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IRS requiring all to have an official ID; examination next

[caption id="attachment_30296" align="alignleft" width="216" caption="Gregory Fontana, Gary Lentz"][/caption]

By now, most people should be thinking about filing their 2010 tax returns. Filing earlier usually means that Uncle Sam can send a refund sooner. Those who have a professional prepare their taxes should know that this is a year of important changes for Certified Public Accountants and other tax preparers.

Generally, four types of people can prepare your taxes: CPAs, Enrolled Agents, attorneys and "none of the above." The Enrolled Agent designation is granted by the IRS to people who pass a test that designates advanced knowledge in taxes only. Attorneys can often prepare taxes, but their billing rates are generally much higher; they tend to be used by people with unique filing needs.

CPAs are licensed by the state after passing the nationally-administered CPA exam. This four-part test covers business and personal taxation, accounting, business law, auditing, finance, economics and even some computer topics. CPAs are certified to possess the broadest range of business skills.

The "none of the above" category is everybody else who prepares taxes. This includes all non-licensed professionals. Until recently, anyone could rent out office space and open up Joe's Income Tax Service. There was no requirement of continuing education and no mandatory system of registration to track these tax preparers. Obviously, this has caused problems over time.

But things are changing.

Regulation of these preparers started in January. "None of the above" is now being replaced by the Registered Tax Return Preparer designation. All preparers, including CPAs, Enrolled Agents, and attorneys, must obtain what's called a Preparer Tax Identification Number (PTIN). The preparer puts this number next to his or her signature on a tax return. During the application process, there is a check on the applicant's current personal tax situation. A PTIN can be denied if there are any back taxes owed or unfiled returns. The idea is that preparers should, at a minimum, have their own returns in order before working on the returns of others.

Starting in the middle of this year, the IRS will also implement an exam that the "none of the above" people must pass before becoming a Registered Tax Return Preparer. After 2013, it will generally be illegal to prepare taxes for a living without being a Registered Tax Return Preparer, Enrolled Agent, attorney, or CPA. This test is expected only to cover the skills need to prepare basic individual returns.

Once a Registered Tax Return Preparer designation is granted, the preparer must complete 15 hours of continuing education each year. This is usually obtained by attending conferences, completing online courses, or reading books and taking a quiz. This helps ensure continued competency after the exam. CPAs, Enrolled Agents, and attorneys already have continuing education requirements, so they won't be affected by these new rules. California requires 80 hours of continuing education every two years to keep a CPA license active.

A CPA license is also getting more difficult to obtain. In addition to passing the recently revised exam with new international topics, a CPA candidate needs to fulfill education and work experience requirements before becoming certified. And, in 2014 California is joining nearly all other states in requiring 150 college units (roughly five years) and a bachelor's degree before obtaining a CPA license (formerly 120 units). By contrast, attorneys must have a law degree, and Enrolled Agents have no educational requirements at all.

Businesses and individuals have many choices for help preparing their tax returns.  The good news for taxpayers is that the requirements are becoming more stringent.

While they may cause a headache for some preparers, these new rules are designed to benefit the public. This year, make sure your tax preparer has a PTIN, and don't be afraid to ask questions before hiring someone. After all, the best tax preparers will be an active partner in both your business and personal success by providing tax planning and related advisory services.

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Gregory Fontana is an Associate Accountant and Gary Lentz is Director of Business Advisory Services at Pisenti & Brinker LLP, Certified Public Accountants and Advisors. They can be reached at 707-542-3343 or gfontana@pbllp.com and glentz@pbllp.com.