Starting a Tax Preparation Business - New Preparer Regulations

Nervous entrepreneurs looking to start a tax preparation business can now breathe a sigh of relief; the IRS has finally released the fee structure associated with the new mandated tax preparer registration. The total fee for this will be $64.25 per individual for the first year of registration. $50 of this fee covers the IRS' costs for administering the new PTIN program, and $14.25 goes to a third-party vendor to operate the online system and provide customer support. Going forward from this first year's registration or re-registration process, preparers will be required to renew their PTINs annually and pay the $14.25 user fee each year for this renewal process.

All individuals who intend to preparer tax returns this season will have to either register. New preparers will have to get a PTIN (Preparer Tax Identification Number) and experienced preparers, who already have a PTIN, will be required to re-register their existing PTIN. There are several aspects of this new requirement that effects tax business owners.

• Increased cost of operation

• This relates to the general cost of maintaining employees for your tax practice. As your tax business grows, inevitably capacity issues will dictate that you bring in more tax preparers. This means that you will most likely have to foot the bill for their registration and renewals.

• If preparers leave your tax business and choose to go work for a competitor's firm, their PTIN goes with them. Even if you pay for their registration, you the tax business owner have no ownership of that preparer's PTIN.

• Increased difficulty of staffing

• There will be a suitability test for a PTIN to be issues to a tax preparer. This test includes a criminal background check and tax compliance check. This means that if a new employee has a criminal felony history or if they have not filed their personal taxes in the past they may not be approved to be a registered tax return preparer. This will inevitably narrow the field of potential candidates for employees.

• You will not be able to hire a new tax preparer on the fly or mid tax season and immediately put them to work preparing return. You must go through the registration process first.

The big new effect that many tax business owners are talking about is the dismissal of the old preparer adage "I just imputed what the tax payer told me." Now that tax return preparers will fall under the supervision of and be subject to disciplinary actions by the Office of Professional Responsibility, preparers are held responsible for submitting returns with frivolous tax positions.

For Example: if a taxpayer approaches your business and wishes to claim their family dog as a dependent, and knowingly your tax preparer goes along with this; there could be disciplinary actions taken at the tax preparer level, not just at the taxpayer level as was the case in the past. As a tax business owner or someone considering starting a tax preparation business, you should be aware of the latest IRS regulations affecting your business and your employees.