A trio of tax preparers who successfully sued the Internal Revenue Service to halt its mandatory testing and continuing education requirements is contesting the IRS’s request for a federal judge to suspend his ruling against the agency while it mounts an appeal.
U.S. District Court Judge James E. Boasberg ruled on January 18 in favor of the tax preparers, agreeing with them that the IRS had unjustifiably expanded the scope of an 1884 law to support its claim that it had the statutory authority to regulate tax preparers (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). In doing so, he enjoined the IRS from enforcing its regulations governing Registered Tax Return Preparers. The IRS said last week that it planned to appeal the ruling and asked the court to suspend the injunction pending resolution of an appeal that it intended to file within the next 30 days (see IRS to Appeal Ruling Barring Licensing of Tax Preparers).
“The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” said a statement from the IRS. “On Wednesday, Jan. 24, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days.”
The lead attorney representing the tax preparers doubts the judge will agree with the IRS. “The judge issued a pretty definitive and unequivocal opinion a week ago striking down these regulations, and we don’t think he’s going to change his mind in the next week or two,” said Dan Alban of the Institute for Justice, a libertarian law firm, based in Arlington, Va., which represented the three preparers.
John Gambino, a Certified Financial Planner who prepares about 40 tax returns a year for some of his financial planning clients at his business, Inner Circle Platinum Advisory, based in Hoboken, N.J., is one of the three plaintiffs who prevailed in the lawsuit against the IRS. He said he was happy with the judge’s ruling, but wasn’t surprised that the IRS decided to file a motion to stay the judgment. “I think it was expected that they would appeal,” he said in an interview Friday. “That’s the way the process works. This is round one, I suppose.
“We know the process isn’t finished yet, but I think it’s a good first base that the judge agreed with our arguments,” he added.
In its legal brief, the IRS contended that immediately discontinuing the RTRP program “would result in a substantial disruption to tax administration.” Thousands of tax preparers who had already submitted their user fees would demand refunds, and the U.S. “would likely face numerous lawsuits—including class action lawsuits.”
The Institute for Justice noted that the IRS’s motion to suspend the injunction while it appeals the decision came despite the judge’s clear ruling that Congress never gave the IRS the authority to license tax preparers, and the IRS could not give itself that authority. The group argued that if the judge lifted the injunction, that would do nothing to prevent lawsuits against the IRS, and would allow even more preparers to become ensnared in the IRS’s costly regulatory regime, potentially exposing the government to additional liability.
Tax Season Not in Danger
Alban dismissed the IRS’s contention that tax season would be thrown into disarray as a result of the judge’s ruling. “The idea that the world is going to end or the sky is falling, which is the essence of the IRS’s motion, is just silly,” he said. “People have been fine working with tax preparers for decades and decades and they’re going to be fine this tax season as well.”
“I think it’s unfortunate that they’re rushing through this,” Gambino said of the IRS’s argument that the ruling would disrupt tax season. “They could have just kept the status quo and let people continue to do their business until the process is resolved. I think people are kind of upset that they had to take the tests and the classes that have been invalidated. By motioning for the stay, the IRS is just perpetuating that uncertainty. lf someone is taking a test now, they have to wonder, ‘Why am I doing this if the ruling has already voided it?’”
In the IRS’s legal brief in support of its motion, the agency admitted it had already received “over $100 million” in user fees from tax preparers, while only spending about $50 million to implement the regulations. But the IRS objected to spending the much smaller sum of $238,000 simply to notify tax preparers of the judge’s ruling in this case.
“One of the main things where the IRS claims there’s a harm is that there are all these tax return preparers who have paid various fees to the IRS in order to take the exam and get this licensing, and they’re going to be bringing lawsuits, possibly class-action lawsuits, for refunds of those fees,” said Alban. “Well, if the judge suspends the injunction, that means all that many more tax preparers will have to pay all those many more fees, and the government’s liability will only increase under that regime. Essentially the government is saying, ‘Look, we’ve created this class of victims who are paying these fees, and now we want to continue to expand this group of victims and make them pay even more fees.’ The argument just doesn’t hold weight.
“The safest thing to do at this point and the thing that makes the most sense is just to freeze things as they are right now, let the appeal proceed, and if the appeals court reverses the district judge, then the IRS can proceed implementing its regulations just as it was doing before and won’t have to worry about an extra year or more of refund claims for these fees,” he added.
In its brief, the IRS argued that thousands of tax preparers would undoubtedly continue studying for and attempting to take the RTRP competency exams, and the IRS would have to undertake an extensive and costly outreach program to attempt to notify those who had already registered and received a preparer identification number. That aspect alone of shutting down the program would cost at least $238,000, the IRS estimated, not including the costs associated with modifying or breaching vendor contracts, shutting down computer systems, and finding other positions for the 167 IRS employees currently working on the return preparer project.
Judge Boasberg will initially hear the IRS’s motion, but Alban doubts the judge will change his mind.
“Their motion for a stay will initially at least be heard by the same judge who ruled against them last week,” Alban told Accounting Today last Friday. “They’re asking that judge to essentially suspend his judgment on the issue of the injunction and suspend the injunction so that the regulations would continue to be in effect while the IRS appeals the case.”
Accelerated Schedule
Judge Boasberg has set an accelerated briefing schedule on the issue of the IRS’s request for a stay, and the Institute for Justice has an opposition brief due on Tuesday, while the IRS has a reply brief due on Thursday, according to Alban. “I don’t know if the judge will schedule a hearing or if he’ll just rule on the papers,” he said. “Previously he has indicated that he prefers to rule on the papers unless he has questions that aren’t answered by the briefs.”
Alban is optimistic the tax preparers will prevail. “We think we have very strong arguments that the IRS will not be irreparably harmed,” he said. “Tax preparers have not been licensed ever, so it’s hard to see how postponing these regulations for another year or two while the case is on appeal would harm the IRS in any way. It already took them a couple of years to even impose the regulations in the first place, and it seems like pretty much every deadline they set, as soon as it’s passed that deadline, they announced, ‘Oh well, we didn’t really mean it and we’ll set a future deadline.’”
22 Comments
I believe that Judge Boasberg should be informed that the IRS has shut down the PTIN renewal section in their web site in spite of his ruling!
Posted by: Ed-68 | January 30, 2013 10:16 PM
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SOMEONE PLEASE EXPLAIN THIS TO ME!
PER THE IRS:
What counts: Being 18 or more years old. Can pass a background check. Can pass a IRS test. This group can prepare and sign and accept payment for their work preparing a tax return.
What does not count: 4 year Bachelors Degree with Major in Accounting(including Federal Tax Courses) Masters in Taxation and teaching Taxation Phd in Taxation and teaching Taxation. This group has also completed CPE each year keeping up with current tax laws This group can not prepare and sign and accept payment for their work preparing a tax return.
Posted by: beancounter54303 | January 30, 2013 9:32 PM
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WHY THE FORCED LIMIT ON PAPER RETURNS IF MY CLIENTS PREFER PAPER FILING OF THEIR 30-40 PAGE RETURNS THAT ARE COMPLICATED ENOUGH . WHY SHOULD I BE FORCED TO MAKE SURE EVERY PERIOD, ASTERISK, COMMA AND CALCULATION IS CORRECT BY THE SOFTWARE COMPANIES. THIS IS AN 'UNNECESSARY BURDEN' BEING HEAPED ON US PREPARERS BY THE IRS.
Posted by: DDTS | January 30, 2013 2:01 PM
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ALL YOU WILL SEE IS FEES GOING UP for the CONSUMER as licensed and REGISTERED INDIVIDUALS ARE NOW COMPETE WITH A SMALLER NUMBER OF 'QUALIFIED' PREPARERS . OR THEY MUST FILE THEIR OWN...which funnels them into a software program system designed by a large conglomerate software companies that want to also get into the business of helping individuals to 'prepare returns'.
AT what point is the IRS going to start licensing software companies for individual practice.. are they going to give those CPA'S EA'S JD'S A NATIONAL LICENSE TO PRACTICE . YOU call into xyz software company and their 'in house staff' gives tax advice..
ALL designed to force smaller tax preparers out of business those that can't keep up with fees or regulations.
Posted by: DDTS | January 30, 2013 1:53 PM
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No mandatory test unless EVERY tax preparer is required to take it..That includes CPA and all Tax Corp employees. This test is unfair and does nothing to combat "fraud"
The Test encourages fraud by forcing preparers to hide income...Stupidity for sure!
Posted by: sundayp | January 30, 2013 10:50 AM
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While government regulation should be taken in stride, the regulation of tax preparers is a necessary evil - especially in light of common, complex issues such as the COD income for short-sales/foreclosures. Too often, I will have a new tax client come to my office with just a mess of a tax return, prepared by a tax preparer who doesn't understand the first thing about deductions/credits for real estate rentals (Real Estate Professional vs. Actively Participating in a Passive Activity). They do not want to "upset" the taxpayer, so they classify them as a Real Estate professional to offset the COD income, when clearly they do not meet the IRS requirement. Or, the Tax Preparer will have applied deductions that simply do not apply. As a result, these unwitting tax clients walk out of the Tax Preparer's office happy, only to end up with tens of thousands of dollars of outstanding tax liabilities, penalties, and interest down the line. At least with the regulations, the Tax Preparers will be somewhat liable for such egregious mistakes - accountability is usually a pretty effective deterrent. BUT, I do believe the 15 credit education requirement should be provided free by the government. The regulations should not limit anybody's ability to earn a living, rather, it should be used to regulate unqualified preparers.
Posted by: admin@GoldingTaxSolutions.com | January 30, 2013 10:04 AM
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I disagree with regulating preparers at the state level for the preparation of federal returns. If states feel the need to regulate preparers who prepare state returns, that is their choice, but the IRS should be the only entity that regulates federal tax reporting by third party preparers.
I've been involved with the tax preparation industry for over 28 years. During that time I've seen and heard of countless cases of preparer incompetence and fraud. In the last ten years as software has gotten more "user friendly" for the taxpayer, I've seen a distinct uptick in preparer abuse as they allow the software to "do the work" on deciding deductions, etc. When preparer regulation was established in 2011, I fielded countless calls from these "rogue-types" looking for ways to circumvent the rules rather than comply. I've also seen longtime reputable preparers without a credential buckle down, earn the credential, AND take pride in their accomplishment.
Preparer regulation will not eliminate abuses, but it WILL significantly reduce them.
Posted by: governor | January 30, 2013 8:05 AM
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After reading all these comments, I got to say I am disappointed in this industry. I think we should be regulated WHY? Would you go to a doctor or a lawyer or anyone that doesn't know what their doing? I took the RTRP test and passed it and took my continuing education and paid my fee to renew my PTIN and yet my pricing has not gone up. I don't advertise yet my business continues to grow every year. Do I know everything there is to know about taxes NO, but do I continue to strive to learn yes. I am not in this field because I want to be a millionaire or become a large corporation. I do it because I love what I do and my clients are loyal and I give them the best service I can at a reasonable rate. People should be careful what they charge or complain about continuing to learn you may find that in time people will lose faith in you. I am proud to have passed that test and if I don't know something, I research it until I am sure. What ever happened to genuine interest and concern for our clients?? In today's economy and climate its more important to me that people can rely on me and feel comfortable than it is to make that fast buck. I am a small business and have a home office. My clients have become my friends and when they come to me they feel welcomed and relaxed. I don't think I am better than anyone else and my clients do keep in touch throughout the year. I ask myself this question: IF I died tomorrow how many of my clients would come to my funeral? The answer: every single one of them, can you say the same? That's the difference between a job and a passion.
Posted by: shopfreeinc | January 30, 2013 8:00 AM
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I really have mixed emotions on this topic. I am not a fan of BIG government nor the IRS and some of its insane rules but all you attorney's, EA's and accountants, didn't you have to takes a test and go to school to get your license? If they say competition is a good thing why is everyone getting so upset about regulating tax preparers. Yes fraud is never going to completely go away. Where is the pride in your own work? I passed the RTRP test in Dec. 2012 and took my 15 hours on continuing education and paid my PTIN fee. What is the big deal? I have a home business and very loyal clients for years now. I don't advertise but yet my business grows every year from referrals WHY? Because I don't want to be a millionaire, I just love what I do. I want to be the best informed and learn as much as I can. You wonder why immigration is a big issue, its because people come here and do the jobs us puffed up, money hungry americans won't do because its beneath us. Say what you want about my views but until we care enough about helping people, because we are dealing with their finances, we are no better than the government you all are complaining about.
Posted by: shopfreeinc | January 30, 2013 7:34 AM
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IRS contended that immediately discontinuing the RTRP program "would result in a substantial disruption to tax administration." Thousands of tax preparers who had already submitted their user fees would demand refunds, and the U.S. "would likely face numerous lawsuits--including class action lawsuits."
Seriuosley,,,, Sevice you right...
Posted by: hjubran | January 29, 2013 11:16 PM
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SNAFU - re: judge reversing his own ruling - take a look at the Starker cases on 1031 exchanges. Occasionally judges admit they make mistakes, but not very often.
My two cents is that tax preparers should be regulated but to require another layering of CPAs and EAs is ridiculous. Probably should be done at the state level a la Oregon, but since most states don't I understand the IRS stepping in, but too bad they used the shotgun approach.
Will be interesting to see how this plays out.
Posted by: ddaydick | January 29, 2013 2:05 PM
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Licensing of tax preparers WILL NOT stop fraud. Just as the licensing of accountants as CPA's and the licensing of attorneys or plumbers has never shown any sign of ending abuse & fraud by people holding those licenses. Fraud is stopped by active enforcement, not issuing peices of paper. I believe the IRS would have done a lot more to stop tax return fraud by spending the 50 million they spent on the licensing program on in the field enforcement. Crooks are crooks and will always be crooks. If regulation stopped crime there should be, theoretically, zero crime in the USA. Last time I looked that was far from reality.
Posted by: radavig | January 29, 2013 1:45 PM
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Becoming a RTRP will NOT stop fraud. I do not believe that the RTRP should be required but the CPE requirements should. Tax preparer competence should be a requirement.
Most all fraud will come from "self-prepared EITC" returns since those returns can be filed without the due diligence requirements.
Unfortunately, the fraud market is way too big to stop unless other tracking measures take place. I would suggest that the IRS reviews a number of paid prepared EITC returns but focus its attention on those self-prepared EITC returns. Especially multiple self-prepared returns coming from the same IP address.
For the record I do believe that these additional requirements are mainly a revenue generator for the federal government
Posted by: JohnnyJ7922 | January 29, 2013 1:16 PM
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I believe at the end, the IRS is going to win. So the ones that have not taken the RTRP test, please start studying and register for it. This is going to pass over on the IRS favor because it is too much money that needs to be recover to tax preparers and class action suits. In this delay of time, the IRS would be have to preposition Congress to give them the authority to mandate RTRP within the 30 days timeframe. I hope not, but the system works backward.
I am still concern/puzzle of becoming RTRP is going to STOP fraud, or filing incorrect tax returns???
What about the over-the-counter tax preparation softwares???
Are websites for tax preparation??
Better than that, is this a MONEY launching for the IRS to recover the economy debt??
Posted by: NICKIE | January 29, 2013 12:06 PM
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As a CPA I feel that every tax prepare needs to be licensed in some way or another as it's in the best interest of the customer that is relying on them for professional advise. If you're not up to date on your education and properly licensed and regulated then the only person you're looking out for is yourself as there is nothing for you to lose by harming your clients and creating tax problems for them. Every year I have clients that come to me from using an unlicensed prepare in prior years and upon looking at their returns I immediately notice that they weren't prepared properly, usually the client has had to pay much more than necessary or they could have gotten back a bigger refund if the return had been prepared properly and all the credits allowed were taken. It's very frustrating as a licensed professional to see clients being taken advantage of and having to rely on the tax preparer that they think is helping them when they really aren't.
Posted by: palmbeachcpa | January 29, 2013 11:31 AM
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I'm an Accountant for a not-for-profit firm, and also a second-year tax preparer and RTRP employed with H&R Block. I have a BS-Accounting, and am halfway through my MS-Accounting program. My take on this is, regardless of whether or not this new certification requirement sticks or not, I'm never going to regret taking and passing that test. There are so many shady tax preparers out there, and if this is something I can do to increase my clients' confidence in the work I do, then so be it. It's especially helpful for those of us who are on the path to being an EA and a CPA, but just aren't quite there yet. I also can't see how this would impede the smaller tax prep firms. I'd rather see an independent tax preparer who's an RTRP than just anyone.
Posted by: Kathader76 | January 29, 2013 11:25 AM
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i think that this year, this "pop" income tax preparer will charge each of his 150 clients $5 extra, as the cost of complying with regulatory requirements. $64 or so for the PTIN registration, $126 or whatever for taking the RTRP test, $200 for a test prep package, and $200 for my annual cost for 15 CPE credits. i just did the math, and it looks like i'll be overcharging my clients by $1.07!!
i guess i'm just another exploiter.
Posted by: phdesmond | January 29, 2013 10:22 AM
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Why would a Judge reverse his own ruling?
Posted by: SNAFU | January 29, 2013 9:44 AM
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This "mom and pop" shop does not support preparer regulation. I suppose the government will regulate tax preparers like they have the post office and now health care. As for the 167 IRS employees who may need to find other postions, welcome to the real world.
Posted by: Liberty1776 | January 29, 2013 9:14 AM
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My take on this issue is that these regulations is just another way for the government (IRS) to collect more revenue from the people and not really about protecting consumers. Now not only the IRS gets more revenue from new fees it collects, but also other "sharks" have come into the pool to get a piece of that revenue as well. If you don't believe it just go to the list of providers listed on the IRS website and check their price schedules they have for all the different studying materials, which range anywhere from $49 to hundreds of dollars. Who is going to pay for these extra costs? the consumers, and what will they get for it? The same service they got before the regulations were established. Tax preparation is not what I do as a career, but I do it on the side and been doing it for 13 years, I have an accounting undergrad degree ,an MBA, I also graduated from a tax school where I learned to prepare taxes back in 2000, I don't need another credential to prepare taxes. I have fixed tax returns for clients prepared by these big chain tax preparation businesses and I have fixed tax returns prepared by CPAs. My point is that these IRS regulations will not help consumers as much as the IRS claims, tax preparers who are careless with their clients will continue to be so. One thing is for certain, the consumer will have to pay more to have their tax prepared because now their fees are no longer to compensate the tax preparer only, but to compensate the IRS and others who are in for the money. And of course, the big tax chains are happy to increase tax preparation fees as much as they wish because there would be fewer options for taxpayers.
Posted by: jarevalo | January 29, 2013 9:13 AM
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The big box tax franchises and large CPA firms wouldn't have a "competitive advantage" over "mom & pop" shops had Shulman and company not caved to the "it will cost us too much" complaint, hence implementing the "supervised preparer" option that only allows the same abuses the original program sought to eradicate.
Contrary to what Alban claims, the vast majority of preparers, primarily "mom and pop" types, support preparer regulation. I would suggest the IRS seek sponsors to introduce legislation and then actually partner with and empower associations to support those efforts by revving up our lobbying programs. It's the only way to legitimately implement a regulatory program soas to avoid giving agenda-drive judges the chance for their 15 minutes.
Posted by: governor | January 29, 2013 7:23 AM
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An interesting summation.
Posted by: dandonoghue | January 29, 2013 7:13 AM
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