[Federal Register Volume 75, Number 58 (Friday, March 26, 2010)]
[Proposed Rules]
[Pages 14539-14545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6867]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-134235-08]
RIN 1545-BI28


Furnishing Identifying Number of Tax Return Preparer

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations under section 6109 
of the Internal Revenue Code (Code) that provide guidance to tax return 
preparers on furnishing an identifying number on tax returns and claims 
for refund of tax that they prepare. These proposed regulations provide 
guidance on the identifying number of a tax return preparer for tax 
returns and claims for refund filed before and after the proposed 
effective date. The proposed regulations describe how the IRS will 
define the identifying number of tax return preparers. Additional 
provisions of the proposed regulations provide that tax return 
preparers must apply for and regularly renew their preparer identifying 
number as the IRS may prescribe in forms, instructions, or other 
guidance. This document also invites comments from the public regarding 
these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by April 26, 2010.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-134235-08), Room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
134235-08), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-
134235-08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Stuart Murray at (202) 622-4940 (not a toll-free number); concerning 
submissions of comments and requests for a hearing, Richard Hurst at 
[email protected].

SUPPLEMENTARY INFORMATION:

[[Page 14540]]

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by April 26, 2010.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs of operation, maintenance, 
and purchase of service to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.6109-2(d) and (e). This information is required in order for 
the IRS to issue identifying numbers to tax return preparers who are 
eligible to receive them. Tax return preparers will need to apply for 
an identifying number as prescribed in forms, instructions, or other 
guidance. The use of a prescribed identifying number by tax return 
preparers on tax returns and claims for refund of tax will enable the 
IRS to accurately identify tax return preparers, to match tax return 
preparers to tax returns and claims for refund that they prepare, and 
to generally administer the internal revenue laws. The collection of 
information is mandatory. The likely respondents are tax return 
preparers and employers of tax return preparers.
    Estimated total annual reporting burden: 300,000 hours.
    Estimated average annual burden hours (or fraction of an hour) per 
respondent: varies from 10 to 20 minutes, with an estimated average of 
15 minutes.
    Estimated number of respondents: 1.2 million.
    Estimated annual frequency of responses: once every three years.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed amendments to regulations under 
section 6109 of the Code relating to furnishing a tax return preparer's 
identifying number on tax returns and claims for refund of tax. Section 
6109 was added to the Code in 1961 (Pub. L. 87-397, 75 Stat. 828) and 
authorizes the Secretary to prescribe regulations for the inclusion of 
identifying numbers on a return, statement, or other document required 
to be filed with the IRS. In addition, section 6109(c) authorizes the 
Secretary ``to require such information as may be necessary to assign 
an identifying number to any person.'' Section 6109(a)(4) as originally 
enacted by section 1203(d) of the Tax Reform Act of 1976 (Pub. L. 94-
455, 90 Stat. 1520) required return preparers to furnish on income tax 
returns and claims for refund of income tax an identifying number, as 
prescribed, to identify the preparer, the preparer's employer, or both. 
Section 8246(a)(2)(D)(i) of the Small Business and Work Opportunity Tax 
Act of 2007 (Pub. L. 110-28, 121 Stat. 112), amended section 6109(a)(4) 
to allow the IRS to prescribe that tax return preparers furnish 
identifying numbers on any tax returns or claims for refund they 
prepare. As currently prescribed in regulations, the identifying number 
of a tax return preparer who is an individual is the preparer's Social 
Security number (SSN) or alternative number as prescribed by the IRS. 
The proposed regulations provide that the identifying number of a tax 
return preparer is exclusively the number prescribed by the IRS. The 
proposed regulations will implement some of the recommendations made in 
Publication 4832, Return Preparer Review (Rev. 12-2009), published at 
the end of last year (the Report). The IRS and the Treasury Department 
believe that the implementation of the Report's recommendations, 
including the recommendations implemented by these regulations, will 
increase tax compliance and allow taxpayers to be confident that the 
tax return preparers to whom they turn for assistance are 
knowledgeable, skilled, and ethical.

1. Identifying Numbers Generally

    Because an identifying number is unique to the person to whom 
assigned, the IRS is able to use the number to correctly identify the 
taxpayer or the tax return preparer. The use of identifying numbers 
allows the IRS to accurately and timely process returns and issue 
refunds, centralize information, post information to the correct 
taxpayer's account, and effectively administer the rules relating to 
tax return preparers.

2. Requiring Identifying Numbers From Tax Return Preparers

    Tax return preparers generally must provide an identifying number 
on the tax returns they prepare and sign. Specifically, under Sec.  
1.6695-1(b), a signing tax return preparer, as defined under Sec.  
301.7701-15(b)(1), must sign a return of tax or claim for refund after 
it is completed and before it is presented to the taxpayer for 
signature. A signing tax return preparer under Sec.  301.7701-15(b)(1) 
is a tax return preparer who has primary responsibility for the overall 
substantive accuracy of the preparation of a return of tax or claim for 
refund.
    Under Sec.  1.6109-2(a)(1), a tax return preparer who must sign a 
tax return or tax refund claim must also include an identifying number 
with the preparer's signature. A return of tax includes an information 
return described in Sec.  301.7701-15(b)(4). If a signing tax return 
preparer has an employment arrangement or association with another 
person, then that other person's employer identification number (EIN) 
must also be included on the tax return or refund claim.
    The identifying number of a signing tax return preparer, and the 
identifying number of any person with whom the preparer has an 
employment arrangement or association, must be included on 
electronically filed tax returns, as well as paper returns. Further, 
because of recent statutory changes, tax return preparers who prepare 
and file individual income tax returns (Form Series 1040) for their 
clients will soon be required to electronically file the returns, 
unless the tax return preparer reasonably expects to file only 10 or 
fewer individual

[[Page 14541]]

income tax returns for the calendar year. See Section 17 of the Worker, 
Homeownership, and Business Assistance Act of 2009, Public Law 111-92, 
123 Stat. 2984, 2997 (adding Code section 6011(e)(3)).
    Tax return preparers who are required but fail to include their 
identifying number on a tax return or refund claim, or fail to include 
the identifying number of any person with whom they have an employment 
arrangement or association, are subject to a penalty under section 
6695(c). A tax return preparer is not liable for the penalty if the 
failure to include an identifying number is due to reasonable cause and 
not due to willful neglect.

3. Preparer Tax Identification Numbers

    Section 6109(a) initially provided that the identifying number of a 
tax return preparer was the individual's SSN. Section 3710(a) of the 
IRS Restructuring and Reform Act of 1998 (Pub. L. 105-206, 112 Stat. 
685) (RRA '98), allowed the IRS to prescribe an identifying number for 
tax return preparers other than the preparer's SSN. In response to 
section 3710(a) of RRA '98, the IRS developed and began to issue 
preparer tax identification numbers (PTINs). Tax return preparers 
currently may apply online for a PTIN using the e-services PTIN process 
on the IRS Web site at http://www.irs.gov or by filing Form W-7P, 
``Application for Preparer Tax Identification Number.'' Applying online 
is faster, and return preparers are encouraged to apply online. In the 
future, the IRS will prescribe the method to apply for a PTIN 
consistent with these proposed regulations. Currently, under Sec.  
1.6109-2(a)(2), a tax return preparer may use as an identifying number 
on a tax return or claim for refund either the preparer's SSN or an 
``alternative number'' prescribed by the IRS, including a PTIN. But an 
EIN, an Electronic Filing Identification Number (EFIN) (which is an 
identification number assigned to IRS e-file providers), or an 
Electronic Transmitter Identification Number (ETIN) (which is an 
identification number assigned to IRS e-file providers who 
electronically transmit tax returns to the IRS) is not a valid preparer 
identifying number.

4. Regulation of Tax Return Preparers

    In June 2009, the IRS initiated a comprehensive review of tax 
return preparers, and in December 2009 the IRS published the Report 
describing its findings from that review. The Report recommended, in 
part, that tax return preparers be required to obtain and use a PTIN as 
the exclusive preparer identifying number and undergo a tax-compliance 
check. As discussed below, the proposed regulations implement those 
recommendations.
    Under current law, any individual may prepare a tax return or claim 
for refund. The Report recommended that the IRS establish new 
eligibility standards that an individual must meet in order to prepare 
tax returns--including testing, continuing education, and tax 
compliance checks. The Report contemplates that only attorneys, 
certified public accountants, enrolled agents, as well as tax return 
preparers who pass a minimum competency exam and meet other 
requirements (referred to as ``registered tax return preparers'') will 
be eligible to prepare and sign tax returns and claims for refund. 
These proposed regulations do not establish the requirements to become 
a registered tax return preparer, which primarily will be set forth in 
future guidance under Treasury Department Circular No. 230, 31 CFR part 
10. After a transition period, however, it is intended that only 
individuals who satisfy the eligibility standards may obtain and use a 
PTIN as a tax return preparer.

Explanation of Provisions

1. Requiring the Use of PTINs

    The proposed regulations provide that for tax returns or refund 
claims filed after December 31, 2010, the identifying number that a tax 
return preparer must include with the preparer's signature on tax 
returns and refund claims is that prescribed by the IRS in forms, 
instructions, or other guidance. Tax return preparers will not be able 
to use an SSN as a preparer identifying number unless specifically 
prescribed by the IRS in forms, instructions, or other guidance. 
Instead, to the extent provided in forms and instructions, a tax return 
preparer will be required to use a PTIN as the identifying number 
unless the IRS prescribes in the future a replacement to the PTIN. 
Forms and instructions will be revised accordingly. The use of PTINs as 
the identifying number for tax return preparers will improve tax 
administration and tax compliance, benefit taxpayers and tax return 
preparers, and help maintain the confidentiality of SSNs.
    For tax returns or claims for refund filed before January 1, 2011, 
the identifying number of a tax return preparer will remain the 
preparer's SSN or PTIN. In the case of tax returns for taxable periods 
ending before January 1, 2011, and made on the appropriate forms 
prescribed for the taxable periods, but which are filed on or after 
January 1, 2011, tax return preparers must furnish on the returns the 
identifying number prescribed on the forms to be filed and in 
associated instructions.
    For tax return preparation businesses and other persons having an 
employment arrangement or association with a tax return preparer, the 
business's or employer's EIN continues to be the identifying number 
that must be included on tax returns and refund claims along with the 
tax return preparer's signature and preparer identifying number. An 
individual tax return preparer, however, may not use an EIN as a 
preparer identifying number on a return, even if the preparer has an 
EIN (for example, as a sole proprietor). Tax return preparers who use 
their SSN, or an EIN, EFIN, or ETIN, instead of a valid PTIN, on tax 
returns or claims for refund filed after the effective date may be 
subject to the penalty under section 6695(c) unless the failure to 
include a valid PTIN is due to reasonable cause and not due to willful 
neglect.

2. Eligibility To Receive a PTIN

    The proposed regulations provide that all tax return preparers must 
apply for a PTIN or other prescribed identifying number at the time and 
in the manner as may be prescribed by the IRS in forms, instructions, 
or other appropriate guidance. The proposed regulations also authorize 
the IRS to prescribe a user fee in connection with applying for, and 
renewing, a PTIN (or successor number similar to a PTIN). Except as 
provided in any transitional period, beginning after December 31, 2010, 
to obtain a PTIN, an individual must be an attorney, certified public 
accountant, enrolled agent, or registered tax return preparer under 
future guidance to be provided in Circular 230.
    Only for purposes of applying for and renewing a PTIN or other 
prescribed preparer identifying number, the term tax return preparer 
means any individual who is compensated for preparing, or assisting in 
the preparation of, all or substantially all, of a tax return or claim 
for refund of tax. A tax return preparer does not include an individual 
who is not otherwise a tax return preparer as that term is defined in 
Sec.  301.7701-15(b)(2), or who is an individual described in Sec.  
301.7701-15(f). The proposed regulations provide several examples 
illustrating who is a tax return preparer required to apply for a PTIN.
    As part of the process of applying for a PTIN, a tax return 
preparer may be subject to both an initial tax-compliance check and 
subsequent periodic checks, which could include a review of a 
preparer's history of compliance with personal and business tax filing 
and

[[Page 14542]]

payment obligations. The tax-compliance check is intended to establish 
whether a tax return preparer has timely filed required personal and 
business tax returns and has paid taxes that are due or made other 
acceptable arrangements with the IRS, such as an approved installment 
agreement under section 6159. If a tax return preparer disregards any 
applicable requirements to obtain a prescribed identifying number and 
thereafter omits, when required to include, a valid identifying number 
on a tax return or claim for refund filed after the effective date, the 
preparer may be liable for the section 6695(c) penalty, unless the 
failure to include a valid identifying number was due to reasonable 
cause and not due to willful neglect.
    The information a tax return preparer provides when the preparer 
initially applies for a PTIN or other prescribed identifying number 
will often become outdated or otherwise inaccurate. The IRS may require 
tax return preparers to regularly renew their identifying numbers and 
otherwise maintain updated information with the IRS. If a tax return 
preparer who is required to include an identifying number on a tax 
return or claim for refund filed after the effective date uses an 
expired identifying number, the tax return preparer may be liable for 
the section 6695(c) penalty, unless the use of the expired number was 
due to reasonable cause and not due to willful neglect.
    The proposed regulations provide that if necessary for effective 
tax administration, the IRS may prescribe exceptions to any of the 
requirements, such as for an interim period while procedures are being 
implemented. For example, the IRS and the Treasury Department recognize 
that the procedures for becoming a registered tax return preparer may 
not be fully implemented when these regulations become effective. It is 
anticipated that transitional interim guidance will be provided to 
allow individuals who intend to become registered tax return preparers 
to obtain an interim PTIN or other interim identifying number that may 
be used as a preparer identifying number on tax returns and refund 
claims until the procedures are fully implemented. After the interim 
period, however, to obtain a PTIN, an individual will need to be an 
attorney, certified public accountant, enrolled agent, or registered 
tax return preparer authorized to practice before the IRS under 
Circular 230.

Proposed Effective/Applicability Date

    These regulations are effective after the date that final 
regulations are published in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations.
    It has been determined that an initial regulatory flexibility 
analysis under 5 U.S.C. 603 is required for this notice of proposed 
rulemaking. The analysis is set forth below under the heading, 
``Initial Regulatory Flexibility Analysis.''
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Initial Regulatory Flexibility Analysis

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) requires the agency to ``prepare 
and make available for public comment an initial regulatory flexibility 
analysis'' that ``describe[s] the impact of the proposed rule on small 
entities.'' 5 U.S.C. 603(a). Section 605 of the Act provides an 
exception to this requirement if the agency certifies that the proposed 
rulemaking will not have a significant economic impact on a substantial 
number of small entities. A small entity is defined as a small 
business, small nonprofit organization, or small governmental 
jurisdiction. 5 U.S.C. 601(3)-(6). The IRS and the Treasury Department 
conclude that the proposed regulations, if promulgated (together with 
other contemplated guidance provided for in these regulations), will 
impact a substantial number of small entities and the economic impact 
will be significant. As a result, an initial regulatory flexibility 
analysis is required.
    Description of the reasons why the agency action is being 
considered.
    Taxpayers' reliance on paid tax return preparers has grown steadily 
in recent decades. Today, paid tax return preparers assist a majority 
of U.S. taxpayers in meeting their income tax filing obligations. 
Beyond preparing tax returns, tax return preparers also help educate 
taxpayers about the tax laws, and facilitate electronic filing. Tax 
return preparers provide advice to taxpayers, identify items or issues 
for which the law or guidance is unclear, and inform taxpayers of the 
benefits and risks of positions taken on a tax return, and the tax 
treatment or reporting of items and transactions. Competent tax return 
preparers who are well educated in the rules and subject matter of 
their field can prevent costly errors, potentially saving a taxpayer 
from unwanted problems later on and relieving the IRS from expending 
valuable examination and collection resources.
    Given the important role that tax return preparers play in Federal 
tax administration, the IRS has a significant interest in being able to 
accurately identify tax return preparers and monitor their tax return 
preparation activities. The proposed regulations are intended to 
advance tax administration by requiring all individuals who are paid to 
prepare all or substantially all of a tax return or claim for refund of 
tax to obtain a preparer identifying number prescribed by the IRS. 
Pursuant to the proposed regulations, the IRS will require individuals 
who sign tax returns or claims for refund to report the preparer's 
identifying number on a tax return or claim for refund when the return 
or refund claim is signed. The proposed regulations also provide that 
the IRS may require tax return preparers to apply for, and regularly 
renew, their identifying numbers. Under the proposed regulations, the 
IRS may prescribe a user fee payable when applying for a number and for 
renewal.
    Further, the IRS and the Treasury Department conclude that 
taxpayers, tax return preparers, and overall tax administration will be 
best served through increased oversight of the tax return preparer 
industry. Mandating a single prescribed identifying number for all tax 
return preparers and assigning a prescribed number to registered tax 
return preparers is critical to effective oversight.
    Statement of the objectives of, and the legal basis for, the 
proposed rule.
    The principal objective of the proposed regulations is to enable 
the IRS to more accurately identify tax return preparers and the tax 
returns and refund claims associated with each tax return preparer. The 
proposed regulations do this by providing that the IRS may prescribe 
the use of identifying numbers for tax return preparers and the 
qualifications or other requirements necessary to obtain a valid 
number. The legal basis for these provisions is section 6109 of the 
Code, which authorizes the Secretary to prescribe the ``identifying 
number for securing proper identification of'' a tax return preparer 
and ``to require such information as may

[[Page 14543]]

be necessary to assign an identifying number to any person.''
    Description and estimate (where feasible) of the number of small 
entities subject to the proposed rule.
    The proposed regulations apply to individuals who prepare tax 
returns and claims for refund of tax. The estimated number of paid tax 
return preparers is as high as 1.2 million, which means the proposed 
regulations are likely to impact a large number of individuals. Most 
paid tax return preparers are employed by firms. A substantial number 
of paid tax return preparers are employed at small tax return 
preparation firms or are self-employed tax return preparers. Any 
economic impact of these regulations on small entities generally will 
be on self-employed tax return preparers who prepare and sign tax 
returns or on small businesses that employ one or more individuals who 
sign tax returns.
    The appropriate NAICS codes for tax return preparers are those for 
tax return preparation services (NAICS code 541213) and other 
accounting services (NAICS code 541219). Entities identified under 
either of these two codes are considered small under the Small Business 
Administration's size standards (13 CFR 121.201), if their annual 
revenue is less than $7 million or $8.5 million, respectively. The IRS 
estimates that approximately 70 to 80 percent of the individuals 
subject to these proposed regulations are tax return preparers 
operating as or employed by small entities.
    Description of the projected reporting, recordkeeping, and related 
requirements of the proposed rule, including an estimate of the classes 
of small entities that will be subject to the requirements and the type 
of professional skills necessary for preparation of the report or 
record.
    The proposed regulations do not directly impose any reporting, 
recordkeeping, or similar requirements on any small entities. Rather, 
the proposed regulations provide that the IRS may prescribe in forms, 
instructions, or other guidance (including regulations) requirements 
for identifying numbers for tax return preparers, regular renewal of 
identifying numbers, and payment of a user fee when applying for or 
renewing an identifying number. In addition, other guidance may require 
certain tax return preparers to complete competency testing, complete 
continuing education courses, and adhere to established rules of 
practice governing attorneys, certified public accountants, enrolled 
agents, enrolled actuaries, and enrolled retirement plan agents.
    Applying for an identifying number and subsequent renewal will 
require reporting of certain information, but are not expected to 
require recordkeeping. These activities also will not require the 
purchase or use of any special business equipment or software. To the 
extent it will be necessary to apply for a PTIN (or similar identifying 
number that replaces a PTIN) online at http://www.irs.gov, most if not 
all tax return preparation businesses have computers and Internet 
access. The IRS estimates that applying for a PTIN will take 10 to 20 
minutes per individual, with an average of 15 minutes per individual.
    Under other guidance that the IRS may issue, tax return preparers 
who apply to be registered tax return preparers and who regularly renew 
their status may be subject to recordkeeping requirements because they 
may be required to maintain specified records, such as documentation 
and educational materials relating to completion of continuing 
education courses. These requirements do not involve any specific 
professional skills other than general recordkeeping abilities already 
needed to own and operate a small business or to competently act as a 
tax return preparer. It is estimated that tax return preparers will 
annually spend approximately 30 minutes to 1 hour in maintaining 
records relating to the continuing education requirements, depending on 
individual circumstances.
    A separate regulation addressing reasonable user fees will be 
proposed in the near future. Tax return preparers may be required to 
pay a user fee when first applying for a PTIN and at every renewal. 
Small entities may be affected by these costs if the entities choose to 
pay some or all of these fees for their employees.
    Under regulations to be issued in the future, tax return preparers 
may also incur costs for commercial continuing education courses and 
minimum competency examinations, plus incidental costs, such as for 
travel and accommodations in order to maintain their status as 
registered tax return preparers under Circular 230. Course prices can 
vary greatly, from free to hundreds of dollars. Many small tax return 
preparation firms may choose, as with the user fee, to bear these costs 
for their employees. In some cases, small entities may lose sales and 
profits while their employed tax return preparers attend training or 
educational classes or are studying and sitting for examinations. Some 
small entities that employ tax return preparers may even need to alter 
their business operations if a significant number of their employees 
cannot satisfy the necessary registration and competency requirements. 
The IRS and the Treasury Department conclude, however, that only a 
small percentage of small entities, if any, may need to cease doing 
business or radically change their business model due to the proposed 
regulations.
    Although each of the reporting and recordkeeping requirements and 
the costs identified above (in connection with the proposed regulations 
and the other anticipated guidance necessary to implement the Return 
Preparer Review) is not expected to singly result in a significant 
economic impact, taken together it is anticipated that they may have a 
significant economic impact on a substantial number of small entities.
    Identification, to the extent practicable, of all relevant Federal 
rules that may duplicate, overlap, or conflict with the proposed rule.
    The proposed regulations do not duplicate, overlap, or conflict 
with any Federal statutes or other rules.
    Description of any significant alternatives to the proposed rule 
that accomplish the stated objectives of applicable statutes and 
minimize any significant economic impact on small entities.
    The IRS and the Treasury Department have determined that there are 
no viable alternatives to the proposed regulations that would enable 
the IRS to accurately identify tax return preparers, other than through 
the use of a prescribed identifying number, as provided in the proposed 
regulations.
    More broadly, the IRS received a large volume of comments as part 
of the Return Preparer Review on the issue of increased oversight of 
tax return preparers generally and on the Report's proposed 
recommendations, including requiring tax return preparers to use a 
uniform prescribed identifying number. The comments were received from 
all categories of interested stakeholders, including tax professional 
groups representing large and small entities, IRS advisory groups, tax 
return preparers, and the public. The input received from this large 
and diverse community overwhelmingly expressed support for the proposed 
requirements.
    As to the proposed requirements recommended in the Report, the IRS 
and the Treasury Department considered various alternatives in 
determining the best ways to effectuate proposed changes with respect 
to tax return preparers, including:
    (1) Requiring all paid tax return preparers to comply with the 
ethical standards in Circular 230 or an ethics code similar to Circular 
230, but not requiring any paid preparers to

[[Page 14544]]

demonstrate their qualification and competency;
    (2) Requiring tax return preparers who are not currently authorized 
to practice before the IRS to register with the IRS, complete annual 
continuing education requirements, and meet certain ethical standards, 
but not to pass a minimum competency examination;
    (3) Requiring all paid tax return preparers to pass a minimum 
competency examination and meet other registration requirements; and
    (4) Requiring all paid tax return preparers who are not currently 
authorized to practice before the IRS to pass a minimum competency 
examination and meet other registration requirements, but ``grandfather 
in'' tax return preparers who have accurately and competently prepared 
tax returns for a certain period of years.
    After consideration of these and other alternatives and the 
responses received in the public comment process, the IRS and the 
Treasury Department conclude that the provisions of the proposed 
regulations will most effectively promote sound tax administration. The 
provisions in the proposed regulations for a single prescribed 
identifying number for tax return preparers will enable the IRS to 
accurately identify tax return preparers, match preparers with the tax 
returns and claims for refund they prepare, and better administer the 
tax laws with respect to tax return preparers and their clients. The 
provisions, in combination with anticipated guidance described above, 
also will ensure that qualified, competent, and ethical tax return 
preparers will be assigned prescribed preparer identifying numbers. The 
testing requirements that may be set forth in other guidance will 
establish a benchmark of minimum competency necessary for tax return 
preparers to obtain their professional credentials, while the 
continuing education requirements are intended to ensure that tax 
return preparers remain current on the Federal tax laws and continue to 
develop their tax knowledge. The extension in other, prospective 
guidance of the rules in Circular 230 to any paid tax return preparer 
will require all practitioners to meet certain ethical standards and 
allow the IRS to suspend or otherwise appropriately discipline tax 
return preparers who engage in unethical or disreputable conduct. 
Accordingly, the implementation of qualification and competency 
standards is expected to increase tax compliance and allow taxpayers to 
be confident that the tax return preparers to whom they turn for 
assistance are knowledgeable, skilled, and ethical.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. All comments that are submitted by the public will be 
available for public inspection and copying. A public hearing will be 
scheduled if requested in writing by any person who timely submits 
comments. If a public hearing is scheduled, notice of the date, time, 
and place for the public hearing will be published in the Federal 
Register.

Drafting Information

    The principal author of these proposed regulations is Stuart Murray 
of the Office of the Associate Chief Counsel, Procedure and 
Administration.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:


    Authority: 26 U.S.C. 7805 * * *
    Section 1.6109-2 also issued under 26 U.S.C. 6109(a) * * *

    Par. 2. Section 1.6109-2 is amended by revising the section 
heading, revising paragraphs (a)(2) and (d), and adding paragraphs (e), 
(f), (g), (h), and (i) to read as follows:


Sec.  1.6109-2  Tax return preparers furnishing identifying numbers for 
returns or claims for refund and related requirements.

    (a) * * *
    (2)(i) For tax returns or claims for refund filed on or before 
December 31, 2010, the identifying number of an individual tax return 
preparer is that individual's social security number or such 
alternative number as may be prescribed by the Internal Revenue Service 
in forms, instructions, or other appropriate guidance.
    (ii) For tax returns or claims for refund filed after December 31, 
2010, the identifying number of a tax return preparer is the 
individual's preparer tax identification number or such other number 
prescribed by the Internal Revenue Service in forms, instructions, or 
other appropriate guidance.
* * * * *
    (d) Beginning after December 31, 2010, all tax return preparers 
must have a preparer tax identification number or other prescribed 
identifying number that was applied for and received at the time and in 
the manner, including the payment of a user fee, as may be prescribed 
by the Internal Revenue Service in forms, instructions, or other 
appropriate guidance. Except as provided in paragraph (h) of this 
section, beginning after December 31, 2010, to obtain a preparer tax 
identification number or other prescribed identifying number, a tax 
return preparer must be an attorney, certified public accountant, 
enrolled agent, or registered tax return preparer authorized to 
practice before the Internal Revenue Service under 31 U.S.C. 330 and 
the regulations thereunder.
    (e) The Internal Revenue Service may designate an expiration date 
for any preparer tax identification number or other prescribed 
identifying number and may further prescribe the time and manner for 
renewing a preparer tax identification number or other prescribed 
identifying number, including the payment of a user fee, as set forth 
in forms, instructions, or other appropriate guidance. The Internal 
Revenue Service may provide that any identifying number issued by the 
Internal Revenue Service prior to the effective date of this regulation 
will expire on December 31, 2010, unless properly renewed as set forth 
in forms, instructions, or other appropriate guidance, including these 
regulations.
    (f) As may be prescribed in forms, instructions, or other 
appropriate guidance, the IRS may conduct a tax compliance check on a 
tax return preparer who applies for or renews a preparer tax 
identification number or other prescribed identifying number.
    (g) Only for purposes of paragraphs (d), (e), and (f) of this 
section, the term tax return preparer means any individual who is 
compensated for preparing, or assisting in the preparation of, all or 
substantially all of a tax return or claim for refund of tax. Factors 
to consider in determining whether an individual is a tax return 
preparer under this paragraph (g) include, but are not limited to, the 
complexity of the work performed by the individual relative to the 
overall complexity of the tax return or claim for refund of tax; the 
amount of the items of income, deductions, or losses

[[Page 14545]]

attributable to the work performed by the individual relative to the 
total amount of income, deductions, or losses required to be correctly 
reported on the tax return or claim for refund of tax; and the amount 
of tax or credit attributable to the work performed by the individual 
relative to the total tax liability required to be correctly reported 
on the tax return or claim for refund of tax. A tax return preparer 
does not include an individual who is not otherwise a tax return 
preparer as that term is defined in Sec.  301.7701-15(b)(2), or who is 
an individual described in Sec.  301.7701-15(f). The provisions of this 
paragraph (g) are illustrated by the following examples:

    Example 1.  Employee A, an individual employed by Tax Return 
Preparer B, assists Tax Return Preparer B in answering telephone 
calls, making copies, inputting client tax information gathered by B 
into the data fields of tax preparation software on a computer, and 
using the computer to file electronic returns of tax prepared by B. 
Although Employee A must exercise judgment regarding which data 
fields in the tax preparation software to use, A does not exercise 
any discretion or independent judgment as to the clients' underlying 
tax positions. Employee A, therefore, merely provides clerical 
assistance or incidental services and is not a tax return preparer 
required to apply for a PTIN or other identifying number as the 
Internal Revenue Service may prescribe in forms, instructions, or 
other appropriate guidance.
    Example 2.  The facts are the same as in Example 1, except that 
Employee A also interviews B's clients and obtains from them 
information needed for the preparation of tax returns. Employee A 
determines the amount and character of entries on the returns and 
whether the information provided is sufficient for purposes of 
preparing the returns. For at least some of B's clients, A obtains 
information and makes determinations that constitute all or 
substantially all of the tax return. Employee A is a tax return 
preparer required to apply for a PTIN or other identifying number as 
the Internal Revenue Service may prescribe in forms, instructions, 
or other appropriate guidance. Employee A is a tax return preparer 
even if Employee A relies on tax preparation software to prepare the 
return.
    Example 3.  C is an employee of a firm that prepares tax returns 
and claims for refund of tax for compensation. C is responsible for 
preparing a Form 1040, ``U.S. Individual Income Tax Return,'' for a 
client. C obtains the information necessary for completing the 
return during a meeting with the client, and makes determinations 
with respect to the proper application of the tax laws to the 
information in order to determine the client's tax liability. C 
completes the tax return and sends the completed return to employee 
D, who reviews the return for accuracy before signing it. Both C and 
D are tax return preparers required to apply for a PTIN or other 
identifying number as the Internal Revenue Service may prescribe in 
forms, instructions, or other appropriate guidance.
    Example 4.  E is an employee at a firm which prepares tax 
returns and claims for refund of tax for compensation. The firm is 
engaged by a corporation to prepare its Federal income tax return on 
Form 1120, ``U.S. Corporation Income Tax Return.'' Among the 
documentation that the corporation provides to E in connection with 
the preparation of the tax return is documentation relating to the 
corporation's potential eligibility to claim a recently enacted tax 
credit for the taxable year. In preparing the return, and 
specifically for purposes of the new tax credit, E (with the 
corporation's consent) obtains advice from F, a subject matter 
expert on this and similar credits. F advises E as to the 
corporation's entitlement to the credit and provides his calculation 
of the amount of the credit. Based on this advice from F, E prepares 
the corporation's Form 1120 claiming the tax credit in the amount 
recommended by F. The additional credit is one of many tax credits 
and deductions claimed on the tax return, and determining the credit 
amount does not constitute preparation of all or substantially all 
of the corporation's tax return under this paragraph (g). F will not 
be considered to have prepared all or substantially all of the 
corporation's tax return, and F is not a tax return preparer 
required to apply for a PTIN or other identifying number as the 
Internal Revenue Service may prescribe in forms, instructions, or 
other appropriate guidance. The analysis is the same whether or not 
the tax credit is a substantial portion of the return under Sec.  
301.7701-15 of this chapter, and whether or not F is in the same 
firm with E. E is a tax return preparer required to apply for a PTIN 
or other identifying number as the Internal Revenue Service may 
prescribe in forms, instructions, or other appropriate guidance.

    (h) The Internal Revenue Service, through forms, instructions, or 
other appropriate guidance, may prescribe exceptions to the 
requirements of this section, including the requirement that an 
individual be authorized to practice before the Internal Revenue 
Service before receiving a preparer tax identification number or other 
prescribed identifying number, as necessary in the interest of 
effective tax administration.
    (i) Effective/applicability date. Paragraph (a)(2) of this section 
is effective for returns and claims for refund filed after the date 
that final regulations are published in the Federal Register. 
Paragraphs (d) through (h) of this section are effective after the date 
that final regulations are published in the Federal Register.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2010-6867 Filed 3-24-10; 11:15 am]
BILLING CODE 4830-01-P