IRS Attempt to Regulate Return Preparers Fails

It is not a secret to anybody that the IRS has enormous amounts of rules and regulations about how to prepare tax returns. Instructions to complete form 1040, Individual Income Tax Return, are more than 100 pages long, and being updated each year. It is not surprising that taxpayers make mistakes completing this form – mistakes that often result in federal tax liability, payment plan proposals and penalty abatement requests.

In order to avoid these mistakes, many taxpayers hire professionals to prepare their returns, such as Certified Public Accountants (CPAs), Enrolled Agents (EA), or Tax Attorneys. These people are officially regulated as tax return preparers. They have passed the IRS exams and have the IRS approval not only to prepare returns, but also to represent their clients before the IRS to resolve any tax-related issued. However, anybody can be paid to prepare a tax return, without any need for qualifications.

Dough Shulman, former IRS Commissioner, in his speech given on November 7, 2012, said that “ensuring a basic competency level for tax return preparers” was an IRS priority. According to Shulman, the IRS was planning on requesting that all Paid Tax Return Preparers complete 15 hours of continuing education with the IRS each year and take a competency test before they are allowed to continue providing tax return preparation services to people.

In an attempt to oppose these change, three paid tax preparers from Illinois, New Jersey and Wisconsin filed a suit against the IRS with the US District Court for the District of Columbia. Judge J.E. Boasberg ruled against the IRS’ plans to enforce its Registered Tax Return Preparer (RTRP) requirements on the basis that Congress has never given the IRS the authority to license tax preparers.

The IRS can appeal the ruling. However, as things now stand, the RTRP licensing requirements that went into effect on January 1st 2013 are no longer required.