On May 16, 2019, Governor Kim Reynolds signed “House File 590, an Act relating to tax return preparers, and providing penalties,” into law. Rules related to the tax return preparers regulations can be found in Iowa Administrative rule 701–7.36. This guidance pertains, generally, to the calendar years beginning on or after January 1, 2020 and highlights tax return preparers’ continuing education and preparer tax identification number (PTIN) requirements mandated in House File 590.
House File 590 requires tax return preparers to complete a minimum of 15 hours of continuing education courses each year. At least 2 hours must pertain to professional ethics and the rest must relate to federal or state income tax. Excess hours completed in one calendar year will not roll over to the next calendar year. Each course must be taken from an Internal Revenue Service (IRS) approved provider of continuing education. Courses may be in person, online, or self-study, as long as they are offered by an IRS approved provider and pertain to federal or state income tax or professional ethics. A number of these IRS approved providers are located in Iowa, but it is not mandatory that a continuing education course be taken from an Iowa provider.
House File 590 also requires tax return preparers to include their PTIN, as defined in Internal Revenue Service Notice 2011-6, on all of the following Iowa tax returns they prepare, regardless of the year of the return: IA 1040, IA 1040X, IA 1040C, IA 1041, IA 1120, IA 1120X, IA 1120F, IA 1120S, and IA 1065. Violators of this provision will incur a $50 civil penalty for each violation (not to exceed $25,000 in any calendar year), unless the tax return preparer shows that the failure was reasonable under the circumstances and not willful or reckless conduct.
A tax return preparer means any individual who, for a fee or other consideration, prepares ten or more original or amended IA 1040, IA 1040X, IA 1040C, IA 1041, IA 1120, IA 1120X, IA 1120F, IA 1120S, or IA 1065 returns (or claims for refund under those returns) during a calendar year. An individual is considered to prepare a return when the individual signs (or should sign) the return, either because the individual completed the return, or because the individual assumed final responsibility for preliminary work completed by other individuals. A tax return preparer does not include any individual who prepares tax returns or claims for refunds solely on a volunteer basis.
The following individuals are not subject to the continuing education requirements or penalty provisions described in this guidance:
Certified public accountants, or licensed public accountants under Iowa Code Chapter 542 or a similar law of another state
Individuals admitted to practice law in this state or another state
Enrolled agents enrolled to practice before the Internal Revenue Service pursuant to 31 C.F.R. § 10.4
Fiduciaries of an estate, trust, or individual, while functioning within the fiduciary's legal duty and authority with respect to that individual, or that estate or trust or its testator, trustor, grantor, or beneficiaries
Individuals who prepare the tax returns of their employer, while functioning within their scope of employment with the employer
Individuals employed by a local, state, or federal government agency, while functioning within the scope of their employment with the government agency
Employees of a tax return preparer, if the employees provide only clerical or other comparable services and do not sign tax returns
Tax return preparers must report hours to the Iowa Department of Revenue using the Preparer Continuing Education (78-012) form. Hours indicated for each course on the Preparer Continuing Education form should not exceed the length of the class specified by the IRS approved provider of continuing education. Tax return preparers may only claim hours for time they actually attended or participated in a continuing education course. Tax return preparers must also retain, for a minimum of 5 years, records of their continuing education courses, including certificates of completion. However, tax return preparers will only need to submit these records upon request by the Department. IRS approved providers are not required to report continuing education courses to the Department.
Tax return preparers must report their continuing education hours completed during a calendar year to the Department by February 15 of the following calendar year.
Beginning January 1, 2020, and every year thereafter, a tax return preparer must complete 15 hours of continuing education courses during each calendar year to be eligible to prepare tax returns during the following calendar year, regardless of the year of the return they are preparing. At least 2 hours must pertain to professional ethics, and all remaining hours must relate to federal or state income tax. In addition, a new tax return preparer is not required to complete the minimum continuing education courses prior to the first year of preparing tax returns. Therefore, an individual who will qualify as a new tax return preparer during the 2021 calendar year will not be barred from preparing Iowa tax returns during the 2021 calendar year because they failed to complete the minimum continuing education courses during calendar year 2020.
A “new tax return preparer” is any individual who qualifies as a “tax return preparer” during the 2020 calendar year or any year thereafter, but would not have qualified as such during any prior calendar year.
On or after January 1, 2020, tax return preparers will be required to include their PTIN, as defined in Internal Revenue Service Notice 2011-6, on all of the following Iowa tax returns they prepare, regardless of the year of the return: IA 1040, IA 1040X, IA 1040C, IA 1041, IA 1120, IA 1120X, IA 1120F, IA 1120S, and IA 1065. Tax return preparers who fail to include a PTIN on returns they prepare on or after January 1, 2020, will incur a $50 civil penalty for each violation (not to exceed $25,000 in any calendar year), unless the tax return preparer shows that the failure was reasonable under the circumstances and not willful or reckless conduct.
Example 1: During the 2020 calendar year and every prior year, an individual, N, prepares 9 or fewer tax returns or claims for refund described in this guidance for a fee or other consideration. During the 2021 calendar year, N, for a fee or other consideration, prepares 10 tax returns or claims for refund described in this guidance. N meets the definition of a “tax return preparer” for the 2021 calendar year. Therefore, N will be subject to the penalty for failure to include their PTIN on every tax return or claim for refund described in this guidance that N prepares during the 2021 calendar year. However, N also qualifies as a “new tax return preparer” for the 2021 calendar year because this is the first year N satisfies the definition of a “tax return preparer”. Therefore, N does not need to complete 15 hours of continuing education courses during 2020 to prepare returns in 2021; but N will need to complete the minimum 15 hours of continuing education courses during the 2021 calendar year to be eligible to prepare returns during the 2022 calendar year if N will meet the definition of “tax return preparer” in 2022.
Example 2: An individual, B, prepares 10 tax returns or claims for refund described in this guidance during the 2019 calendar year for a fee or other consideration. Therefore, B is a tax return preparer. However, B is not required to complete any hours of continuing education courses prior to preparing returns in 2020, nor will B incur a penalty for failing to include his PTIN on any of those returns prepared in calendar year 2019 because the requirements described in this guidance do not take effect until January 1, 2020.
Assume B continues to prepare tax returns or claims for refund described in this guidance for a fee or other consideration during the 2020 calendar year, but B only prepares a total of 9 such tax returns throughout the entire 2020 calendar year. B does not complete any hours of continuing education courses during the 2020 calendar year. B will not be eligible to prepare 10 or more tax returns or refund claims described in this guidance for a fee or other consideration during the 2021 calendar year because even though B did not prepare 10 or more tax returns or claims for refund in 2020, B would have been classified as a tax return preparer in 2019. Thus, B is not considered a new tax return preparer for purposes of the 2021 calendar year.
Example 3: During the 2020 calendar year, an individual, P, prepares 10 tax returns or claims for refund described in this guidance for a fee or other consideration. Therefore, P is a tax return preparer. During the 2020 calendar year, P also completes 30 hours of continuing education courses from programs offered by an IRS approved provider of continuing education, 4 hours of which are on professional ethics and the rest on federal or state income tax. P is eligible to prepare Iowa tax returns during the 2021 calendar year. However, P must complete 15 additional hours of continuing education courses offered by an IRS approved provider, including 2 hours of professional ethics and the remaining hours on federal or state income tax, during the 2021 calendar year to be eligible to prepare Iowa tax returns during the 2022 calendar year if P will meet the definition of “tax return preparer” in 2022. P’s excess hours completed in 2020 may not be applied toward the 15 hours of continuing education courses that P must complete in 2021 to be eligible to prepare returns in 2022.
Example 4: During the 2020 calendar year, tax return preparer, P, completes 12 hours of continuing education courses from programs offered by an IRS approved provider of continuing education. Two of the hours are on professional ethics, and the rest relate to federal or state income tax. P is not eligible to prepare Iowa tax returns during the 2021 calendar year, regardless of the year of the returns P is preparing, because P has not completed a total of 15 continuing education hours during the 2020 calendar year. During the 2021 calendar year, P completes 15 hours of continuing education courses from programs offered by an IRS approved provider. Two of P’s hours are from professional ethics courses, and the remaining 13 hours are from federal or state income tax courses. P is eligible to prepare returns during the 2022 calendar year, regardless of the years of the returns P prepares. However, P is still ineligible to prepare returns for the remaining duration of the 2021 calendar year, regardless of the years of the returns P wishes to prepare.
Example 5: An individual, X, works at a firm in the business of preparing tax returns for a fee or other consideration. X completes a substantial amount of preliminary work on 10 tax returns described in this guidance during the scope of his employment (that are not the tax returns of X’s employer) during the 2020 calendar year, but X does not assume final responsibility for the work or sign the returns. Instead, X’s supervisor, Y, reviews the work completed by X and signs the returns. Y is a tax return preparer because Y assumed final responsibility for the returns. Therefore, Y’s PTIN is required on all of the returns. X’s PTIN is not required on any of the returns, nor will X incur any penalties for omitting his PTIN on the returns.
Example 6: An individual, X, has a partnership with another individual, Y, in which X and Y prepare tax returns for a fee or other consideration. X completes 10 returns described in this guidance during the 2020 calendar year. However, before X signs or files the returns, X asks Y to review the returns. Y reviews the returns and suggests substantial changes, but Y then gives the returns back to X. X makes the necessary changes, then signs and files the returns. X is a tax return preparer. X’s PTIN is required on all of the returns because X assumed final responsibility for the returns. Y’s PTIN is not required on any of the returns. If X fails to include their PTIN on any of the returns, X will incur a $50 civil penalty for each violation, unless X shows that their failure was reasonable under the circumstances and not willful or reckless conduct.
Example 7: An individual, X, completes 5 tax returns and 5 claims for refund described in this guidance for a fee or other consideration during the 2020 calendar year. X does not sign the returns, even though no other paid preparer reviewed X’s work and took final responsibility for the return. X’s PTIN is required on all of the returns because X is a paid preparer for those returns, even though X failed to sign the returns as required. X is subject to a fine of $50 per return that did not contain the required PTIN because X is a tax return preparer.
