IRS loses lawsuit in fight against tax preparers

[Crank]

In case anyone did not see this.

http://mobile.philly.com/business/?wss=/philly/business&id=187531801&viewAll=y

FALLS CHURCH, Va. - A federal judge on Friday barred the IRS from imposing a series of new regulations, including a competency exam, on hundreds of thousands of tax preparers.

U.S. District Judge James Boasberg in Washington ruled against the IRS in favor of three tax preparers who filed suit last year with the help of a libertarian legal group, the Arlington, Va.-based Institute for Justice.

Since 2011, in response to what it says has been a growing problem of poorly done returns, the IRS has sought to impose a series of new regulations on tax preparers. That included a requirement to pass a qualifying exam, paying an annual application fee, and taking 15 hours annually of continuing-education courses.

Attorneys and certified public accountants would have been exempt from the regulations.

The Institute for Justice argued that the IRS lacked the statutory authority to impose the regulations and said they would put tens of thousands of mom-and-pop tax preparers out of business, because the regulations were onerous and create a competitive disadvantage to the attorneys and CPAs who were exempt.

The judge's order includes an injunction that bars implementation of the regulations, which have been put in place on a piecemeal basis. The competency exam was to have taken effect in 2014.

Dan Alban, an Institute for Justice attorney, said the timing of the ruling is good because tax preparers who could have been put out of business will be able to work during the coming tax season.

"It is also good for the public at large because the cost of preparing a tax return was about to go up" as a result of the increased regulations, Alban said.

Alban called the IRS plan "an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks."

The IRS argued in court that it not only had the statutory authority to impose the regulations, but also had the inherent authority to do so.

An IRS spokesman declined comment Friday on the judge's ruling.

The government can seek to appeal.

Paid tax preparers fill out 60 percent of all U.S. tax returns, according to a study from the Government Accountability Office, a congressional watchdog agency. The GAO has found significant problems over the years in the quality of work done by them. In one 2006 study, the GAO took tax returns to 19 different commercial tax preparers, and 17 of 19 incorrectly calculated the taxes due.

[Terry D EA]

Hmmm, Most preparers were instructed by the IRS to have passed the competency test by December 2013. Here's my take. Is this Judge whacked? Maybe he would want some fly by night first year, inexperienced HRB, JB Liberty Tax preparer who is not qualifed doing his return. Maybe it is okay to go to a Dr. for brain surgery who can't pass the medical exam??? In some situations, preparing a tax return may be more complex than brain surgey but still, no competency or credentials required. Personally, I find this as an opportunity to increase business and not a disadvantage. BTW, my first year was with HRB and I found out 18 years ago all the rip off scams they utilize and quit within two weeks. Went back to school, studied and worked my way up from three clients the first year before I hung a shingle out. I am studying now for the EA exams. Attorney's CPA's should be required to maintain the CEU's and pass a renewal competency exam. In my earlier years, I was and still am a professional automotive technician. I have been ASE Master Certified with many other certifications as well. Due to the complexity of the automobile and the never ending technological changes, I have to recertify every 5 years. Far be it from me, but tax laws change every year and I can't hardly remember how I prepared an EIC return five years ago regarding who gets the kid. Think about it, is this requirment really a bad idea? For those of us who have worked diligently over the years it may seem to be somewhat of an insult by the IRS to make this requirement but if you genuinely care about your clients and your back, it's not a bad idea after all. For all of those who want to throw darts at me for saying this, don't wast any time chime right in there.

[GeneInAlabama]

Terry, I agree with you 100%. I haven't taken my test yet, but had intended to right after tax season. My clients don't care if I have any initials after my name, but the testing would have put some out of business that should not have been there to start with, and I think that would be good for all of us, especially the victims of the incompetent preparers. What would really be good is if something could be done to get rid of HRB, Liberty and JH. As you said, a LOT of people have been victimized by those people.

[Don in Upstate NY]

The judge was required to decide if the IRS had the authority to regulate preparers, not if it was a good idea. The IRS gets its authority from Congress, and can't decide to add to that authority just because it would be more efficient or would prevent fraud if it did so.

[Roberts]

The judge was required to decide if the IRS had the authority to regulate preparers, not if it was a good idea. The IRS gets its authority from Congress, and can't decide to add to that authority just because it would be more efficient or would prevent fraud if it did so.

I think this is exactly what the courts just determined. It'll be interesting if the IRS changes their argument slightly to achieve the same result.

A state can require proof of knowledge as a condition of a business license.

The IRS could require proof of knowledge as a condition to receive a PTIN or renewal of your PTIN. They'd need to make a slight change that allowed non-registered (proof providers) to file on another person's PTIN.

[Crank]

Yes, Don that is what I took away from the article.

"The judge was required to decide if the IRS had the authority to regulate preparers, not if it was a good idea."

I cant lie. as a CPA I saw this a a benefit to my business. However, I also saw it as a benefit to the consumer, but one that will inevitably come with a higher price tag. That being said, Tax Preparation is no different that other professions. I worked very hard for my credentials, which cost me a lot of time and money and continue to do so. So if people need help preparing their taxes they have to pay a reasonable price or risk going it alone. But to have a third option being the uninformed preparer (including the big firms like HRB that prey on the lower income brackets) is a bad option. Most other professions (Dr. Lawyer, etc) have similar consumer protections.

My 2 cents.

[lindakay]

Being a registered tax preparer in California, I was glad the IRS started requiring nationwide registration of qualified preparers. I had to pass a competency exam in the beginning for California registration, and have had to maintain 20 hours of education every year, and I'm happy to do it because I believe it's important for people preparing returns to actually know the laws. I actually have 2 clients that I inherited from a gentleman who passed away a few years ago who was preparing taxes for them every year and charging huge amounts of money to do their bookkeeping and tax returns (one of his clients paid him over $7,000 in the year before he died!). He was just doing their returns on TurboTax and mailing them in, and he didn't even sign them, but put "self-prepared" on the bottom of the 1040. Not only that, he made a lot of errors on the returns which made me realize he really didn't know the laws. So all that said, I truly believe some kind of regulation is necessary so the public doesn't get duped by preparers who don't really know what they're doing.

[Terry D EA]

"The judge was required to decide if the IRS had the authority to regulate preparers, not if it was a good idea."

I got this too. But why was it even necessary to question it in the first place? The three preparers evidently couldn't pass the test or competent to do so. They definitely spent more on legal fees that they would have on study materials and the exam. Yes, I know they were speaking for the thousands of mom and pop shops that apparently are questionable as well. JMHO