summons, provides guidance to examiners when a claim of privileged communication is made. Paragraph (2) of the IRM section states, "[p]rivileged communications cannot be obtained by issuing a summons."

    The taxpayer is encouraged to discuss with the examiner if the electronic backup file contains privileged communications or information that is protected from disclosure by statute. The examiner may ask an IRS Counsel attorney for assistance, if a taxpayer claims that records contain privileged communication or that a statute, such as the Health Insurance Portability and Accountability Act (HIPAA), prevents him from complying with a request for the records. Generally, a customer list would not be privileged but there may be unusual circumstances in a particular case that could possibly make the information, when combined with other information, privileged.

    References/Related Topics

  • 14 Sep 2011 5:24 PM | Anonymous

    WASHINGTON - The Internal Revenue Service today announced it is granting taxpayers whose preparers were affected by Hurricane Irene until Sept. 22 to file returns normally due Sept. 15. The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

    This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

    This relief does not apply to any tax payment requirements.

    This relief is in addition to the filing and payment relief the IRS is providing to taxpayers located in disaster areas declared by the Federal Emergency Management Agency (FEMA). For details, visit Tax Relief in Disaster Situations on this website.

  • 14 Sep 2011 5:23 PM | Anonymous

    WASHINGTON -  The Internal Revenue Service today issued guidance designed to clarify the tax treatment of employer-provided cell phones.

    The guidance relates to a provision in the Small Business Jobs Act of 2010, enacted last fall, that removed cell phones from the definition of listed property, a category under tax law that normally requires additional recordkeeping by taxpayers.

    The Notice issued today provides guidance on the treatment of employer- provided cell phones as an excludible fringe benefit. The Notice provides that when an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment.

    Simultaneously with the Notice, the IRS announced in a memo to its examiners a similar administrative approach that applies with respect to arrangements common to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for noncompensatory business reasons, to use their personal cell phones for business purposes may treat reimbursements of the employees' expenses for reasonable cell phone coverage as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee's regular wages.

    Under the guidance issued today, where employers provide cell phones to their employees or where employers reimburse employees for business use of their personal cell phones, tax-free treatment is available without burdensome recordkeeping requirements. The guidance does not apply to the provision of cell phones or reimbursement for cell-phone use that is not primarily business related, as such arrangements are generally taxable.

    Details are in the memo and in Notice 2011-72, posted today on

  • 07 Sep 2011 10:04 AM | Anonymous
    WASHINGTON - The Internal Revenue Service today released the specifications for the competency test individuals must pass to become a Registered Tax Return Preparer.

    The test is part of an ongoing effort by the IRS to enhance oversight of the tax preparation industry. Preparers who pass this test, a background check and tax compliance check as well as complete 15 hours of continuing education annually will have a new designation: Registered Tax Return Preparer.

    The specifications identify the major topics that will be covered by the test, which will be available starting this fall. Although individuals who already have a provisional preparer tax identification number (PTIN) from the IRS do not have to pass the exam until Dec. 31, 2013, they may take the exam at any time once it is available.

    The test will have approximately 120 questions in a combination of multiple choice and true or false format. Questions will be weighted and individuals will receive a pass or fail score, with diagnostic feedback provided to those who fail.

    Test vendor Prometric Inc. worked with the IRS and the tax preparer community to develop the test. The time limit for the test is expected to be between two and three hours. The test must be taken at one of the roughly 260 Prometric facilities nationwide.

    To assist in test preparation, the following is a list of recommended study materials. This list is not all-encompassing, but a highlight of what the test candidates will need to know.

    Some reference materials will be available to individuals when they are taking the test. Prometric will provide individuals with Publication 17, Form 1040 and Form 1040 instructions as reference materials.

    The fee for the test has not been finalized but is expected to be between $100 and $125, which is separate from the PTIN user fee. Currently there is no limit on the number of times preparers can take the test, but they must pay the fee each time. Individuals must pass the test only once.

    Only certain individuals who prepare the Form 1040 series are required to take the test. Attorneys, Certified Public Accountants and Enrolled Agents (EAs) are exempt from testing and continuing education because of their more stringent professional testing and education requirements. Also exempt are supervised employees of attorneys, CPAs, attorneys or EAs who prepare but do not sign and are not required to sign the Form 1040 series returns they prepare and individuals who prepare federal returns other than the Form 1040 series.

    Approximately 730,000 return preparers have registered and received PTINs in 2011. Approximately 62 percent do not have professional credentials. The IRS does not yet know how many preparers will fall into other exempt categories, but those individuals will be required to identify themselves when they renew an existing PTIN or obtain a new PTIN beginning in October 2011.

    The IRS will notify those preparers who have a testing requirement and provide more details. Once the test is available, preparers who have on-line accounts can use their accounts to schedule a test time and select a Prometric site.

    At the time the current version of Publication 17 went to press, there were certain tax benefits that had not been finalized and several tax benefits were subsequently extended. See Legislative Changes Affecting the 2010 Publication 17 on for the details needed for study purposes.
  • 08 Aug 2011 9:53 AM | Anonymous

    The updated Circular 230, revised to reflect the new return preparer oversight program and other changes, is now available on You may want to bookmark for easy reference.

  • 11 Jul 2011 5:00 PM | Anonymous
    WASHINGTON - The Internal Revenue Service announced today that it has reached an agreement with the Millennium Multiple Employer Welfare Benefit Plan (Millennium Plan).

    The Millennium Plan is presently the subject of a bankruptcy proceeding that was filed on June 9, 2010, in the U.S. Bankruptcy Court for the Western District of Oklahoma (Case No. 10-13528). Under the agreement reached with the IRS and the terms of the Order Confirming Modified Plan dated June 16, 2011, the Millennium Plan will terminate its operations, liquidate its assets and distribute approximately $80 million in assets to individual participants.

    The agreement with the IRS resolves certain issues relating to an IRS investigation into the design, marketing, operation and management of the Millennium Plan. The agreement with the IRS also provides a procedure for resolving hundreds of income tax and penalty examinations of employers and employees who participated in the Millennium Plan.  Finally, the agreement with the IRS addresses tax issues relating to the liquidation of the Millennium Plan, including information reporting and income tax withholding requirements.

    Section 6103 of the Internal Revenue Code strictly controls the disclosure of tax information.  In connection with this agreement, the Millennium Plan consented to the IRS issuance of this news release.
  • 11 Jul 2011 4:54 PM | Anonymous
    A home disaster can be stressful enough without reconstructing important records and accounting for belongings. The Internal Revenue Service encourages taxpayers to safeguard their financial and tax records before disaster strikes. Listed below are four simple tips for individuals on preparing for a disaster.

    1. Recordkeeping - Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents electronically and important documents like W-2s and tax returns can be scanned into an electronic format and stored on a flash drive or CD in a safe place. Keep it with other essential documents like home-closing statements, vehicle titles, insurance records and birth, death or marriage certificates and legal paperwork. Some online services can automatically back up computer files and store them offsite. Regardless of how you save your documents (whether it is electronically or on paper) ensure they are safe from the elements, but also encrypted and/or locked up to guard against disclosure or theft. 

    2. Document Valuables - The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos or video in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims in the event of a disaster. 

    3. Update Emergency Plans - Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches or if a fire occurs.  Review your emergency plans annually. 

    4. Count on the IRS - In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been affected by a federally declared disaster, you can receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return.  Clearly indicate the official name of the disaster in red at the top of the form, to expedite processing and waive the usual fee for tax return copies.
    For more information type “Preparing for a Disaster” in the search box at

  • 05 Jul 2011 12:27 PM | Anonymous
    WASHINGTON - The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

    The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51. In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

    "This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

    While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

    The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

    The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

    The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

    Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

    Mileage Rate Changes

     Purpose  Rates Jan 1 through June 30, 2011
     Rates July 1 through December 31, 2011
     Business  51 cents
     55.5 cents
     Medical/Moving  19 cents
     23.5  cents
     Charitable  14 cents
     14 cents

  • 14 Jun 2011 10:32 AM | Anonymous
    The IRS has just released the final Circular 230 regulations.  The regulations affect those who practice before the IRS and providers of continuing education programs.  To the read the regulations, click here.
  • 10 Jun 2011 5:57 PM | Anonymous
    WASHINGTON As part of an initiative to ensure that tax return preparers are competent and qualified, the Internal Revenue Service today issued final regulations requiring paid tax return preparers to register with the IRS to obtain a Preparer Tax Identification Number (PTIN). A new online application system to obtain a PTIN is now available.

    All paid tax return preparers who prepare all or substantially all of a tax return are required to use the new registration system to obtain a PTIN.

    Access to the online application system will be through the Tax Professionals page of Individuals who currently possess a PTIN will need to reapply under the new system but generally will be reassigned the same number.

    Getting a new, industry-wide registration system in place is essential to our efforts to improve the standards and oversight of tax return preparation, said IRS Commissioner Doug Shulman. These efforts are essential to the future of the nations tax system. This will create higher standards for the tax preparation community and ensure quality service for taxpayers.

    The IRS set up a special toll-free telephone number, 1-877-613-PTIN (7846), that tax professionals can call for technical support related to the new online registration system.

    Applicants will pay a $64.25 fee to obtain a PTIN, which will be valid for one year. As part of that fee the IRS will receive $50 per user, as authorized by final user fee regulations issued by the IRS today, to pay for technology, compliance and outreach efforts associated with the new program. And a third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

    Receipt of a PTIN will be immediate after successful online registration. Or a paper application may be submitted on Form W-12, IRS Paid Preparer Tax Identification Number Application, with a response time of four to six weeks. Before registration, applicants should consider that the date the PTIN is assigned is established as the annual renewal date.

    Individuals without a Social Security number will also need to provide one of the following: Form 8945, PTIN Supplemental Application for U.S. Citizens Without a Social Security Number Due to Conscientious Religious Objection, or Form 8946, PTIN Supplemental Application for Foreign Persons Without a Social Security Number.

    The new online registration system and final regulations are part of a series of steps underway to increase oversight of federal tax return preparation.

    In January, Shulman announced the results of a comprehensive six-month review of the tax return preparer industry, which proposed new registration, testing and continuing education of federal tax return preparers. With 60 percent of American households using a tax preparer to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Currently, many return preparers do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.

    Work on Testing, Continuing Education Components Continue

    The start of the PTIN registration process begins as the IRS continues to review the testing and education components of the return preparer initiative as recently announced in proposed regulations that would amend Treasury Circular 230.

    The proposed Circular 230 regulations announced that attorneys, certified public accountants and enrolled agents would not be subject to additional testing or continuing education requirements in order to obtain a PTIN. These professionals are currently subject to strict professional standards of conduct and ethics.

    Pending finalization of guidance, the IRS has under serious consideration extending similar treatment to a discrete category of people who engage in return preparation under the supervision of someone else -- for example, some employees who prepare all or substantially all of the return and work in certain professional firms under the supervision of one of the above individuals who signs the return.

    The IRS will provide guidance defining this area in the coming months, and will continue to seek feedback during this process to help ensure the creation of a fair, equitable oversight system that minimizes burden.

    On the continuing education requirements, the IRS recognizes the need to have transition rules in place and plans to issue additional guidelines by the end of the year.

    For more, see the Tax Professionals page on, which features an FAQ page on the new registration system and who needs a PTIN.

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