Legal Requirements to Become a Tax Preparer

Not long ago, there were no requirements whatsoever. I remember once speaking to a real estate saleswoman (in Florida) who was selling my condo. She asked what I do for a living. I explained that I am a CPA and that I mainly prepare tax returns. That's when she told me that her HAIRDRESSER prepares her tax return every year as a side business!

There are federal (IRS) requirements to become a tax preparer and depending on where you live, there may be state requirements.

Federal Legal Requirements to Become a Paid Tax Preparer

Get A PTIN

The IRS currently requires all persons who prepare tax returns in exchange for payment to register with the IRS and get a PTIN. This is a preparer tax ID number and is NOT the same thing as an EIN, FEIN, or Employer ID Number. The preparer then uses the PTIN when signing a tax return that he was paid to prepare instead of listing his Social Security Number in the preparer signature section of the return.

Register with the IRS as an E-File Provider

The IRS also requires that any preparer who files returns electronically register as an e-file provider and get an e-file number. This must be renewed annually and it does require the payment of a modest fee.

Other than getting a PTIN and registering as an e-file provider, there is currently no mandated registration required by the IRS. Various estimates indicate that approximately 60% of tax return preparers in the US are unregistered. In other words they are not CPA's, Enrolled Agents or attorneys. That does not mean they are incompetent; just unregistered and untested.

IRS Attempts to Enact Mandatory Certification (but Fails)

The Internal Revenue Service has been trying to require all tax return preparers to pass a competency exam and fulfill continuing education requirements, but has not been successful in doing so. The IRS created the rule in 2011, but it was declared unconstitutional by a US District Court in January 2013 because the IRS lacked the authority to mandate competency testing and continuing education for preparers.

IRS Voluntary Certification Program

Not to be dissuaded, the IRS has now put in place a voluntary testing and registration program for tax return preparers who are not otherwise licensed. What is the advantage to volunteering to be tested and registered? Well, if you pass the exam and meet the annual education requirements, you can be listed on the IRS website in their public directory of tax return preparers which is supposed to launch in 2015 (don't hold your breath). Additionally, an IRS certified preparer has certain limited taxpayer representation rights.

State Legal Requirements to Become a Paid Tax Return Preparer

Most states do not have a separate registration requirement for tax return preparers, other than to get whatever license is required to operate a business in that state. States that do have a registration requirement usually exempt CPA's, Enrolled Agents and attorneys from registration.

California has a registration requirement for paid tax return preparers. It must be renewed annually and has a continuing education requirement (among other requirements). You can learn more about the California tax return preparer registration requirements on the California Franchise Tax Board website. There are exemptions for CPA's, Enrolled Agents, California Attorneys, and others.

Maryland has a registration requirement for paid tax return preparers (unless you are exempt because you are a CPA, Enrolled Agent, or Attorney). Find out more about Maryland's tax return preparer registration requirements on Maryland's professional licensing board website.

New York has a registration requirement for paid tax return preparers unless you qualify for one of the exemptions. Find out more about New York's tax return preparer registration requirement on the New York State Department of Taxation and Finance.

Oregon is unusual in that it actually requires that paid tax return preparers be licensed by the state of Oregon. Preparers have to take and pass an Oregon examination to become licensed. There are two levels of licensure: The Licensed Tax Preparer, and the Licensed Tax Consultant. Find out more about Oregon's tax return preparer licensing requirements on the Oregon Board of Tax Practitioners website.