IRS Not Continuing Legal Fight Over Regulating Preparers

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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.

Related articles:

Appeals Court: IRS Lacks Authority to Regulate Preparers
Koskinen Calls on Congress to Give IRS Oversight of Tax Return Preparers

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I hope Congress, or the states, introduces legislation for oversight of Tax Preparers. Unfortunately, it is the uninformed, poorer, and less sophisticated taxpayers who are shortchanged by these untrained, and very often, unscrupulous, preparers. Ultimately every one of us taxpayers is negatively affected by their work..

The others hire trained and licensed personnel; reap the benefit of current knowledge and research which protects the client within the constraints of the law, and ensures the government (us) is not defrauded.

As a licensed CPA, I do not want additional legislation and oversight. I am already micro-managed by my state licensing entity. If you want to make me happy pass legislation that requires a licensed CPA or Enrolled agent on sight at each commercial tax preparation location. But I bet that H&R Block and Walmart will fight that tooth and nail. But IF there was a flat tax or no income tax, none of this nonsense would be needed.

Maybe there should be MORE oversight on the sieve known as the IRS. How much gets by them every year?

What, Janice, you mean that H&R Block and the others have no more training than the average paid tax preparer? You're right. H&R Block's software is good at two things only: 1) allowing someone off the street with minimum training and supervision to prepare a return, while 2) using the maximum number of tax forms, because they charge by the form. How many returns have I seen that are artificially, worthlessly complicated, because someone wants to fill out numerous forms? What we need is the IRS and the rest of government, to the extent that it is possible, off our backs.

"Ultimately every one of us taxpayers is negatively affected by their work.." How does that negatively affect me if some person down the street does a poor job of tax return preparation for some other person? I hope Congress does not introduces legislation for oversight of Tax Preparers. It is unnecessary. If the IRS notices an improper tax return, the IRS still has the power to go after the improper taxpayer and/or tax return preparer. Tax preparers should not be penalized by being forced to pay more fees because of misdeeds of the very few. As it is the IRS can go after that very few. I know one person who complained that his tax preparer would not up his deductions. He wanted his tax preparer to be overly aggressive. So sometimes it is the client who is unscrupulous, not the tax preparer. Congress could improve the income tax compliance rate without penalizing the responsible, compliant ones. One way would be too simplify the tax laws. High school graduates should be able to do their own tax returns. I graduated with an accounting degree, highest honors from the number one university of accountancy in USA. I have a hard time doing my own tax return even though I am educated and experienced.. I should not be forced to hire a professional so I can obey the law of having to file my tax return Small business owners should spend less money on CPA fees for government compliance and more on better management of inventory, cash flow, receivables etc. When I was a CPA, in public accounting, I would have preferred to do more value added activities than government compliance work which is not value added. The IRS delegated the registration to a private sector company. That private sector company was going to make a lot of money for these registration fees. I knew a full time worker who did tax returns on the side. These regulations were going to hurt him. He was a small time operator who did returns for a few people (approx 10 people) whose returns were not all that complicated. I do not think people like him and his customer should get the extra fees.

The others, like H&R, hire people off the street and give them a minimum of training. Ask anyone who has worked there, or google it. I have filed many amended returns for clients, after they went to "trained, licensed personnel" at H&R and others. If you are dumb enough to count on these people, at least do yourself a favor and have someone else look at your return--you could be shortchanging your family hundreds or thousands. The biggest fraud in the tax preparation business, by far, is the money left on the table that could have been refunded, but wasn't.

Doesn't any one see the irony here. The irs and tax code assumes that the tax payer himself is or must be competent enough to do their own returns. Therefore logic dictates that everyone must be competent. The fact that in many cases most people are not competent to do their own returns is an indictment of both our tax code and our educations system.

Further IRONY alert: If you call the IRS and ask them how to fill out a form, or if you ask them about a rule, regulation, or law, and then if you follow their advice, you may still be liable for any mistake that the IRS employee made in misinforming you! After the first several tax seasons, I have prepared more tax forms/returns than the normal person sees in two lifetimes. I don't need Uncle Sam or the morons at the IRS to oversee me. Please get out of my life and stay there, IRS!
BTW, because you, the IRS, are such bastards, you had better believe that I work my tail off getting my clients their maximum refund.

Irs has the most evil personnel that yu cannot imagen, they have made my bussines exp like hell, are liars all the way and never r redposible for nothing, bunch of unreliable morans get out my life!!!!

i must say I was hoping for the licensing. I do not see tax preparation as a big money scheme; I see it as a professional service that should carry some professional education weight behind it. You can go to jail for tax mistakes, why would you leave that up to the devices of an untrained/uneducated person. In my eyes this is the reason for the decline in paid preparation. Why pay some one if you you are liable no matter the outcome(as a taxpayer).

Imagine if being a lawyer was unlicensed. Imagine if all you had to do was study some law to go before a judge. Do you know what the decline would be? same for medicine, financial industry etc. Imagine what the professions would turn into if there is no required career dedication. Tax preparation is just as important as the others.

Your elementary school teachers were licensed and certified, yet you cannot write a sentence, let alone a paragraph, to save your life. Sad.

As a paid tax preparer, I agree. We need regulation and those not educated enough to prepare tax returns should not be allowed to put their clients at risk. The clients are held liable, not the tax preparer.

But then again the IRS has allowed so many fraudulent returns with refunds be issued to one person causing million of dollars in error, yet how many of them continue education or maintain with the Tax regulations.

If what you say is true, that the IRS allows fraudulent returns, it seems to me that the IRS is in need of the education, no?

Congratulations to those preparers who studied and passed the famous test, and who did not cry, or made it a life or death situation. They just realized that meeting the standards requested by the IRS would in principle benefit their tax-prep clients. I have seen some of the IRS-issued diplomas proudly displayed on their desks, and a broad smile of satisfaction on their faces.

Talk about beating a dead horse. Hey, IRS, what part of get the hell out of my life do you not understand?

Isn't this what the IRS is supposed to do, and are paid for, anyway? Any tax return preparer who is incompetent and ill serving his or her clientele, will soon not have one.

This was a farce to begin with. CPA's do just as much fraud and are just as incompetent as any other paid preparer. I've worked in accounting for over 40 years. I've only known 2 CPA's that I have any respect for. They take one test and are never tested again. The last CPA that I worked for never took any of the required classes. He paid for them, signed in, and left to gamble and take a tax deduction for the trip. It is up to the paid preparer (CPA or not) to be responsible.