IRS Stopped ... In Efforts To Regulate Tax Preparers

[jg]

From http://www.forbes.com/sites/kellyphilli ... ers/print/

Last year, three independent tax preparers, Sabina Loving of Chicago, Illinois, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisconsin, took on the IRS, accusing it among other things, of lacking the authority to license tax preparers. The lawsuit was filed on March 13, 2012, against the IRS in the U.S. District Court for the District of Columbia. The three retained lead attorney Dan Alban of the Institute for Justice who, in an interview just after the case was filed, told me that his claim was simple: Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.

U.S. District Court Judge James E. Boasberg agrees. On Friday, he issued an opinion that would bar the IRS from regulating tax preparers – all just days before the new tax season officially opens for business. You can read the entire opinion here (downloads as a pdf).

The download is at http://www.ij.org/images/pdf_folder/eco ... -18-13.pdf

[Burnaby49]

Makes sense to me. Essentially just another example of government licensing overreach allowing already established tax professionals to restrict entry into their lucrative business. Here in Canada the Canada Revenue Agency can't stipulate who can prepare tax returns. Taxpayers are responsible for filing their returns on time but how they prepare them is their own business. If we had an army of civil servants vetting everyone that wanted to prepare Joe the Plumber's return the only real result would be a big increase in an already swollen bureaucracy.

My wife, like many other ex accountants and bookkeepers, has had a casual pro bono business for years doing returns for family and friends but would stop immediately if she had to go through government hoops to get their permission to continue.

[Famspear]

An announcement from the Internal Revenue Service earlier this week:

IRS Statement on Court Ruling Related to Return Preparers

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. On Wednesday, Jan. 24, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days.

The IRS is continuing to evaluate the scope of the court's order in determining consistent next steps. Please continue to check this site as additional information becomes available.

--as updated or reviewed through Jan. 24, 2013

http://www.irs.gov/uac/IRS-Statement-on ... -Preparers

[Colonel_Buck]

So does this mean that I can't prepare my mother's tax return?

[webhick]

So does this mean that I can't prepare my mother's tax return?

I could have sworn that there was supposed to be some kind of regulation requiring free tax preparers to register or something, too. My brain could be making this up. It's been a long day.

[jg]

Court Modifies Ruling Invalidating Tax Preparer Regulations
WASHINGTON, D.C. (FEBRUARY 2, 2013)
BY MICHAEL COHN
http://www.accountingtoday.com/news/Cou ... 5585-1.htm

However, Judge Boasberg clarified that his injunction did not affect a separate set of regulations requiring tax preparers to have a Preparer Tax Identification Number, or PTIN, or prevent the IRS from operating its testing or continuing education centers on a strictly voluntary basis.
The court wrote today, “[S]ome preparers may wish to take the exam or continuing education even if not required to. Such voluntarily obtained credentials might distinguish them from other preparers.”

These regulations only apply to those paid to prepare a return.

[Famspear]

The Tax Section of the American Institute of CPAs is reporting that the Court of Appeals for the District of Columbia Circuit has denied the government's motion to stay the injunction halting the tax return preparer program.

[Red Cedar PM]

The DC Court of Appeals just struck down the IRS' regulation of tax return preparers and made it clear that preparers do not represent the taxpayer.

While I agree with the IRS that preparers should be regulated, their argument that any tax preparer "represents" the taxpayer is a big overreach and contradictory to the IRS' own procedures - a preparer cannot represent anyone vis a vis the IRS without a power of attorney.

http://taxfoundation.org/blog/big-win-t ... -preparers

http://www.cadc.uscourts.gov/internet/o ... 479431.pdf

[Kestrel]

Here's the article in the Journal of Accountancy which summarizes the six reasons given by the D.C. Circuit Court of Appeals for striking down the regulations:

http://www.journalofaccountancy.com/News/20149583.htm

The appeals court explained that it had six reasons for invalidating the regulations. First, the term “representatives” in Section 330 meant agents who had authority to bind others, which tax return preparers clearly do not do—they do not have the legal authority to act on a taxpayer’s behalf without being specifically authorized by a taxpayer to do so. Second, the word “practice” does not mean, as the IRS asserts, preparing and signing tax returns, but instead refers to traditional adversarial proceedings before a court or agency. The language in Section 330(a)(2)(D), which refers to the requirement that representatives demonstrate competency to advise and assist persons in presenting their cases, further supports this interpretation, the court said.

The court next examined the original language of Section 330 (enacted in 1884), referring to “agents, attorneys, and others representing claimants,” which clearly did not encompass tax return preparers. Once the statute was amended to simplify the language by referring simply to representatives, there was no indication that Congress meant to change to whom the law applied.

The fourth reason involved the statutory provisions that Congress has added to the Code to regulate return preparers, among them Secs. 6694, 6695, and 6713. The court found that interpreting Section 330 as the IRS suggested would “effectively gut Congress’s carefully articulated existing system for regulating tax-return preparers” (slip op. at 13).

The very broad nature and scope of the authority the IRS is claiming underlay the court’s fifth reason for overturning the program. Under the IRS’s interpretation, it is empowered to regulate for the first time hundreds of thousands of tax return preparers in the “multi-billion dollar” tax return preparation industry; nothing in the statute’s history or text can support such a vast undertaking. The sixth reason is somewhat related to the fifth—in the many years since Section 330 was enacted, the IRS apparently did not think that it had the authority to regulate preparers before it did so in 2011.

In affirming the lower court’s decision, the appeals court explained that the regulatory scheme failed both parts of the test from Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), that the Supreme Court applies to agency interpretations of statutes because the rule is foreclosed by the statute, and the IRS’s interpretation was unreasonable in light of the statute’s text, history, structure, and context.

[Randall]

Great news! If I prepare returns without a federal license and get paid to do so, I do not have taxable income!

Woo Hoo!
[/sarcasm]