Cross References:
• IR-2011-111, November 22, 2011
• FS-2011-12, November 2011
• TD 9559

The IRS has finalized the return preparer competency exam and it is now available for those taxpayers required to take it. The IRS also indicated that it is currently holding off on requiring certain preparers to submit fingerprints for background checks.

Background. The IRS developed the registered tax return preparer exam as a continuation of the regulatory changes implemented to increase oversight of the tax return preparation industry. The program began by requiring all paid tax return preparers to register with the IRS each year and have a Preparer Tax Identification Number (PTIN). Certain tax return preparers must take additional steps, including passing a one-time competency exam and completing tax compliance and suitability checks.

Registered Tax Return Preparer. Those individuals who pass the competency exam will be designated a Registered Tax Return Preparer (RTRP) and must annually complete 15 hours of continuing education and renew their PTIN. Recently amended Circular 230 (August 2011) also established RTRPs as practitioners under Circular 230. If an RTRP does not complete the requirements or otherwise fails to comply with Circular 230, they may be suspended or disbarred from practice before the IRS. Individuals who have been suspended or disbarred from practice before the IRS are precluded from using the Registered Tax Return Preparer designation.

Enrolled Agents. The process for individuals to become an Enrolled Agent remains unchanged. Enrolled agents must pass a comprehensive three-part IRS test (Special Enrollment Examination) covering individual and business standards and representation rules.

PTIN. Currently, PTINs are issued with either an active or provisional status. Active PTINs are given to Enrolled Agents (EA), Certified Public Accountants (CPA), attorneys, certain supervised preparers, and individuals who do not prepare Form 1040 series returns because these individuals are not required to take the competency exam. Tax return preparers who must pass the competency exam are given a provisional PTIN and have until December 31, 2013, to pass the exam.

Competency exam. All paid tax return preparers (except those noted above) are required to pass a minimum competency exam to become an RTRP and complete returns for compensation.

The exam is administered by Prometric, Inc., and the IRS will notify those preparers who have a testing requirement either in their welcome letter if they are obtaining a new PTIN or in their “next steps” notification when they renew their PTINs online. Individuals use...