A paid preparer is any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of a tax return or claim for refund of tax. Paid preparers prepared almost 60 percent of all federal tax returns filed in 2008 and 2009. IRS does not know how many paid preparers there are but estimates there are between 900,000 and 1.2 million. Prior to the new requirements for paid preparers there were no national standards that a paid preparer was required to satisfy before being compensated for preparing a federal tax return. Currently, attorneys, certified public accountants (CPA), enrolled agents (EA), enrolled actuaries, enrolled retirement plan agents, and other individuals authorized to practice before IRS are subject to standards of practice under Department of the Treasury Circular No. 230. Most EAs are required to pass an examination and complete annual continuing education, while attorneys and CPAs are licensed by states but are still subject to Circular 230 standards of practice if they practice before IRS. Previously, other paid preparers were not regulated, required to pass a competency examination, complete continuing education, or adhere to the standards of practice in Circular 230. The states of Oregon, California, New York, and Maryland all regulate paid preparers, but oversight in each state varies. IRS has noted that the lack of uniform federal regulation of all paid preparers has resulted in greatly varying oversight of paid preparers depending on the paid preparer’s professional affiliations, or lack thereof, and the geographical area in which they practice. In previous work, we and the Treasury Inspector General for Tax Administration (TIGTA) found that some paid preparers made significant errors preparing tax returns and we recommended that IRS conduct research to determine the extent to which paid preparers file accurate and complete tax returns. We also recommended that IRS develop a plan to require stricter regulation of paid preparers and suggested Congress adopt a nationwide paid preparer regulatory regime similar to Oregon’s paid preparer regulatory regime if it judged that Oregon’s regulatory regime accounted for at least a modest portion of the higher federal tax return accuracy in the state. In June 2009, the Commissioner of Internal Revenue initiated a review of paid preparers to help IRS strengthen its partnerships with paid preparers and ensure that paid preparers adhere to applicable professional standards and follow tax laws. IRS recommended changes to the oversight of paid preparers in its December 2009 Return Preparer Review report. These recommended changes included mandatory registration for paid preparers who are required to sign a federal tax return; competency testing and continuing education for paid preparers who are required to register with IRS and who are not attorneys, CPAs, or EAs; and holding all paid preparers to Circular 230 standards of practice, regardless of whether or not the preparers are required to sign a federal tax return. IRS intends these new requirements to improve service to taxpayers, increase confidence in the tax system, and increase taxpayer compliance. IRS has implemented a requirement that paid preparers obtain a PTIN if they prepare all or substantially all of a tax return filed after December 31, 2010. Figure 1 shows IRS’s tentative schedule for implementing the other new requirements. In addition to the requirements shown in figure 1, IRS will require all paid preparers to adhere to Circular 230 standards of practice. Revisions to the Circular 230 regulations are currently being reviewed by the Office of Management and Budget (OMB), according to an official involved in the implementation of the new requirements. When the revisions to the Circular 230 regulations have been finalized, paid preparers will be required to adhere to its standards of practice. The dates for implementing the competency testing and continuing education requirements are tentative because OMB is currently reviewing the proposed revisions to the Circular 230 regulations. Because these proposed regulations are not final, IRS has not decided how it will implement some details of the competency testing and continuing education requirements. Nevertheless, the RPO Director discussed with us his thoughts on approaches IRS might take. Paid preparers may register for a PTIN online or on paper via Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application. Paid preparers who currently have a PTIN must register in the new P registration system but in most cases can retain their old PTIN as long as IRS can verify identifying information for the existing PTIN. Online registrants are supposed to receive a provisional PTIN immediately while paper registrants are supposed to receive a provisional PTIN in 4-6 weeks. As of March 20, 2011, according to an IRS official involved in implementing the new requirements, IRS had issued 692,297 PTINs, approximately 60 percent of which were issued to paid preparers with existing PTINs and approximately 40 percent of which were issued to paid preparers without existing PTINs. Most, but not all, paid preparers were able to obtain a PTIN online. According to an official involved in the implementation of the new requirements, approximately 92 percent of paid preparers who attempted to obtain PTINs by the start of the filing season got them online. The rest either attempted to obtain a PTIN by paper or were directed to obtain a PTIN by paper, likely as a result of an online authentication issue. Officials and members of multiple paid preparer organizations stated that some preparers have encountered technical problems when using the PTIN registration system but also noted that IRS’s administration of the PTIN registration system has improved. The RPO Director said that IRS has worked to address problems with the registration system since it was initiated. For example, married paid preparers with different last names from their spouses who filed tax returns under the married filing jointly status were experiencing difficulty obtaining a new PTIN. The RPO director said that IRS solved this problem. For the 2011 tax filing season, IRS will allow paid preparers who are able to demonstrate a good faith effort to obtain a PTIN, but were unsuccessful, to use their old PTINs or Social Security numbers on tax returns. When applying for a PTIN, paid preparers are asked to self-disclose if they are compliant with their personal and business taxes, under penalty of perjury. The RPO Director said that IRS plans to initiate automated tax compliance checks on all paid preparers. IRS plans to limit the checks to whether the preparers have filed all federal tax returns and paid or entered into an agreement to pay federal tax debts. Paid preparers are also asked if they have been convicted of a felony in the past 10 years, under penalty of perjury. The PTIN application includes space to write an explanation for both tax compliance and felony information. The RPO Director said that IRS plans to check the accuracy of registrants’ tax compliance and background information by late 2011 and that registrants who provide false information on their PTIN applications will have severely limited appeal rights if IRS proposes to deny them PTINs. Paid preparers who are attorneys, CPAs, or EAs are asked to self-identify their professional credentials. The RPO Director said that IRS does not have a single-source database through which it can verify these professional credentials (it only has information on EAs). IRS plans to sample randomly attorneys and CPAs for verification of their self identification, and the RPO Director said that IRS is working toward developing a database that contains information about attorneys and CPAs that will allow for automated verification. IRS plans to hold paid preparers to Circular 230 standards of practice and will establish a new category of practitioner—registered tax return preparer. These paid preparers will be limited in their practice before IRS to preparing tax returns, claims for refund, and other documents for submission to IRS but will be required to adhere to professional ethical standards when doing so or face a penalty. Additionally, paid preparers who are supervised by an attorney, CPA, EA, enrolled actuary, or enrolled retirement plan agent at a law firm, CPA firm, or other recognized firm and do not sign tax returns but obtain a PTIN, while not being granted rights to practice before IRS, will be required to meet the same standards. The RPO Director said that if paid preparers are denied a PTIN or have their PTIN revoked, paid preparers will have the right to appeal this denial or revocation in the same manner as other Circular 230 sanctions. Applicability of the new paid preparer requirements will vary by type of paid preparer, as shown in table 1: According to the RPO Director, some types of paid preparers will be exempt from the new competency testing and continuing education requirements because they are subject to competency testing and continuing education requirements set by their professional licensing bodies. IRS proposed regulations amending Circular 230 will require individuals (see table 1 above) to pass a competency test to become an officially registered tax return preparer. Paid preparers who have a valid PTIN before competency testing is available will have until 2013 to pass a competency test. Paid preparers who register for a PTIN after testing is available must pass a competency test before obtaining a PTIN. The RPO Director said that IRS is allowing this delay in testing for preparers who register for a PTIN before testing is available to encourage paid preparers to register for a PTIN as soon as possible while giving them time to prepare for the competency test. The RPO Director also said that IRS plans to develop and implement one competency test for individuals who prepare returns from the individual tax return (Form 1040) series and will assess whether IRS needs to add additional tests in the future. The RPO Director also said that IRS plans to have the test available at national and international locations, which will allow individuals to consult forms and instructions during the test, and that individuals will pay a fee each time they take the test. After completing the competency test, registered tax return preparers will be subject to suitability checks, which IRS plans to conduct to determine whether the individual has engaged in disreputable conduct.