By Anne Rosivach
The Institute for Justice (IJ) has filed suit against the IRS on behalf of three independent, paid tax return preparers, challenging the service's authority to license and regulate paid tax preparers. The IRS instituted new requirements for paid tax preparers last year. The new regulations will be phased in over a three-year period.
The suit, filed in federal district court for the District of Columbia, also argues that the new rules reduce competition, citing the support for the regulations that came from large organizations, such as the American Institute of Certified Public Accountants (AICPA) and H&R Block.
"Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power," said Attorney Dan Alban of the IJ, a libertarian public interest law firm that advocates for the rights of entrepreneurs.
The three individual tax return preparers – Sabina Loving of Chicago, Illinois; John Gambino of Hoboken, New Jersey; and Elmer Kilian of Eagle, Wisconsin – are claiming that the government is preventing them from doing business as they have for years and is imposing burdensome costs on them.
In a speech before the AICPA in 2011, IRS Commissioner Douglas Shulman said that the return-preparer regulations were designed to improve compliance and limit tax fraud.
The new regulations currently require all paid tax preparers to obtain a Paid Tax Preparer Number (PTIN), which carries a fee of $63. Over the next two years, certain return preparers must also complete fifteen hours of continuing education annually; pass the one-time competency test by December 31, 2013; and pass a tax compliance check. The test can be taken at more than 260 sites for a fee of $116.
Some paid tax preparers have already taken the test, and the IRS has begun providing test results. Those individuals passing both the test and the tax compliance check will be sent a Registered Tax Return Preparer certificate.
With the exception of obtaining their PTIN, CPAs, attorneys, and enrolled agents are exempt from the new regulations; all have passed exams and most are subject to continuing education requirements.
Edward Karl, vice president for taxation at the AICPA, said accountants and other professionals already have extensive testing and continuing education standards. According to Bloomberg, Karl said, "I do understand why folks who have done this for years and feel that they're competent don't want to change."
National Taxpayer Advocate Nina Olson said she has advocated standards for paid tax-return preparers since 2002, Bloomberg reported. "My own experience in private practice – bolstered by 'shopping visits' conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others - found that there are pervasive problems in terms of return accuracy and ethics that registration, testing, and continuing education will help address."