Elmer Kilian, one of the three tax preparers who won a lawsuit last month challenging the Internal Revenue Service’s authority to require testing and continuing education of tax preparers, thinks the chances are better than even that he and his fellow preparers will prevail if the IRS appeals the case.
U.S. District Judge James E. Boasberg ruled last month in favor of Kilian and two other tax preparers, Sabina Loving and John Gambino, agreeing with them that the IRS had overstepped its statutory authority in setting up its Registered Tax Return Preparer program requiring all paid tax preparers to pass a competency exam and take continuing education courses (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers).
Boasberg enjoined the IRS from enforcing the requirements, but the IRS swiftly moved to ask the judge to lift his injunction, arguing that it “would result in a substantial disruption to tax administration” in the midst of tax season (see IRS to Appeal Ruling Barring Licensing of Tax Preparers).
The preparers’ attorney at the Institute for Justice, a libertarian law firm in Arlington, Va., near Washington, D.C., contested the IRS’s motion to suspend the injunction, pointing out that tax season has been going fine for many years without the RTRP tax regulation regime in place (see Tax Preparers Contest IRS Legal Maneuver). On Feb. 1, Judge Boasberg denied the IRS’s request to suspend his ruling, but made some important clarifications, enabling the IRS to re-open its Preparer Tax Identification Number registration system as well as offer competency testing and continuing education on a voluntary basis to tax preparers (see Court Modifies Ruling Invalidating Tax Preparer Regulations).
Killan, a sole practitioner in Eagle, Wis., has been receiving regular updates on the case from the Institute for Justice. An 80-year-old Korean War veteran who has been preparing tax returns for about 30 years by hand, he has an old-fashioned wooden shingle hanging outside his office advertising his services. Killian only charges most of his 100 or so individual clients about $30 to $40, and he has a few business clients with more complicated returns for whom he charges $75. He estimates he would probably need to double or triple his prices if he had to pay the new IRS fees and buy a new computer for electronic filing.
He offered his perspective on the case last week. “The legal staff in D.C. is working on it and they said we have a better than 50 percent chance on winning an appeal when it comes up,” he said in an interview. “There was some information in the last letter I got from the lawyers. The IRS has collected over $100 million on the renewal of the PTIN numbers and their cost involved was only $50 million in that respect. It ends up that the whole thing is a moneymaking deal for the IRS.”
Kilian doesn’t see tax preparers making anywhere near that amount. “The majority of the people are just individuals who work for themselves preparing income taxes that are being stepped on the most by the IRS,” he said. “It will cost the tax preparers at least $2,000 for the training sessions and the yearly taking of the test. Along with that, if you’re not set up computer-wise for e-filing, that would come to another figure we’ve compiled of at least $3,000 for buying equipment, taking classes to learn how to operate computers, etc.. That would be just a one-time setup, but every year you have to buy the program to run through the computers to do income taxes. I know from information that I’ve gotten in the past on cost, that runs at least $300 a year for a program in that way, and you sort of go from there. We should know within another week or so whether the IRS is filing an appeal. Then the lawyers will take care of it all and go through the court system on it.”
Kilian has been closely following the media accounts of the case, as well as the comments from tax preparers both pro and con. “It’s interesting to see the comments everybody is making,” he said.
He anticipates the next ruling in the case probably won’t come out until March, depending on whether the IRS files an appeal against the latest ruling and what it argues. “There isn’t much that they can contend on than the past ruling of the judge,” Killian noted. He predicts the appeal would go to a different judge next time.
Meanwhile, tax preparers no doubt will be busy with their tax season clients. At least for now they get a temporary reprieve from the IRS’s testing and continuing education requirements.