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CCH® PENSION — 10/18/10

IRS issues new guidance on identification numbers for tax return preparers

All tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of a U.S. federal tax return or claim for refund must obtain a Preparer Tax Identification Number (PTIN), according to recently updated IRS Frequently Asked Questions. The PTIN will be the exclusive identifying number for tax return preparers. All preparers will need to be registered in the new system, which is available now, and obtain a PTIN before filing any return after December 31, 2010.

This new requirement even applies to those who already have a PTIN. Thus, in addition to any other fees that must be paid for other certifications or licenses, all paid tax return preparers must pay a fee to obtain and renew their PTINs.

Competency tests

Competency tests will be required for all paid tax return preparers, except attorneys, certified public accountants (CPAs), and enrolled agents (EAs) who are active and in good standing with their respective licensing agencies. Thus, attorneys, certified public accountants, and enrolled agents will not have to pay for the separate testing fee.

After individuals receive PTINs and pass the IRS competency test, they will become a Registered Tax Return Preparer. The IRS expects testing to begin in mid-2011. Tax return preparers who have PTINs before testing becomes available will have until December 31, 2013 to pass the competency test. After testing becomes available, individuals will have to pass the competency test before they can obtain a PTIN. More guidance will be available in Spring 2011, according to the IRS.

Enrolled retirement plan agents (ERPAs) and enrolled actuaries must obtain a PTIN if they are compensated for preparing, or assisting in the preparation of, all or substantially all of a federal tax return or claim for refund. However, they will be exempt from the competency test requirement if they only prepare returns within the limited practice areas of these groups.

CCH Note: ERPA is a new category of practitioner that can represent retirement plans before the IRS. An individual becomes an ERPA by passing a two-part exam, applying to the IRS and passing tax compliance and background checks. ERPAs can represent taxpayers on most retirement issues including: IRS Forms 5300 and 5500 issues (but not actuarial forms), Employee Plans Determination Letter program, Employee Plans Compliance Resolution System (EPCRS) program, and Employee Plans Master and Prototype and Volume Submitter program.

Continuing professional education

The IRS has proposed that paid tax return preparers be required to complete annual continuing education. This requirement will not apply to attorneys, CPAs, EAs, enrolled actuaries, and ERPAs because of their existing education requirements. However, attorneys and CPAs whose states do not require continuing education will not be subject to the new annual continuing education requirements. All attorneys and CPAs will be exempt from the new continuing education requirements, according to the IRS. If data is collected in the future that identifies a need, the IRS will consider expanding the continuing education requirements to additional individuals.

The beginning date for continuing education has not been determined. The IRS recognizes the need for transition rules and plans to issue additional guidelines by the end of the year.

Source: New Requirements for Tax Return Preparers: Frequently Asked Questions and IR-2010-99, September 28, 2010.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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