The Internal Revenue Service reacted Tuesday to the surprise ruling Friday by a federal judge striking down the IRS’s authority to regulate tax preparers, shutting down its Preparer Tax Identification Number registration system and its testing system for tax preparers.

U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of three tax preparers who filed suit with the help of a libertarian law firm, enjoining the agency against enforcing its Registered Tax Return Preparer requirements (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax 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,” the IRS said in a statement Tuesday. “In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to 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.

“The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” the IRS added. “It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.”

IRS spokesman Dean Patterson said Tuesday that the IRS had no further comment at this time.

The director of the IRS’s Return Preparer Office, Carol Campbell, held a brief conference call Tuesday afternoon with representatives of approximately 25 stakeholder associations such as the National Association of Tax Professionals. Campbell verified that the online PTIN system is down and the IRS is no longer allowing the scheduling of RTRP exams. The IRS also told participants on the conference call that the RTRP testing system would go down by the end of the day, and if preparers have an exam scheduled, they would not be able to take it.

Paul Cinquemani, director of government relations at the NATP, who was on the call, said Campbell told them, “I thought about taking questions, but frankly, we don’t have all the answers.” Cinquemani also reported that Campbell encouraged the participants on the call to send in their questions, so the IRS could take them into consideration as it determines how to move forward.

Cinquemani believes the PTIN registration system will only be down temporarily. The system for registering to take the RTRP exam was handled through the PTIN registration system, so the former was most likely closed down to disentangle it from the latter.

In the case challenging the IRS’s authority to regulate tax preparers, three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.—joined forces with the Institute for Justice, a libertarian public interest law firm, in filing suit against the IRS in the U.S. District Court for the District of Columbia.

“The decision in the Loving case took most people in the industry by surprise,” said Cinquemani. “There is a clamor for information and answers to questions that just won’t be available for weeks, if not months. The IRS released a statement today that did not reveal much. One could read an intent, in the second paragraph, to pursue the court decision further. It seems to me that the IRS has the following options available: They could appeal the court’s decision and ask for a stay of the injunction in the interim; they could go ask Congress for a piece of legislation that would grant them the authority denied by the court; or they could consent and comply with the decision. If they did this, they could either abandon the registered tax return program entirely, or make it a voluntary credential to be earned as the EA designation is.”

The National Association of Enrolled Agents also weighed in on the decision. “This decision is—at least temporarily—a setback for taxpayers, and for tax administration,” said Robert Kerr, senior director of government relations at the NAEA, which represents over 45,000 enrolled agent tax practitioners. “Some would argue, in fact, that the decision is a victory for those who would like the right to remain incompetent, to remain completely ignorant of the many annual changes in tax law and administrative procedure, and to foist the cost of their willful ignorance onto their clients.”

Fred Slater, CPA, managing member of New York City-based tax prep firm MS1040 LLC and former chair of the New York State Society of CPAs’ IRS Relations Committee, said he agrees with the judge’s decision in the case. “I think it’s a good decision in terms of reality because what has happened is the IRS set up all these guidelines to try to ‘regulate’ the tax preparers, and then once they did that they proceeded to exclude the CPA, the enrolled agents, to some degree, and the tax attorneys so you ended up with a dual system, which is fine because that’s the practicality of what each side services,” he said. “Then they proceeded to put out rules of what both sides are supposed to follow, and you can’t do that. You end up with this situation where everyone is registering, and paying 60-something bucks every year to prepare tax returns. What could happen and what I’m hoping will happen is that Congress will respond to it, not the IRS, and come out with two sets of rules. There should be a set of rules for those that are not enrolled, not CPAs and not tax attorneys, because they don’t have the official training, and they don’t have the ethics codes that we have to have. I’m not saying that all CPAs and attorneys are perfect, but that’s the group that is the most out of control and they are trying to regulate that.”

He also sees a role for the states regulating the tax preparation profession if Congress is unable to pass a law, but he pointed out that many tax preparers have clients in multiple states. Currently only two states have laws requiring registration, testing or continuing education of tax preparers: California and Oregon. Congress has reportedly failed to pass eight different bills over the past decade aimed at giving the IRS the ability to regulate tax preparers.