New Circular 230 Released: Welcome RTRPs!

Ah, the acronym. In the world of tax preparation there are Enrolled Agents (EAs), Certified Public Accountants (CPAs), Attorneys (the acronym fails me here), and the new Registered Tax Return Preparers (RTRPs).

The IRS regulates tax professionals who practice before the IRS under Circular 230. This mostly involves EAs, CPAs, and attorneys: These groups have full practice rights before the IRS. I’m an Enrolled Agent; I can represent you in any stage of the process from return preparation to appeals.

You will notice that there’s a group that’s missing: the unlicensed tax preparer. The IRS believes that many of these individuals have been doing a poor job; IRS Commissioner Shulman has wanted to expand IRS regulation to cover all tax professionals. (Currently, licenses are required for all tax preparers solely in California and Oregon.)

Last fall a draft of the new Circular 230 was released. Today, the final version was released. (The new regulations do not appear to be available on the IRS website yet. However, you can find them here.)

Here are some highlights:

  1. Anyone preparing a Form 1040 series return will need to be an EA, CPA, attorney, or RTRP.
  2. RTRPs will need to pass a competency exam, a suitability test, and pay a fee to obtain their license.  They will also be required to have a PTIN.
  3. RTRPs will need 15 hours of continuing education each year.
  4. RTRPs will not have full practice rights before the IRS.  They can represent taxpayers in audits, but only for returns they prepare.  They cannot represent taxpayers in appeals.
  5. RTRPs will not have Section 7275 “privilege” with their clients.  This is the limited accountant/client privilege that exists for civil matters (including audits).
  6. The new Circular 230 has dropped the requirement that organizations that provide continuing education have each class pre-approved by the IRS.
  7. Disreputable Conduct includes willfully not filing returns electronically when required to.

What does this mean for the public? Beginning in 2013, everyone who legitimately prepares tax returns for a fee will be licensed. Will this get rid of all the bad apples? Of course not. Today, there are CPAs, EAs, and attorneys who get disbarred. This will get rid of the low-hanging fruit, but there will still be individuals who buy a copy of TurboTax and prepare returns for money and just don’t sign the returns. If such returns are paper filed, it’s difficult (if not impossible) to catch those individuals.

I have been neutral on Commissioner Shulman’s power grab (as Joe Kristan has called it). Licensing should do some good but it will expand a bureaucracy (which I don’t like). The one issue within the new Circular 230 I am very pleased about is the elimination of the requirement that every class offered by a continuing education provider had to be pre-approved. That proposal would not have worked and was likely unconstitutional.

The new Circular 230 goes into effect 60 days following its publication in the Federal Register. That likely makes the implementation date around September 1st.

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