[Federal Register Volume 76, Number 227 (Friday, November 25, 2011)]
[Rules and Regulations]
[Pages 72619-72623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30388]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[TD 9559]
RIN 1545-BK24


User Fee To Take the Registered Tax Return Preparer Competency 
Examination

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains amendments to the user fee regulations. 
The final regulations redesignate rules pertaining to fees for 
obtaining a preparer tax identification number. These final regulations 
also establish a

[[Page 72620]]

user fee for individuals to take the registered tax return preparer 
competency examination. The final regulations affect individuals who 
take the registered tax return preparer competency examination. The 
charging of user fees is authorized by the Independent Offices 
Appropriations Act of 1952.

DATES: Effective Date: These regulations are effective beginning 
November 25, 2011.
    Applicability Date: For date of applicability, see Sec.  300.12(d).

FOR FURTHER INFORMATION CONTACT: Concerning the final regulations, 
Emily M. Lesniak at (202) 622-4570; concerning cost methodology Eva J. 
Williams at (202) 435-5514 (not toll-free numbers).

Background

    This document contains final regulations establishing a user fee to 
take the registered tax return preparer competency examination. New 
Sec.  300.12 establishes a $27 IRS user fee to take the registered tax 
return preparer competency examination; this IRS user fee is in 
addition to any reasonable, IRS-approved fee charged by the third-party 
vendor. These regulations also redesignate prior Sec.  300.12 as Sec.  
300.13.
    The Independent Offices Appropriations Act of 1952 (IOAA), which is 
codified at 31 U.S.C. 9701, authorizes agencies to prescribe 
regulations establishing user fees for services provided by the agency. 
Regulations prescribing user fees are subject to the policies of the 
President, which are currently set forth in the Office of Management 
and Budget Circular A-25 (the OMB Circular), 58 FR 38142 (July 15, 
1993). The OMB Circular requires agencies seeking to impose user fees 
for providing special benefits to identifiable recipients to calculate 
the full cost of providing those benefits.
    These regulations are part of a broader IRS effort to increase the 
oversight of the tax return preparer community. As part of this effort, 
Treasury and the IRS published final regulations in the Federal 
Register (76 FR 32286) on June 3, 2011, amending the regulations 
governing practice before the IRS. These regulations are found in 31 
CFR part 10 and have been reprinted as Treasury Department Circular No. 
230 (Circular 230). The amendments to Circular 230, in part, include 
registered tax return preparers as practitioners under Circular 230. 
Registered tax return preparers must demonstrate the necessary 
qualifications and competency, which includes passing a minimum 
competency examination. Registered tax return preparers receive the 
special benefit of being able to prepare and sign tax returns, claims 
for refund, and other documents as provided in forms, instructions, or 
other appropriate guidance.
    On September 26, 2011, Treasury and the IRS published a notice of 
proposed rulemaking (REG-116284-11) in the Federal Register (76 FR 
59239) proposing a user fee to take the registered tax return preparer 
competency examination. The notice of proposed rulemaking also proposed 
to establish a user fee to be fingerprinted in conjunction with the 
preparer tax identification number, acceptance agent, and authorized e-
file provider programs. These regulations only finalize the user fee to 
take the registered tax return preparer competency examination.
    The notice of proposed rulemaking announced a public hearing on 
October 7, 2011. Four individuals testified at the public hearing. The 
testimony at the hearing focused on the proposed fingerprinting user 
fee. No individual at the hearing offered testimony on the competency 
examination user fee.
    Treasury and the IRS received written comments responding to the 
notice of proposed rulemaking. These comments are available for public 
inspection at http://www.regulations.gov or upon request. After 
consideration of all the comments, the proposed regulations are adopted 
as modified by this Treasury decision.

Summary of Comments and Explanation of Revisions

    Treasury and the IRS received more than twenty written comments in 
response to the notice of proposed rulemaking. Treasury and the IRS 
received four written comments relating to the user fee to take the 
registered tax return preparer competency examination. The majority of 
the written comments concerned the user fee to be fingerprinted in 
conjunction with the preparer tax identification number, acceptance 
agent, and authorized e-file provider programs. Treasury and the IRS 
also received a few comments regarding other aspects of the IRS's 
efforts to regulate tax return preparers. To the extent that comments 
address other aspects of the IRS's increased oversight of the tax 
return preparation industry, the comments will be addressed, as 
appropriate and practicable, in future guidance. Further, some of the 
comments received related to testing locations and whether an online 
examination would be offered. The IRS received similar comments in 
response to Notice 2011-48 (2011-26 IRB 927 (June 27, 2011) available 
at http://www.irs.gov/pub/irs-irbs/irb11-26.pdf), which specifically 
requested comments regarding the registered tax return preparer 
competency examination. The IRS and the competency examination vendor 
continue to consider these comments, along with other comments received 
in response to Notice 2011-48, as they implement the competency testing 
program. The IRS is committed to addressing the concerns expressed in 
these comments to the extent practical and appropriate.
    One comment regarding the proposed user fee to take the registered 
tax return preparer competency examination encouraged Treasury and the 
IRS to monitor the fee charged by the third-party vendor. The third-
party vendor's fee is approved by the IRS, including any changes to the 
vendor's fee. Thus, the IRS will be aware of any possible fee changes 
and will approve the final vendor fee.
    Three comments related to the total cost and the components of the 
user fee to take the registered tax return preparer competency 
examination. These comments expressed a general concern that the fee 
may be a financial burden on tax return preparation businesses. One 
commentator requested that a definitive, specific fee amount be 
provided and expressed confusion over whether a single user fee covers 
multiple attempts to take the examination. Another commentator stated 
that the fee was duplicative for preparers who are independently tested 
under an employer's program, and requested that the IRS develop a 
process to review and certify employer testing programs.
    Treasury and the IRS have considered these comments, and for the 
reasons described in this preamble, the portion of the proposed 
regulations relating to the user fee for the competency examination is 
finalized without substantive change.
    As stated earlier in this preamble, the OMB Circular generally 
requires agencies to recover the full cost of providing a special 
benefit to an identifiable recipient. The full cost to the IRS to 
administer the registered tax return preparer competency examination is 
$27 per applicant each time the applicant takes the examination. The 
costs to the IRS to administer the competency examination include 
conducting background checks on employees of the third-party vendor who 
are involved in the administration of the examination and the 
personnel, administrative, management, and information technology costs 
to the IRS

[[Page 72621]]

for developing and reviewing the competency examination, overseeing the 
competency examination, validating the competency examination results, 
and establishing a review procedure for applicants who contest any 
portion of the competency examination. The IRS will make expenditures 
for all of these costs associated with the competency examination and, 
thus, is generally required to recover these costs through a user fee 
as provided by the OMB Circular. The IRS will inform the public of the 
total finalized testing fee amount before the test becomes available. 
Because each examination-sitting will involve the same costs, a user 
fee will be charged each time an applicant takes the examination.
    Further, these regulations are part of Treasury's and the IRS's 
effort to increase oversight of the tax return preparer industry based 
upon findings and recommendations made by the IRS in Publication 4832, 
``Return Preparer Review'' (the Report), which was published on January 
4, 2010. All individuals who wish to become a registered tax return 
preparer must pass the competency examination because, during the 
implementation process, Treasury and the IRS concluded that all 
registered tax return preparers should be subject to uniform standards 
of qualification and practice, which includes demonstrating a minimum 
level of competency. When obtaining tax return preparation services, 
taxpayers should know that all registered tax return preparers are 
subject to the same federal regulations and standards, regardless of 
where the registered tax return preparer is employed or in what state 
the individual resides. Requiring all registered tax return preparers 
to fulfill the same competency examination requirements ensures that 
all registered tax return preparers have met the same minimum 
competency standards. Additionally, requiring all registered tax return 
preparers to pass the IRS approved competency examination addresses 
concerns raised by several commentators during the IRS's study of the 
tax return preparation industry about the potential for unfairness if 
certain tax return preparers are exempt from these requirements. 
Accordingly, Treasury and the IRS do not believe that a process to 
review and certify employer testing is appropriate.
    The comments on the user fee to be fingerprinted in conjunction 
with the preparer tax identification number, acceptance agent, and 
authorized e-file provider programs by and large expressed concern with 
the IRS's plan to fingerprint participants in these programs generally, 
as well as the imposition and amount of the proposed user fee. In light 
of the significant issues raised at the hearing and in the written 
comments received on the fingerprinting user fee, Treasury and the IRS 
have decided not to finalize the proposed user fee to be fingerprinted 
in conjunction with the preparer tax identification number, acceptance 
agent, and authorized e-file provider programs at this time. Rather, 
Treasury and the IRS will consider alternatives as to how the IRS can 
best implement the Circular 230 provision authorizing the IRS to 
conduct a suitability check to become a registered tax return preparer. 
In evaluating these alternatives, consideration will be given to how 
the suitability check achieves the goals of increasing oversight of the 
tax return preparer community and how the suitability check can be 
conducted most efficiently while not creating undue burden on the 
individual applicants and the firms or other entities that employ them. 
Thus, Treasury and the IRS are still interested in receiving further 
comments regarding the use of fingerprinting as part of the suitability 
check to become a registered tax return preparer. If the result of this 
reconsideration will require any individual to pay a user fee in 
conjunction with the implementation of the suitability check, including 
a possible fingerprinting requirement, Treasury and the IRS will 
publish a new notice of proposed rulemaking with respect to this user 
fee.
    Treasury and the IRS adopt the proposed regulations after 
eliminating the proposed user fee to be fingerprinted in conjunction 
with the preparer tax identification number, acceptance agent, and 
authorized e-file provider programs. The portion of the proposed 
regulations pertaining to the user fee to take the registered tax 
return preparer competency examination is adopted without substantive 
modification.

Effective/Applicability Date

    The Administrative Procedure Act provides that substantive rules 
will not be effective until thirty days after the final regulations are 
published in the Federal Register (5 U.S.C. 553(d)). Final regulations 
may be effective prior to thirty days after publication if the 
publishing agency finds that there is good cause for an earlier 
effective date.
    This regulation is part of the IRS's continued efforts to implement 
the recommendations in the Report. The recently published amendments to 
Circular 230 established registered tax return preparers as 
practitioners under Circular 230 and required that individuals must 
pass a competency examination, among other requirements, to become a 
registered tax return preparer. Before the competency examination can 
be offered, the competency examination user fee must be in place. 
Further, to enable the IRS to begin designating individuals as 
registered tax return preparers in time for the 2012 filing season, the 
competency examination user fee must be finalized significantly before 
the 2012 filing season.
    Thus, the Treasury and the IRS find that there is good cause for 
these regulations to be effective upon the publication of these final 
regulations in the Federal Register.

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563.
    It has been determined that a final regulatory flexibility analysis 
under 5 U.S.C. 603 is required for this final rule. The analysis is set 
forth under the heading, ``Final Regulatory Flexibility Analysis.''
    Pursuant to 26 U.S.C. 7805(f), the notice of proposed rulemaking 
preceding these final regulations was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business. The Chief Counsel for Advocacy did not submit 
comments on the notice of proposed rulemaking.

Final Regulatory Flexibility Analysis

    When an agency either promulgates a final rule that follows a 
required notice of proposed rulemaking or promulgates a final 
interpretative rule involving the internal revenue laws that imposes a 
collection of information requirement on small entities as described in 
5 U.S.C. 603(a), the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
requires the agency to ``prepare a final regulatory flexibility 
analysis.'' A final regulatory flexibility analysis must, pursuant to 5 
U.S.C. 604(a), contain the five elements listed in this final 
regulatory flexibility analysis. For purposes of this final regulatory 
flexibility analysis, a small entity is defined as a small business, 
small nonprofit organization, or small governmental jurisdiction. See 5 
U.S.C. 601(3)-(6). The Treasury and the IRS conclude that the final 
regulations (together with other contemplated guidance provided for in 
these regulations) will impact a substantial

[[Page 72622]]

number of small entities and the economic impact may be significant.

A Statement of the Need for, and the Objectives of, the Final Rule

    The Treasury and the IRS are implementing regulatory changes that 
increase the oversight of the tax return preparer industry based upon 
findings and recommendations in the Report. These regulatory changes 
include establishing registered tax return preparers as Circular 230 
practitioners. Individuals who wish to become a registered tax return 
preparer must pass a competency examination. Individuals who pass the 
competency examination and become a registered tax return preparer will 
receive a special benefit that the general public does not receive 
because a registered tax return preparer is allowed to prepare and sign 
Form 1040 series returns (and accompanying schedules) for compensation. 
The regulations under section 6109 (75 FR 60309) in conjunction with 
Notice 2011-6 (2011-3 IRB 315 (January 17, 2011)), provide that only 
attorneys, certified public accountants, enrolled agents, and 
registered tax return preparers can prepare and sign all or 
substantially all of a Form 1040 series return (and accompanying 
schedules) for compensation. This final rule recovers the full costs to 
the IRS to oversee the registered tax return preparer competency 
examination.

Summaries of the Significant Issues Raised in the Public Comments 
Responding to the Initial Regulatory Flexibility Analysis and of the 
Agency's Assessment of the Issues, and a Statement of Any Changes Made 
to the Rule as a Result of the Comments

    Treasury and the IRS received no public comments responding to the 
initial regulatory flexibility analysis related to competency testing 
in the proposed regulations that preceded these final regulations. 
Treasury and the IRS did receive comments from the public on the 
proposed regulations in general. A summary of these comments along with 
Treasury's and the IRS's assessment of the issues raised in the 
comments and descriptions of any revisions resulting from the comments 
is set forth elsewhere in this preamble under the Summary of Comments 
and Explanation of Revisions heading.

A Description and an Estimate of the Number of Small Entities to Which 
the Rule Will Apply or an Explanation of Why an Estimate is Not 
Available

    These final regulations affect all individuals who want to become a 
registered tax return preparer under the new oversight rules in 
Circular 230. Only individuals, not businesses, can practice before the 
IRS or become a registered tax return preparer. Thus, the economic 
impact of these regulations on any small entity generally will be a 
result of applicants owning a small business or a small entity 
employing applicants. The NAICS code that relates to tax preparation 
services (NAICS code 541213) is the appropriate code for the registered 
tax return preparer program. Entities identified as tax preparation 
services are considered small under the Small Business Administration 
size standards (13 CFR 121.201) if their annual revenue is less than $7 
million. The IRS estimates that approximately 350,000 individuals will 
become registered tax return preparers. The IRS estimates that 
approximately 70 to 80 percent of the individuals who apply to become 
registered tax return preparers are operating as or employed by small 
entities.

A Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Rule, Including an Estimate of the 
Classes of Small Entities Subject to the Requirements and the Type of 
Professional Skills Necessary for Preparation of a Report or Record

    The final regulations do not directly impose any reporting or 
recordkeeping requirements on any small entities. The final 
regulations, however, require certain tax return preparers to pay a 
user fee to take the registered tax return preparer competency 
examination. Small entities may be affected by these costs if the 
entities choose to pay some or all of these fees for their employees.
    Under the amendments to Circular 230, tax return preparers may also 
incur costs for exam preparation courses, plus incidental costs, such 
as for travel and accommodations, in order to obtain the designation of 
registered tax return preparer 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 exam 
preparation classes or are studying and sitting for the examination. 
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. Treasury and the IRS 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 these final 
regulations.

A Description of the Steps the Agency Has Taken to Minimize the 
Significant Economic Impact On Small Entities Consistent With the 
Stated Objectives of Applicable Statutes, Including a Statement of the 
Factual, Policy, and Legal Reasons for Selecting Any Alternative 
Adopted in the Final Rule and Why Other Significant Alternatives 
Affecting the Impact on Small Entities That the Agency Considered Were 
Rejected

    Treasury and the IRS are not aware of any steps that could be taken 
to minimize the economic impact on small entities that would also be 
consistent with the objectives of these final regulations and have 
determined that there is no viable alternative to these final 
regulations. These regulations do not impose any more requirements on 
small entities than are necessary to effectively administer the 
internal revenue laws. Further, the regulations do not subject small 
entities to any requirements that are not also applicable to larger 
entities covered by the regulations.
    The IOAA authorizes the charging of user fees for agency services, 
subject to policies designated by the President. The OMB Circular 
implements presidential policies regarding user fees and encourages 
user fees when a government agency provides a special benefit to a 
member of the public. As Congress has not appropriated funds to the 
registered tax return preparer program, there are no viable 
alternatives to the imposition of user fees, which fees recover the 
costs to the IRS for providing the special benefits associated with the 
registered tax return preparer program.

Drafting Information

    The principal author of these regulations is Emily M. Lesniak, 
Office of the Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 300

    Reporting and recordkeeping requirements, User fees.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 300 is amended as follows:

PART 300--USER FEES

0
Paragraph 1. The authority citation for part 300 continues to read in 
part as follows:


[[Page 72623]]


    Authority:  31 U.S.C. 9701.


0
Par. 2. Section 300.0 is amended by redesignating paragraph (b)(12) as 
paragraph (b)(13) and adding new paragraph (b)(12) to read as follows:


Sec.  300.0  User fees; in general.

* * * * *
    (b) * * *
    (12) Taking the registered tax return preparer competency 
examination.
* * * * *


Sec.  300.12  [Redesignated as Sec.  300.13]

0
Par. 3. Redesignate Sec.  300.12 as Sec.  300.13.

0
Par. 4. Adding new Sec.  300.12 to read as follows:


Sec.  300.12  Registered tax return preparer competency examination 
fee.

    (a) Applicability. This section applies to the competency 
examination to become a registered tax return preparer pursuant to 31 
CFR 10.4(c).
    (b) Fee. The fee for taking the registered tax return preparer 
competency examination is $27, which is the government cost for 
overseeing the examination and does not include any fees charged by the 
administrator of the examination.
    (c) Person liable for the fee. The person liable for the competency 
examination fee is the applicant taking the examination.
    (d) Effective/applicability date. This section is applicable 
beginning November 25, 2011.

Steven T. Miller,
 Deputy Commissioner for Services and Enforcement.
    Approved: November 21, 2011.
 Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-30388 Filed 11-22-11; 11:15 am]
BILLING CODE 4830-01-P