IRS to Send $10 Million in Refunds to Return Preparers

May 27th 2015
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When you check your mailbox in a couple of weeks, you just might find a nice little surprise from the IRS, reimbursing you for a testing fee the agency required tax return preparers to pay a couple of years ago.

The IRS on May 21 announced it is refunding a total of $10 million to about 89,000 tax preparers who paid to take a competency test as part of a program regulating the industry. Only certain tax return preparers – including CPAs, enrolled agents, and tax attorneys – were exempt from the requirements. All other paid preparers were required 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.

After the program was launched in 2010, a federal court struck down the regulations in 2013, saying the IRS did not have the legal right to regulate paid tax return preparers in the United States. The ruling was affirmed last year by an appeals court in the District of Columbia.

In the case, Loving v. IRS, three unlicensed tax return preparers – Sabina Loving, John Gambino, and Elmer Kilian – spearheaded a challenge to the regulations imposed by the IRS. They successfully argued that the requirements would force practitioners to increase fees and potentially even cost them their businesses.

Approximately 89,000 tax return preparers anted up $116 apiece to take the test between November 2011 and January 2014. Some practitioners had to take the test more than once. The IRS says that all test-takers are in line for refunds. A formal letter with the vital information will be mailed by the IRS on May 28, and checks should start going out on June 2.

The IRS hasn’t given up hope on imposing tougher standards on tax return preparers. Last summer, the agency launched its Annual Filing Season Program, which enables paid tax return preparers to voluntarily fulfill agency-sanctioned continuing education requirements and obtain a record of completion.

“The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training,” the IRS said in a prepared statement. “Taxpayers deserve top-quality and ethical service from all tax professionals. As part of this commitment, the IRS launched an interim Annual Filing Season Program in 2014 to promote voluntary continuing education by noncredentialed tax return preparers.”

Where does the IRS turn next? The Obama administration budget proposals for 2016 include a provision authorizing the IRS to regulate all paid tax return preparers. That could revive competency testing and other protocols. The IRS says that oversight of all paid tax return preparers, coupled with diligent enforcement, would “promote high-quality services from all tax professionals, improve voluntary compliance, and foster confidence in the fairness of the US tax system.”

Related articles:

Court Upholds Injunction; IRS Revives PTIN System
Appeals Court: IRS Lacks Authority to Regulate Preparers
Key Details of IRS’s Voluntary Preparer Education Program


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