In a decision that could have far-reaching impact to the tax preparer community, a federal judge on Friday barred the IRS from regulating thousands of non-professional tax return preparers.
In response, the IRS announced today they have suspended its regulation of return preparers, throwing into doubt a multimillion-dollar enforcement program the IRS had initiated last year.
Under previous guidelines, and in an effort to level the tax-preparer playing field and build confidence among the millions who seek tax professionals, the IRS required would-be preparers to submit to background checks, competency tests and a check into the individual’s own filing compliance history.
Those who failed to pass the checks were denied recognition as a paid preparer and were not authorized to prepare returns on behalf of taxpayers.
Unregulated tax preparers will now be allowed to file taxes beginning on January 30.
“The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” the agency said in a statement on its website. “It is considering how best to address the court’s order and will take further action shortly.”
U.S. District Judge James Boasberg annulled the regulations and enjoined the IRS from enforcing any oversight. Boasberg, who was nominated by President Obama, said that his decision was based, in part, on the definition of an IRS “case” and an IRS misinterpretation of an aged law from the late 1800s.
The IRS had based its program on an 1884 law that allowed the agency to regulate people presenting cases before the Department of the Treasury.
Boasberg said the act of filing a return is not the same as presenting a “case,” and skews the intent of the 1884 ruling.
“Filing a tax return would never, in normal usage, be described as ‘presenting a case,’” he wrote. “At the time of filing, the taxpayer has no dispute with the IRS; there is no case to present.”
Former Commissioner Douglas Shulman enacted the program, as the IRS attempted to combat tax fraud, rising identity theft and an overall lack of regulation among paid preparers.
CPAs, attorneys and Enrolled Agents are all licensed and qualified, either by state regulations, or, as in the case of Enrolled Agents, by the IRS via the Office of Professional Responsibility.
But hundreds of thousands of fly-by-night tax preparers can now practice under no supervision by the IRS or any other federal agency. The suit itself was filed by unlicensed tax preparers.
The response by large tax-preparation companies such as H&R Block Inc. and Intuit Inc. was dissatisfaction, and that they supported the previous rules the IRS had established.
Dan Maurer, the senior vice president and general manager of Intuit, maker of TurboTax, stated he was “disappointed” by the ruling.
“The public interest is best served when all competing tax-service providers meet high standards,” he said.
It remains to be seen what the long term response of the IRS will be, but an appeal which seeks to block the court order may be in order.
The full statement released today by the IRS on their web site:
As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.
The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.
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