The IRS decided against continuing a court battle on whether it has the legal authority to mandate testing and continuing education for paid tax return preparers.
The agency had until May 12 to file a petition with the US Supreme Court to appeal two lower courts' rulings that it could not regulate the 600,000 to 700,000 paid tax preparers in the United States. According to the Institute for Justice, the IRS let the deadline expire.
“This brings finality to a major victory for independent tax preparers – and taxpayers – nationwide,” Dan Alban of the Institute for Justice, the lead attorney representing three independent tax preparers who filed a lawsuit against the IRS in 2012, said in a written statement yesterday.
According to the IRS, 80 million Americans use paid tax preparers; however, only 40 percent of those preparers are tax attorneys, enrolled agents (EAs), and CPAs who must meet mandated professional competency requirements. The remaining 60 percent are preparing returns with little or no federal oversight.
The IRS attempted to regulate paid preparers in the United States by launching the Registered Tax Return Preparers (RTRP) program in 2010, which required unlicensed preparers to obtain a Preparer Tax Identification Number (PTIN), pass a competency test, pay an annual application fee, and complete 15 hours of continuing education annually. Only certain preparers, including CPAs, EAs, and tax attorneys, were exempted from the testing and education requirements.
But independent tax practitioners Sabina Loving, John Gambino, and Elmer Kilian spearheaded a legal challenge of the RTRP program in 2012, claiming the regulations would result in fee increases, a loss of business, and possibly shuttering their mom-and-pop tax-preparation operations.
The IRS argued that the “Horse Act” of 1884 – a statute passed to govern compensation claims for dead horses brought on behalf of Civil War veterans, which is now codified under Section 330 of Title 31 of the US Code – authorized the agency to “regulate the practice of representatives of persons before the Department of the Treasury.”
But the IRS suffered a blow in federal appeals court last February when a panel of three judges upheld a lower court’s ruling that the agency did not have the legal right to regulate US tax return preparers, which invalidated the RTRP program’s testing and education requirements.
“Four federal judges sitting on two different courts have all agreed that Congress never gave the IRS the power to license tax preparers, and an agency cannot just give itself such licensing authority,” Alban said. “By not filing a petition for certiorari, the IRS has wisely chosen not to ride this horse law any further.”
During a Senate Finance Committee hearing last month, IRS Commissioner John Koskinen urged lawmakers to pass legislation that would give the IRS oversight over tax preparers.
He stressed that competency testing and continuing education would help to ensure that all preparers provide the appropriate level of service to taxpayers.
“We believe this level of service will translate into improved overall tax compliance and, certainly with that, more effective tax administration,” Koskinen said during the hearing.