Action Line: IRS regulation of tax preparers barred by court
BY PHIL MULKINS World Action Line Editor
Saturday, February 09, 2013
2/09/13 at 7:07 AM
This tax season has an added twist after a federal judge voided the IRS' proficiency regulation of the nation's 600,000 tax return preparers.
U.S. District Judge James E. Boasberg of Washington, D.C., in ruling for the plaintiffs in Loving v. IRS on Jan. 18, enjoined the agency from enforcing its Registered Tax Return Preparer requirements.
The RTRP effort included mandatory continuing education, testing and registration. It was a licensing system designed to curtail unqualified, unethical tax preparers and to improve tax compliance.
The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries. The IRS had based its registration enforcement effort on an 1884 statute authorizing it to regulate "representatives" who "practice" before it as authorizing the new regulations.
The lawsuit was filed in March by tax preparers Sabina Loving of Chicago; John Gambino of Hoboken, N.J.; and Elmer Kilian of Eagle, Wis., represented by libertarian public interest law firm Institute for Justice. Institute attorney Dan Alban said the ruling is "a victory for hundreds of thousands of tax preparers and tens of millions relying on them for tax preparation."
The court enjoined the IRS from enforcing RTRP requirements that had just taken effect Dec. 31. The ruling does not affect CPAs, Enrolled Agents or tax attorneys, who are already regulated in other ways and who have long resented unregulated tax preparers for the lower-cost, but often erroneous, competition they provide.
An IRS spokesman said, "The ruling also does not affect the regulatory practice requirements for enrolled retirement plan agents or enrolled actuaries.
IRS filed a motion Jan. 23 with the court seeking suspension of its injunction - pending appeal on the grounds of a "reasonable likelihood of prevailing on appeal." It asked the court to suspend the injunction for at least 14 days allowing the agency to seek relief from the Court of Appeals.
On Feb. 1, the court denied the IRS motion to suspend the permanent injunction against its return preparer program but modified its order, clarifying "the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number," or PTIN.
The IRS then reopened its online PTIN system. The IRS "continues to have confidence in the scope of its authority to administer this program and is working with the Department of Justice to address all options, including a planned appeal," the IRS website stated Monday.
Rebecca Jones, a sole proprietor "registered tax return preparer" under the now scuttled program, said, "I thought that being proficiency tested and registered and being required to take continuing education was a good idea. It would have kept people, who don't know what they're doing, from hanging out a shingle and getting their customers in trouble with bad tax returns."
"In my tax return preparation career" - she's a former IRS auditor and 12-year veteran of the return preparation business - "I have seen returns (by fly-by-night preparers) with big truth issues. Anyone can make a mistake, but there should be some standard for tax return preparers and I believe the best way to do it is to require continuing education and to have to pass the test. You can't drive a car without passing a test."
Robert Kerr, senior director of government relations for the National Association of Enrolled Agents, said, "The injunction dealt a blow not only to the IRS (having devoted heavy staff resources and millions of dollars to the effot), but to American taxpayers who continue at the mercy of ignorant or fraudulent tax preparers."
The NAEA represents 45,000 "enrolled agent" tax practitioners. "Some argue the decision is a victory for the incompetent - to remain completely ignorant of the many annual changes in tax law and administrative procedure, to foist the cost of their willful ignorance onto clients.
"Judge Boasberg referred to the IRS requirements as an 'invalid regulatory regime,' siding with the position of the Institute for Justice, the Libertarian organization filing the suit. He asserted the IRS regulatory efforts were a 'power grab,'" Kerr said.
NAEA members are all tested by the IRS and must undergo background checks and complete continuing education to maintain their federal licenses.
Kerr urged taxpayers considering hiring a return preparer to keep in mind that "enrolled agents" are committed, serious professionals and that no one should entrust the most important financial document Americans assemble each year to anyone less than a licensed professional.
A. Carl Kelley, president of Independent Council of Jackson Hewitt Tax Service Franchisees, said, "We are extremely disappointed in the decision of the courts. While we are confident they recognize the need for these quality controls in the industry of tax preparation, they also must interpret the law as it is written. We feel confident the end result will be a requirement by the IRS for preparers to meet specific qualifications.
"The filing of tax returns is the most important business transaction Americans make each year. It is only right that those preparing such documents be determined competent to assist in this transaction.
"We require the licensing of electricians, plumbers and air conditioning contractors. Surely the proficiency requirement for tax preparers will ultimately be upheld," said Kelley, operator of 103 Jackson Hewitt Tax Service locations in Oklahoma, Arkansas, Missouri and Florida.
Original Print Headline: Court voids regulation of tax form preparers
Phil Mulkins 918-699-8888