Ohio Central Area Tax
Administrators
Small Business/Self-Employed Division
Winter 2011
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Return Preparer Review
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What is new?
PHASE ONE
 Mandatory registration for all preparers
including those who already have a PTIN
 Annual user fee $64.25
 SSN no longer valid ID number for paid
preparers beginning Jan. 1, 2011. Must use
PTIN
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Who needs a PTIN?
Any individual who is compensated for
preparing, or assisting in the preparation
of, all or substantially all of a U.S.
federal tax return or claim for refund
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Future Governance
Return Preparer
Office
Office of Professional
Responsibility
David Williams, Director
Karen Hawkins, Director
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Registration
PTIN System
Testing
Continuing Education
Compliance
• Adherence to ethical
conduct and
professional standards
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For PTIN assistance
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FAQs on www.IRS.gov/taxpros
Primary Toll-Free: 877-613-PTIN (7846)
TTY: 877-613-3686
Toll Number for International Callers: +1
319-464-3272
• Hours of Operation: Monday - Friday, 8:00
a.m. - 5:00 p.m. (CST)
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Background Checks
Fingerprint checks will potentially be
implemented in mid-2011 for individuals
who are not attorneys, CPAs, or enrolled
agents
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Suitability Checks –
Tax Compliance
 All preparers will be subject to tax
compliance checks:
– Have all returns been filed?
– Have all taxes been paid (or proper
payment arrangements made)?
 Tip:
– Be proactive. Resolve any tax
compliance issues now.
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Competency Testing
 Many preparers will be required to pass a
competency test by Dec. 31, 2013
 Testing will begin approximately mid-2011
 Exempt from testing:
– Attorneys, CPAs, and enrolled agents
– Certain supervised preparers
– Those who prepare no Form 1040 series returns
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Competency Testing
 The initial test(s) will be for individuals who prepare
Form 1040 series returns.
 After competency testing has begun, new nonexempt preparers will be required to pass a
competency test prior to obtaining a PTIN
 After passing the test, the individual is officially an
“Registered Tax Return Preparer”
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Continuing Education
 Registered Tax Return Preparers will have
a new requirement to complete 15
continuing education hours per year:
– 3 hours of federal tax law updates
– 2 hours of ethics
– 10 hours of federal tax law
 The CE requirement has not begun. The
earliest it will begin is Fall 2011
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Target Implementation Timeline
2010
2011
Searchable
database
available
January 31
September 15
Testing
available
June 1
September 15
PTIN sign-up
begins
CE
requirement
begins - TBD
December 31
PTIN
renewals
begin
PTIN
revoked if
competency
test not
passed
2012
2013
2014
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Additional Ongoing Efforts
• Extension of Circular 230 ethical standards
to all paid tax return preparers
• Development of a comprehensive return
preparer enforcement strategy
• Development of a public awareness
campaign to educate taxpayers, preparers,
and employees on the new requirements
and standards
• Creation of a public database
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E-File Mandate
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Preparer E-File Mandate
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Upcoming changes:
- Tax return preparers who prepare 100 or
more individual or trust returns in 2011 will
be required to e-file
- Tax return preparers who prepare 11 or
more individual or trust returns in 2012 will
be required to e-file
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Additional guidance on exceptions,
waivers, and taxpayer opt-outs is in
development
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Proposed Exceptions
 The client chooses to file on paper
 An e-filed return is rejected by IRS e-file and the
reject condition cannot be resolved
 The preparer:
– Receives a hardship waiver
– Is a member of a recognized religious group that is
conscientiously opposed to filing electronically
– Has a software package does not support a form or
schedule attached to a return
– Is ineligible to e-file because the preparer is a foreign
preparer living and working abroad and does not have a
social security number, or
– Is ineligible to e-file due to an IRS sanction
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Pending New Forms
 Form 8944, Preparer e-file Hardship
Waiver Request
 Form 8948, Preparer Explanation
for Not Filing Electronically
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Client Prefers Paper
 Preparer should:
– Explain the new law and benefits of
e-file
– Obtain a signed statement
– Attach Form 8948 to the return
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Preparer E-File Mandate
 In preparation for the 2011 filing season:
– If you file 100 or more individual or trust returns,
are you enrolled and accepted to e-file? Do you
have an Electronic Filing Identification Number
(EFIN)?
 If yes, all you need to do is file your customers’
returns electronically
 If no, the first step is to enroll to participate in IRS efile, also known as becoming an Electronic Return
Originator (ERO). You may do this anytime. Visit
IRS.gov and click on the e-file logo.
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Enroll
• Enroll soon but no later than 45 days prior
to e-filing
• Register for e-Services at IRS.gov and
complete e-file application
• Mail required documents to the IRS
• Update e-file application within 30 days of
changes
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Elimination of FTD Coupons
Regulation 153340-09
Electronic Funds Transfer of
Depository Taxes
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Elimination of FTD Coupons
• Decision based on many factors:
– Excessive cost to upgrade and maintain
PATAX system
– The free service of accepting and
processing coupons was no longer in many
banks’ business plans
– Many banks had already stopped
accepting coupons.
– Deposit alternatives are available.
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Elimination of FTD Coupons
Implementation Plan
• Intent Letters will be issued to taxpayers
who made a coupon deposit over the prior
18 month period.
• The letter informs taxpayers they will no
longer be able to use a paper federal tax
deposit coupon after Dec.31, 2010.
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Elimination of FTD Coupons
Implementation Plan
• The letter informs taxpayers they are
pre-enrolled in EFTPS and instructs
them on how to activate the Personal
Identification Number provided.
• When the final regulation is approved,
these same taxpayers will be notified
that federal tax deposits must be made
by EFTPS.
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Elimination of FTD Coupons
Implementation Plan
• Alternative payment options will be shared
with stakeholders, which include:
– Federal Tax Application (same-day wire
transfer) for taxpayers with a U.S. bank
account.
– Payment with return if the payment falls at
or below the de minimus amount
prescribed for the particular return.
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Earned Income Tax Credit
Compliance Initiatives &
Due Diligence
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Targeted Compliance Aims to
Improve Accuracy
EITC return preparers may get
letters or personal visits from the
IRS starting Fall 2010
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Focus: Reducing Errors
• Help new EITC preparers
• Check for understanding among
experienced preparers
• Conduct on-site due diligence audits of
preparers filing returns with high
probability of EITC errors
• Bar egregious preparers with a history of
non-compliance from return preparation
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Consequences
• Civil penalties for preparers
• Penalties, repayment and interest for
clients
• Return-related preparer penalties can
also result in
– Disciplinary action by OPR
– Suspension or expulsion from IRS e-file
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Due Diligence Common Errors
Pay particular attention to the following
issues that account for more than 60% of all
EITC errors
1. Claiming child who does not meet the age,
relationship or residency requirement
2. Filing as single or HOH when married
3. Under or over-reporting income
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Why EITC Due Diligence?
• EITC error rate 23-28%
• About 66% of EITC returns prepared by
paid preparers
• Law requires paid preparers to take extra
steps to ensure correct EITC claims
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EITC Due Diligence
• Internal Revenue Code §6695(g)
• Due diligence requirements
1. Completion of Eligibility Checklist
2. Computation of the Credit
3. Records Retention
4. Knowledge Requirement
–More than 90% of penalties assessed for failure to
meet this requirement
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Consequences of EITC Due
Diligence Non-compliance
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Due diligence penalties
E-file sanctions
Disciplinary action from OPR
Injunction actions barring preparers from
return preparation
• Criminal prosecutions
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EITC Central – Your Home for All
Things EITC
www.eitc.IRS.gov
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Overview of 2010 Income
Tax Law Changes
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Personal Exemptions
• No AGI phase out of personal exemptions
• All taxpayers can deduct 100% of personal
exemptions
Ref: IRC 151(d)(3)(F)
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Itemized Deductions
• No AGI phase out of itemized deductions
• All taxpayers can deduct 100% of itemized
deductions
• Schedule A phase outs may apply
Ref: IRC 68(f)
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Conversions to Roth IRAs
• Modified AGI and filing status
requirements for converting a traditional
IRA to a Roth IRA are eliminated
• For any rollover in 2010 from an IRA to a
Roth IRA, amounts that would be included
as income:
– will be included in income in equal amounts in
2011 and 2012
– Or taxpayer can choose to include entire
amount as income in 2010.
Ref: IRC 40838
W-2 Reporting on EmployerProvided Insurance Coverage
• Optional for Tax Year 2011
• Draft Form W-2 for 2011 available for employers
to report the value of coverage provided to
employees on Form W-2
• Reporting is for information only
– Employer contribution remains excluded from
income
– Value of employer contribution is not taxable
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Small Business Health
Care Tax Credit
• Maximum credit is 35% of premiums paid
by employer
• Two part phase-out of credit
– fewer than 25 full-time equivalent employees
– average wages less than $50,000 per
employee
• Excluded employees disqualified
Ref: IRC 45R
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HIRE Payroll Tax Exemption
• Exemption from the employer’s 6.2% share
of Social Security tax
• Effective for wages paid to qualified
individuals from March 19, 2010, through
December 31, 2010
• Employee’s share of social security and
Medicare tax still apply to all wages
• Elect out
IRC 3111(d)
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New Hire Retention Credit
• General business credit
• Up to $1000 per retained qualified
employee
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Retention Credit
• Claimed on employer’s income tax return
• Lesser of $1,000 or 6.2 percent of wages
paid to qualified employee
• Must retain qualified employee for 52
consecutive weeks
• Wages cannot significantly decrease in the
last 26 weeks of employment
• Credit may be carried forward
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Questions?
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