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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including those who already have a PTIN Annual user fee $64.25 SSN no longer valid ID number for paid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

David Williams, Director

• Registration• PTIN System• Testing• Continuing Education• Compliance

Office of Professional Responsibility

Karen Hawkins, Director

• Adherence to ethical conduct and professional standards

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For PTIN assistance

• 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 non-exempt 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 2012 2014

PTIN sign-up begins

Sep

tem

ber

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Testing available

June

1

Sep

tem

ber

15

Dec

emb

er 3

1

2013

Janu

ary

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Searchable database available

PTIN revoked if competency test not passed

PTIN renewals begin

CE requirement begins - TBD

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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• 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

• 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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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 e-file, also known as becoming an Electronic Return Originator (ERO). You may do this anytime. Visit IRS.gov and click on the e-file logo.

Preparer E-File Mandate

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• 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

Enroll

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Elimination of FTD Coupons

Regulation 153340-09Electronic 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 ErrorsPay particular attention to the following issues that account for more than 60% of all EITC errors1. 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 requirements1.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• 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 IncomeTax 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 408

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W-2 Reporting on Employer-Provided 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?