From Kiplinger · · 1m 50s
Tax Preparers' Questions Answered
Tax experts clarify rules for clients and preparers.
In brief
Tax experts clarify rules for clients and preparers. Tax preparers can rely on IRS FAQs to avoid penalties if they used them in good faith, but must follow data security plans and new regulations for unenrolled preparers. Originally reported by Kiplinger.
IRS FAQs and Penalties
Taxpayers can rely on IRS FAQs to avoid accuracy-related penalties if they used them in good faith and reasonably.
“These FAQs may not address any particular taxpayer's specific facts and circumstances, and they may be updated or modified upon further review.”
Data Security Plan Requirement
Paid tax return preparers must have a data security plan to protect taxpayer information from cyber threats.
“I am aware that paid tax return preparers are required by law to create and maintain a written information security plan.”
PTIN Renewal Process
Preparers renew their PTIN each year after applying for it through IRS forms.
“The form that preparers use to apply for or renew their PTIN requires them to check yes or no to the following statement.”
IRS Publication 5708
IRS Publication 5708 provides a template for tax preparers to create their own data security plan.
“IRS Publication 5708 includes a template of a written information security plan that preparers can use as a starting point.”
Senate Bill on Tax Preparers
The Senate approved a bipartisan bill to regulate unenrolled tax preparers with new requirements for PTIN renewal.
“The Taxpayer Assistance and Service Act has over 60 proposals covering 10 broad topics.”
Unenrolled Preparer Requirements
Unenrolled preparers must provide competence and character information, pass background checks, and complete 18 hours of continuing education.
“Unenrolled preparers would have to meet various requirements in order to apply for or renew a PTIN each year.”
No Competency Exam
The bill does not require unenrolled preparers to pass a competency exam for PTIN renewal.
“Importantly, the proposal does not require unenrolled preparers to pass a competency exam.”
IRS Oversight History
The IRS previously faced legal challenges over regulating unenrolled preparers since 2014.
“Since 2014, after an appeals court struck down the IRS's administrative oversight rules for unenrolled preparers, the IRS's National Taxpayer Advocate, Treasury inspectors, government auditors and tax practitioner groups have pleaded with Congress to let the IRS regulate unenrolled preparers.”
House Next Steps
The House must act on the Senate bill before December holidays after midterm elections.
“Now that the Senate has approved the Taxpayer Assistance and Service Act, the ball is in the House's court. Maybe we will see the House act on the bill in the short time period after the midterm elections and before lawmakers head home again for the December holidays.”
Electronic Filing Rules
Preparers filing more than 10 returns must e-file client tax returns with the IRS.
“Preparers who expect to file more than 10 Forms 1040, 1040-SR, 1041, or any combination of these during the year, must electronically file them with the IRS.”
Client Opt-Out Option
Clients can choose to mail returns themselves, avoiding e-filing requirements for preparers.
“Returns that clients mail to the IRS themselves are not treated as filed by the preparer and do not count against the 10-return cap.”
Hardship Waiver
Preparers can request a hardship waiver for e-filing using IRS Form 8944 by February 15.
“To seek a hardship waiver, you must generally send the 8944 to the IRS by February 15 of the year for which the waiver is sought.”
Religious Exemptions
Certain religious groups may be exempt from e-filing rules for tax returns.
“One is for preparers who are members of certain religious groups who oppose e-filing.”
What Happens Next
The House must act on the Senate bill before December holidays after midterm elections.
“Now that the Senate has approved the Taxpayer Assistance and Service Act, the ball is in the House's court. Maybe we will see the House act on the bill in the short time period after the midterm elections and before lawmakers head home again for the December holidays.”
The one thing
Tax preparers can rely on IRS FAQs to avoid penalties if they used them in good faith, but must follow data security plans and new regulations for unenrolled preparers.
