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Monday, February 27, 2012

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IRS PTIN a Barrier for Canadian Preparers

Canadian professionals who want to prepare US tax returns for clients should keep in mind that paid preparers of most US tax returns must obtain a preparer tax identification number (PTIN) from the IRS. Except in limited cases, only a US attorney, a licensed certified public accountant (CPA), an enrolled agent (EA) who is qualified to practise before the IRS, and a registered tax return preparer (RTRP) can obtain a PTIN. A foreign professional such as a Canadian lawyer, a chartered accountant, a certified general accountant, or a certified management accountant can obtain a PTIN, but he or she may first have to obtain a qualifying US designation such as CPA or become an RTRP by passing certain competency examinations and satisfying continuing education requirements.

Provisional PTIN. Until at least April 18, 2012, the IRS will issue a provisional PTIN to a paid preparer who does not have the qualifying US designation required to otherwise obtain a PTIN. The IRS will announce the last date on which it will issue provisional PTINs in a news release that will be published at least 30 days before that date. A provisional PTIN will be accepted by the IRS until December 31, 2013 so long as it is renewed annually without lapse. If a provisional PTIN expires after April 18, 2012, the holder can obtain another PTIN only if he or she becomes an RTRP or obtains a suitable US designation. A provisional PTIN holder must meet the RTRP continuing education requirements. Each PTIN must be renewed for the next subsequent year by December 31 of the current year.

Regular PTIN. A US attorney, a licensed CPA, an EA, and any other qualified professional who can practise before the IRS are exempt from both the IRS competency examination and continuing education requirements and can thus obtain a PTIN with relative ease. A licensed CPA has no restrictions as to the taxpayers that he or she can represent, the types of tax matters that he or she can handle, and which IRS offices he or she can practise before.

A licensed CPA must pass the CPA examination and satisfy minimum education and experience requirements that vary from state to state. Some states, including Illinois, have two-tier CPA designations: a person can pass the CPA examination and obtain the CPA designation, but to become licensed he or she must meet minimum education and experience requirements. It is not uncommon for a US tax return preparer in Canada to hold an unlicensed Illinois CPA designation, but that is not adequate for the purposes of practising before the IRS or of obtaining more than a provisional PTIN.

A holder of the Canadian CA designation can write the international qualification examination (IQEX), commonly known as the CA-CPA reciprocity exam. This one-day multiple choice exam focuses on differences between US and Canadian rules and assumes a basic knowledge of the areas where the rules coincide. IQEX is offered in all major cities in Canada. A new IQEX format is pending in 2012. Once successful, an IQEX candidate must satisfy other education and experience requirements set by the state in which he or she applies to become a licensed CPA; a CA who passes the IQEX may be able to satisfy the licensing requirements in only a handful of states.

An RTRP, who may also obtain a PTIN, is a return preparer who passes a series of IRS competency examinations and complies with annual continuing education requirements. The first competency examination covering US individual income tax returns was offered late in 2011. An RTRP must complete a minimum of 15 hours of continuing education credits during each calendar year in which he or she is registered; even so, he or she has a more limited ability than other qualified professionals to practise before the IRS.

Supervised PTIN. An exception is made in IRS Notice 2011-6 (2011 3 IRB 315) for a "supervised PTIN." That notice says that certain individuals who are not attorneys, licensed CPAs, EAs, or RTRPs can obtain a PTIN in limited circumstances. As a practical matter, the exception may be difficult to exercise in Canada. The IRS permits an individual to obtain a PTIN if he or she is supervised by an attorney, licensed CPA, EA, enrolled retirement plan agent, or enrolled actuary authorized to practise before the IRS, provided that the supervisor will sign all returns and refund claims that are prepared by the individual. In addition, the individual and the supervisor must be employed at the same law firm, CPA firm, or other recognized firm.

For the purposes of this exception, a law firm or a CPA firm is a partnership, professional corporation, sole proprietorship, or any other association authorized to practise in a state, territory, or possession of the United States or the District of Columbia. A recognized firm--other than a law firm or CPA firm as defined--has one or more employees lawfully engaged in practice before the IRS. However, any law firm, CPA firm, or other recognized firm must be at least 80 percent owned by one or more attorneys, licensed CPAs, EAs, enrolled actuaries, or enrolled retirement plan agents who are authorized to practise before the IRS. Thus, a Canadian law or CA firm does not appear to satisfy the practice and ownership requirements of the supervised PTIN exception. As a result, only a regular or provisional PTIN, but not a supervised PTIN, should be available to a US tax return preparer in Canada.

The IRS further understands that an individual should not be required, as a condition of obtaining a PTIN, to pass a competency examination that covers tax returns and refund claims that are not prepared by the individual. At present, the competency examination covers only individual income tax returns. An individual can obtain a PTIN without taking a competency examination if the individual certifies that he or she does not prepare or assist in the preparation of all or substantially all of any tax return or refund claim that is covered by the competency examinations for an RTRP. The individual is also exempt from the continuing education requirements, although other restrictions apply.

Future PTIN applicants may be required to be fingerprinted as part of a background check. Exemption from fingerprinting will be extended to an attorney, a CPA, an EA, an enrolled retirement plan agent, and an enrolled actuary, and to a PTIN holder who resides and is employed outside the United States. Procedures to facilitate fingerprinting will not be implemented until at least April 18, 2012; the IRS will announce, at least 30 days before the date, the last date on which an individual may receive a PTIN without first being fingerprinted. An individual who obtains a PTIN before the date announced in the news release and who continually maintains the PTIN will not be required to be fingerprinted until December 31, 2013. Thereafter, unless an exemption applies, fingerprinting and background checks will be required in order to renew a PTIN.

Jeffrey Brown
KPMG LLP, Hamilton

Annie Long
KPMG LLP, Vancouver

 
  Canadian Tax Highlights
Volume 20, Number 2, February 2012
©2012, Canadian Tax Foundation