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IRS to Appeal Court's Tax Licensing Decision
Author: Scarinci Hollenbeck, LLC
Date: February 20, 2013
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Court Makes Decision on Tax Licensing Case
The U.S. District Court for the District of Columbia recently ruled the Internal Revenue Service did not have the authority to license independent tax preparers. However, the IRS said it plans to appeal the decision, a move that may affect as many as many as 700,000 professionals who file their clients’ tax returns.
At the center of the issue is the federal tax agency’s latest tax licensing effort, which would have required independent preparers not affiliated with large corporate entities, such as H&R Block, to pass a competency test and follow several new regulations and rules. These changes would have taken place under the IRS’s newly created Registered Tax Return Preparers Program.
The IRS noted that too many mistakes were being made by independent agents which were causing delays and higher expenses. The federal court quickly struck down the IRS’ rules, which would have imposed a new annual application fee and continuing educational requirements on independent preparers. The RTRP program requirements would have started on January 1, 2014, and attorneys, certified public accountants and enrolled agents would be exempt from the policies.
Judge James Boasberg’s ruling also included an injunction that prohibited the implementation of the RTRP program.
The IRS said it will appeal the decision, noting that discontinuing the program “would result in a substantial disruption to tax administration,” according to Bloomberg. The agency also noted that hundreds of thousands of independent preparers are responsible for more than 80 million returns each year, and failing to set standards can open the door to costly errors and inadvertent tax law violations. The IRS has taken several measures to both elucidate on the tax code and reduce tax evasion, both of which are designed to help close the $385 billion tax gap.
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