Recent court rulings that now prevent the IRS from regulating paid tax return preparers have resulted in some suspended or disbarred tax practitioners being able to obtain or renew preparer tax identification numbers (PTINs) and prepare federal tax returns again for compensation.
The IRS announced last week that the change applies to individuals who were suspended or disbarred, with their PTIN access blocked, between August 2, 2011, and February 11, 2014.
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 PTIN, pass a competency test, pay an annual application fee, and complete 15 hours of continuing education annually. Only certain preparers, including CPAs, enrolled agents, 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 on February 11 when a panel of three judges upheld a lower court’s ruling last year that the agency did not have the legal right to regulate US tax return preparers, which invalidated the RTRP program’s competency testing and continuing education requirements.
The IRS had until May 12 to file a petition with the US Supreme Court to continue the legal fight, but chose not to.
The agency noted last week that neither the injunction against the RTRP program nor the court decisions affect or apply to the PTIN requirements, which are based on separate statutory authority.
As a result of the court rulings and injunction, the IRS Office of Professional Responsibility (OPR) has determined that a suspension or disbarment from practice before the IRS may not include a restriction on return preparation for compensation, and that access to the PTIN required for such services may no longer be blocked based on discipline under Circular 230, Rules Governing Practice Before the Internal Revenue Service.
The OPR has sent letters to the individuals who currently are suspended or disbarred from practice before the IRS as a result of OPR disciplinary action, informing them of their change in status. The IRS noted that any individual who has been suspended or disbarred in a Circular 230 proceeding and has not yet received the notice can check their PTIN eligibility status by calling the main OPR number at (202) 317-6897.
However, individuals who have been enjoined by a court from tax return preparation are not affected by this action. In addition, individuals under suspension or disbarment will not be entitled to represent their clients before the IRS for any purpose during their disciplinary period.