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IRS Requires Preparers to Recognize Taxpayer Security Precautions

Wednesday, November 20, 2019   (0 Comments)
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Submitted by Brian Wozniak  IRS Stakeholder Liaison C&L: SL: Area 6

IRS Requires Preparers to Recognize Taxpayer Security Precautions

By William Hoffman

Tax preparers applying for or renewing a preparer tax identification number need to be aware of an important new question on the form.

The IRS this year added question 11 on Form W-12, “IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal,” as part of the tax agency’s struggle against identity theft through insufficient tax preparer security preparations. “I wouldn’t blow this one off,” enrolled agent Lonnie Gary advised preparers during a Tax Talk Today web panel discussion November 19.

The new question is meant to affirm recognition by tax return preparers that they have taken security precautions, as well as made individualized plans to respond to breaches, said Jean Nelsen, former president of the National Association of Enrolled Agents.

Question 11 reads: “As a paid tax return preparer, I am aware of my legal obligation to have a data security plan and to provide data and system security protections for all taxpayer information. Check the box to confirm you are aware of this responsibility.”

Every paid tax return preparer must obtain a PTIN each year to be legally eligible to file tax returns. Most PTINs are approved and issued electronically through the website. Hundreds of thousands are issued every year, usually within minutes, noted Gary, a partner at Young, Craig & Co. LLP.

Nelsen encouraged preparers to review the IRS’s “Security Six” steps to protect taxpayer data, including use of antivirus software and firewalls, two-factor authentication, software and data backup services, and virtual private networks and hard drive encryption for communications and data security.

But the IRS also expects preparers to police their data when disposing of hard drives or old copy machines that may preserve document images containing taxpayers’ personal identifying information, Gary said.

PTIN Free Ride Ending

There’s no fee for PTIN applications or renewals for the 2020 filing season, Gary noted, but that will change in 2021.

There’s also no indication yet at what amount the 2021 PTIN fee will be set, except that it must be “fair,” Gary said.

The PTIN fee was invalidated in 2017 by the U.S. District Court for the District of Columbia in Steele v. U.S., No. 1:14-CV-01523 (D.D.C. 2017).

However, the Supreme Court in May passed on the opportunity to review a successor case, Montrois v. U.S., 916 F.3d 1056 (D.C. Cir. 2019), letting stand the circuit court’s ruling that the IRS’s PTIN charge wasn’t arbitrary or capricious.

Montrois has been remanded to the lower court to decide if the agency’s $33 fee (plus processing) was reasonable and compliant with the Independent Offices Appropriations Act.

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