1 Ohio Central Area Tax Administrators Small Business/Self-Employed Division Winter 2011

2 Return Preparer Review

3 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ONE  Mandatory registration for all preparers including those who already have a PTIN  Annual user fee $64.25  SSN no longer valid ID number for paid preparers beginning Jan. 1, Must use PTIN

4 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

5 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

6 For PTIN assistance FAQs on Primary Toll-Free: PTIN (7846) TTY: Toll Number for International Callers: Hours of Operation: Monday - Friday, 8:00 a.m. - 5:00 p.m. (CST)

7 Background Checks Fingerprint checks will potentially be implemented in mid-2011 for individuals who are not attorneys, CPAs, or enrolled agents

8 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.

9 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

10 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”

11 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

12 Target Implementation Timeline PTIN sign-up begins September 15 Testing available June 1 September 15 December January 31 Searchable database available PTIN revoked if competency test not passed PTIN renewals begin CE requirement begins - TBD

13 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

14 E-File Mandate

15 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

16 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

17 Pending New Forms  Form 8944, Preparer e-file Hardship Waiver Request  Form 8948, Preparer Explanation for Not Filing Electronically

18 Client Prefers Paper  Preparer should: –Explain the new law and benefits of e-file –Obtain a signed statement –Attach Form 8948 to the return

19  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

20 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

21 Elimination of FTD Coupons Regulation Electronic Funds Transfer of Depository Taxes

22 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.

23 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.

24 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.

25 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.

26 Earned Income Tax Credit Compliance Initiatives & Due Diligence

27 Targeted Compliance Aims to Improve Accuracy EITC return preparers may get letters or personal visits from the IRS starting Fall 2010

28 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

29 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

30 Due Diligence Common Errors Pay particular attention to the following issues that account for more than 60% of all EITC errors 1.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

31 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

32 EITC Due Diligence Internal Revenue Code §6695(g) Due diligence requirements 1.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

33 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

34 EITC Central – Your Home for All Things EITC

35 Overview of 2010 Income Tax Law Changes

36 Personal Exemptions No AGI phase out of personal exemptions All taxpayers can deduct 100% of personal exemptions Ref: IRC 151(d)(3)(F)

37 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)

38 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 Ref: IRC 408

39 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

40 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

41 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)

42 New Hire Retention Credit General business credit Up to $1000 per retained qualified employee

43 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

44 Questions?