IRS Appeals The Court Decision Striking Down Preparer Oversight. What Does That Mean to You?

If you are a responsible tax professional, you should be saddened by the court's recent decision striking down, at least temporarily, the IRS's registered tax return preparer program. The only ones benefitting from the decision are those who lack education and knowledge needed to prepare today's complicated tax returns.

It has been a number of years since Nina Olsen, the Taxpayer Advocate, first recommended that Congress establish a tax preparer oversight program similar to the very successful program in California.  

The IRS Office of Professional Responsibility (OPR), under the direction of Karen Hawkins, subsequently reviewed the existing state programs and conducted stakeholder meetings to develop the federal program. Apparently, OPR felt that the IRS had the authority to run the program and regulate the practice of individuals that represent taxpayers before the IRS (generally Enrolled Agents) and did not require congressional approval to do so.

However, the District Court in DC disagreed and, in so doing, specifically noted that the “practice of representative” does not cover tax return preparers and the filing of tax returns would never, in normal usage, be described as “presenting a case.” Thus, on January 18, 2013, the court granted the motion for a permanent injunction against the program.

IRS to Appeal Ruling Barring Licensing of Tax Preparers - The Internal Revenue Service said it will appeal a court’s ruling that it lacks the power to license tax preparers.  Immediately discontinuing the agency’s tax preparer oversight program “would result in a substantial disruption to tax administration,” the IRS said in a Jan 23rd court filing accompanying a request to lift a court order barring it from regulating return preparers during its appeal.

So, if you are an unlicensed tax preparer, where does this leave you? For federal purposes, you currently have no requirement to meet in order to prepare returns. However, if you practice in California or Oregon, you still must meet those states’ requirements for education and registration.

California’s requirements are more demanding than the federal requirements, so having the federal program overturned will have no effect on California tax preparers except, for the time being, they will not have a federal education or registration requirement.

What does this mean long term? You will have to await the results of the appeal filed by the IRS and whether or not the court will lift the injunction during the appeal process.   

In the meantime:

  • PTIN System Is Down -- Pending resolution of legal issues related to the January 18, 2013, order of the United States District Court for the District of Columbia in Loving v. Internal Revenue Service, the PTIN registration system is temporarily offline until further notice.
  • IRS Statement on Court Ruling Related to Return Preparers - As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

  • Lee Reams Sr.

  • Lee T. Reams is the Chief Technical Officer of ClientWhys. He is also an Enrolled Agent having managed a 600-plus client tax practice. Educated as an engineer, with a Bachelor's Degree in Mechanical Engineering, Lee left his engineering career in 1975 to expand his part-time tax practice into a full-time career.

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