IRS YouTube Video: New Tax Preparer Test Explained

WASHINGTON - The Internal Revenue Service today marked the third anniversary of its groundbreaking return preparer initiative and urged those paid tax return preparers required to pass a new competency test to take the test as soon as possible.

Three years ago the IRS took its first step toward ensuring standards for competency, continuing education and ethics would apply to all paid tax return preparers. Major facets of the initiative are now in place.

On June 4, 2009, IRS Commissioner Doug Shulman launched a six-month review focusing on the competency and conduct of paid tax return preparers. The review resulted from a recognition that paid tax return preparers were an important element in the integrity of the nation’s tax system.  The review included a series of public hearings with the tax preparation community, consumer advocates, oversight groups and taxpayers.

Six months later, the Return Preparer Review laid out a series of recommendations to extend oversight to certain areas of the preparer industry to enhance tax compliance and service to taxpayers.

Among the initiative highlights:

Mandatory registration and use of a Preparer Tax Identification Number (PTIN): Anyone who is paid to prepare, or help prepare, all or substantially all of a federal tax return now has to register with the IRS and obtain a PTIN, as do all enrolled agents. The PTIN is valid for a calendar year and must be renewed annually. Almost 850,000 preparers have registered since the requirement began.

Competency Test: In November 2011, a 120-question basic competency test was launched. Certain preparers are required to take the test by Dec. 31, 2013, to stay in business. The IRS urges an estimated 340,000 preparers required to take the test to do so as soon as possible to give them selves more time if they have to retake the test and to avoid a potential flood of last-minute test takers. Certified Public Accountants, Enrolled Agents and attorneys are exempt from the test because they already have other testing requirements as part of their credentials. Certain non-signing preparers supervised by CPAs, EAs or attorneys are exempt, as are non-1040 preparers.

Continuing Education (CE): The roughly 340,000 preparers who have a testing requirement also have a new requirement to complete 15 hours of continuing education courses each year. The CE credits must include 10 hours in federal tax law, three hours in federal tax law changes and two hours in ethics. This requirement became effective January 2012 and it applies even if the preparer has not yet taken the test. There are now hundreds of outlets offering IRS-approved CE courses. More details are available at www.irs.gov/taxpros/ce.

Ethics and Tax Compliance: Ethical requirements that previously applied only to CPAs, EAs and attorneys now apply to all paid return preparers. All paid preparers also will undergo a tax compliance check and are subject to the standards for practice outlined in Treasury Department Circular 230.

Registered Tax Return Preparer: Preparers who pass the competency test and tax compliance check are given a new credential: Registered Tax Return Preparer. To date, over 4,800 people have become Registered Tax Return Preparers.  Beginning in 2014, only Registered Tax Return Preparers, Enrolled Agents, Certified Public Accountants, and attorneys will be authorized to prepare individual income tax returns for compensation.

Public Database: The IRS also will create a publicly searchable database that will allow taxpayers to see if their tax preparers have met IRS standards or to find a tax preparer in their zip code area. The IRS will have a public education campaign to inform taxpayers to use only CPAs, EAs, attorneys or Registered Tax Return Preparers if they pay to have their taxes prepared.

The database will also show any credentials held by the preparer, including the new RTRP credential, as well as those who are EAs, CPAs and attorneys.

The RTRP competency test is available at more than 260 vendor testing centers nationwide. Preparers can determine if they have a test requirement by going to their online PTIN Account at www.irs.gov/ptin. Preparers also can set a test date, time and location through their online PTIN Account.

Meeting: Tax Related Guidance for Child Care Providers
Date(s): June 5, 2012
Time: 2:00 p.m. (ET); 1:00 p.m. (CT); 12:00 p.m. (MT); 11:00 a.m. (PT)
Location: Your Home or Office
Contact: IRS SB/SE Webinars; E-mail: sbse.webinars@irs.gov
Event Information: This FREE webinar is for:

• Enrolled Agents
• Registered Tax Return Preparers
• CPAs
• Other Tax Professionals
• Child & Day Care operators and owners

Topics include:

• Tax related issues pertaining to businesses in the child care provider industry
• Income items
• Recordkeeping tips
• Business use of the home calculation
• Expense issues
• Depreciation rules and reporting
• Food Program Reimbursements (CACFP)

Earn Continuing Professional Education credit:

To receive a certificate of completion, you must:

• View the broadcast on June 5, 2012 for at least 50 minutes from the start of the program
• View the presentation while signed in using the same email address that you used to register (you will not receive credit by watching on someone else’s computer). This will confirm your attendance and generate your certificate of completion (emailed in approximately one week after the broadcast).
• Register individually. Groups cannot register with one email address and then receive separate certificates. If certificates are needed, each person must register separately.
• If you are an Enrolled Agent or a Registered Tax Return Preparer, you must register with your accurate PTIN (P plus 8 digits) to receive credit from the IRS Return Preparer Office.
• Other tax professionals and business owners and operators, who qualify, will be sent a certificate and may receive credit if the broadcast meets their organizations' or states' CPE requirements.

To register for this event, visit the Internal Revenue Service Webinar Registration Web Site. This event will be archived on the IRS Video Portal for later viewing approximately three weeks after the date of the event.
Sponsored by: Internal Revenue Service Small Business and Self-Employed Division

Interest Rates Unchanged for the Third Quarter of 2012

WASHINGTON - The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced today include:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to repay their student loans.
• Allowing taxpayers to pay state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

Allowable Living Expenses

The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.

The 2012 IRS Nationwide Tax Forums are three-day events presented by IRS experts and partner organizations that offer up-to-date information on federal and state tax issues. Tax professionals that take advantage of early registration will receive a significant discount on the registration fee. Keep in mind that the early registration period closes two weeks prior to each forum.

Here are 10 things Enrolled Agents, Certified Public Accountants, Certified Financial Planners, Registered Tax Return Preparers and other tax professionals need to know about the 2012 IRS Nationwide Tax Forums.

1. Forums are held June through August in Orlando, Atlanta, San Diego, Las Vegas, Chicago and New York.

2. Those who sign up early can qualify for discounted registration fee. Pre-registration ends two weeks prior to the start of each forum.

3. Forums offer an opportunity to receive up to 18 continuing education credits through a variety of training seminars and workshops.

4. Forums will offer 43 separate seminars and workshops on valuable and relevant tax topics.

5. Forums will also feature a two-day expo with representatives from the IRS as well as other tax, financial, and business communities offering their products, services, and expertise.

6. Visit with IRS Oversight Board representatives and offer your comments on various IRS initiatives and programs.

7. Tax professionals attending a forum can bring their toughest unresolved cases to meet with IRS personnel who may be able to help.

8. Registering for a tax forum is easy! Register by internet, fax or mail.

9. For more information or to register visit www.irstaxforum.com.

Effective May 21, the IRS will begin issuing only one employer identification number per responsible party each day, a change from the current limit of five per day. This limit applies to all requests for an EIN whether online or by phone, fax or mail. This policy was implemented to ensure fair and equitable access to all applicants with legitimate tax administration-related needs. It also ensures the EIN system continues to operate effectively. We apologize if this change affects your current business practice.

For additional information about applying for an employer identification number, go to IRS.gov or click on the links below.

Apply for an EIN Online

Employer ID Numbers (EINs)

Understanding your EIN

You Tube Video Employer Identification Number

WASHINGTON - The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.
The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

How will the credit make a difference for you?                 

For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.

Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

Click here if you want more examples of how the credit applies in different circumstances.

Can you claim the credit?

Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.

To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year.

Let us break it down for you even more.

You are probably wondering: what IS a full-time equivalent employee. Basically, two half-time workers count as one full-timer. Here is an example, 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20.

Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10 – the number of FTEs – and the result is your average wage. The average wage would be $20,000.

Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.

If you need assistance determining if your small business or tax exempt organization qualifies for the credit, try this step-by-step guide

How do you claim the credit?

You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.

If you are a small business, include the amount as part of the general business credit on your income tax return.

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so.

Don’t forget … if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit