Congressman Wants IRS to Explain Contradictory Tax Preparer Regulation Guidance
The chairman of the House Ways and Means Committee’s Oversight Subcommittee is asking the Internal Revenue Service why its Web site continues to provide confusing information about the IRS’s recently invalidated tax preparer regulation requirements.
Earlier this month, the U.S. District Court for the District of Columbia ruled that the Internal Revenue Service had overstepped its authority by requiring all paid preparers to register with the IRS and provide for competency testing under its Registered Tax Return Preparer Program (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers).
With the 2013 tax filing season having just gotten underway this week, Oversight Subcommittee Chairman Charles Boustany Jr., M.D., R-La., wrote a letter to IRS Acting Commissioner Steven T. Miller regarding concerns that the ruling and subsequent lack of guidance could be causing serious and unnecessary confusion for taxpayers. Boustany pointed to the IRS Web site and indicated that it contained multiple references that read as if the invalidated preparer requirements remain in force.
He noted that the IRS.gov home page provides a link entitled, “Statement on Court Ruling Related to Return Preparers.”
“However, unless a taxpayer is already aware of the court decision, there is no other notice on the Web site to indicate that the return preparer program has been changed in any way,” Boustany wrote. “To the contrary, the tax return preparer FAQs (Frequently Asked Questions), also available on your agency’s Web site, read as if the invalidated preparer requirements remain in force, including the need for preparers to obtain and use a preparer identification number. This anomaly—between the injunction and the apparent direction to continue with the program—would seem likely to cause serious confusion among affected preparers. For these reasons, it is necessary that both taxpayers and return preparers be given clear and immediate guidance so as to avoid disruption to the 2013 filing season.”
To ensure the IRS is minimizing confusion and taking the appropriate steps to deal with the effects of the U.S. District Court’s decision, Boustany requested the IRS to detail how it plans to inform taxpayers of this change and whether any adjustments were needed for the 2013 tax filing season.
“As you know, an estimated 60 percent of taxpayers pay a professional to prepare their federal income tax returns,” he noted. “With the 2013 tax-filing season underway, it is unclear how the suspension of the program will impact taxpayers that rely on paid preparers, and the preparers themselves that rely on the income from tax preparation. Given the extensive marketing and outreach efforts to promote the program, it is critical for taxpayers and preparers to be apprised of how the January 18 court decision affects them.”
Boustany asked the IRS whether it had conducted any outreach to taxpayers and others affected by the tax return preparer requirements, and whether the IRS plans to make changes to its Web site to reflect the change in requirements and explain to taxpayers and preparers the proper protocol for this filing season.
He also asked whether the IRS anticipates that the suspension of the program would have an impact on tax administration this filing season and whether the IRS has made any adjustments to its 2013 tax filing season plans to accommodate more taxpayer inquiries on the topic. Boustany also wants to know whether all paid preparers, registered and unregistered, can properly sign and file tax returns, and if they need to include a Preparer Tax Identification Number, or PTIN, on the return. He asked whether the IRS has suspended the issuance of PTINs and whether the IRS website will be updated to reflect the new requirements. Boustany also asked the IRS whether paid tax return preparers who met the competency and filing requirements prior to the court’s decision date would be permitted to continue using the Registered Tax Return Preparer credential.
The IRS has asked U.S. District Court Judge James Boasberg to suspend his ruling while it moves to file an appeal (see IRS to Appeal Ruling Barring Licensing of Tax Preparers and Tax Preparers Contest IRS Legal Maneuver).
The three independent tax preparers who won the ruling filed a response this week in federal court to the IRS’s attempt to impose its licensing scheme on tax preparers. The agency asked the court to lift an injunction entered against it on January 18 after it lost in federal court, claiming that it would suffer a variety of harms if the court did not suspend its ruling. The Institute for Justice, a libertarian law firm in Arlington, Va., which represented the three preparers, filed a legal brief on Tuesday responding to the IRS’s claims of “irreparable harm,” contending that the agency had exaggerated its claim of financial harm by 2,000 percent as well as inflated other figures.
“The IRS has repeatedly and grossly misrepresented how the court’s ruling in this case will affect this tax season, tax payers and the IRS itself,” said Dan Alban, lead attorney on the case at the Institute for Justice, in a statement. “The sky is not falling. The judge’s timely ruling preserved the historical status quo that tax preparers have never been licensed by the federal government. The IRS wildly inflates its numbers and now it knows what it feels like to be on the wrong side of an audit.”
In its request for the injunction to be lifted, the IRS argued that turning off some of its computers would cause “irreparable harm,” and so would transferring 167 employees to a different department, even though the IRS also acknowledged it was badly understaffed.
In its legal brief and a supporting declaration from IRS Return Preparer Office director Carol Campbell, the IRS grouped together the Registered Tax Return Preparer regulations that were struck down on January 18 with other regulations relating to a tax preparer identification number, or PTIN, that were not affected by the lawsuit, the Institute noted.
The agency claimed the court’s ruling would cost it $4 million per month in lost revenue, when 95 percent of those funds would come from the unaffected PTIN regulations, and only $192,697 in revenue would be lost due to the RTRP regulations being struck down, a 2,000 percent exaggeration, according to the Institute.
“But even taken at face value, the IRS’s arguments are truly appalling,” said Alban. “The IRS told the court that their licensing scheme is a cash cow, and the agency must be permitted to continue milking hapless tax preparers, despite a federal court declaring their scheme unlawful.”
The IRS also failed to inform the court that, 15 days before the court’s ruling, the IRS announced it would delay enforcement of a key component of the licensing scheme by one year, the Institute noted, referring to the IRS's requirement that registered tax return preparers complete 15 hours of continuing education in 2012. Thus, the IRS’s argument that the ruling would harm the agency was completely undercut by its own actions, the Institute argued. In addition, after the ruling the IRS announced that it would stop enforcing its PTIN regulations, even though they were never challenged by the lawsuit or affected by the court ruling, the Institute noted. The IRS then complained to the court that without the PTIN regulations in place, the agency would be harmed, attempting to link the lawsuit and court ruling to the IRS’s unrelated actions.
The IRS further argued that the court should overturn its ruling because tax industry insiders had voiced concerns, citing a press release from TurboTax maker Intuit expressing “disappointment” in the ruling. But TurboTax is not subject to the regulations, and would benefit from competitors having to bear the cost of complying with the requirements, the Institute argued.
“That the IRS would mistake the interests of industry insiders for the interests of consumers highlights the protectionist nature of their licensing scheme,” said Scott Bullock, a senior attorney at the firm. “Large tax-preparation firms and professional trade organizations lobbied for these regulations to reduce competition by putting independent preparers out of business.”
The drafting of the regulations was overseen by former H&R Block CEO Mark Ernst, according to an article in the Washington Examiner cited by the Institute, and several financial analysts have concluded they benefit the company, the Institute noted.