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Tax Preparers Defeat IRS in Appeals Court Ruling on Licensing Scheme

Morgan C. Flynn - February 17, 2014 12:34 pm

The D.C. Circuit Court of Appeals ruled Tuesday that the IRS had no legal authority to impose a nationwide licensing scheme on tax return preparers that would have required testing and continuing education as Registered Tax Return Preparers.

The decision affirms a January 2013 ruling by U.S. District Court Judge James E.  Boasber, which struck down the IRS's new regulations as unlawful.  In the case, Known as Loving v. IRS, both courts rejected the IRS's claim that tax-preparer licensure was authorized by an obscure 1884 statute governing the representatives of Civil War soldiers seeking compensation for dead horses.  

The appeals court held, "If we were to accept the IRS's interpretation of [the statue], the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax preparation industry.  Yet nothing in the statue's text or the legislative record contemplates that vast expanions of the IRS's authority."

More than 350,000 tax return preparers would have been subject to the regulations.  The attorneys for the preparers argued that the regulations would have put tens of thousands of mom-and-pop preparers out of business and increased the cost of tax-return preparation for millions of taxpayers.

When judge Boasberg clarified his original decision last year, he ruled that the IRS can continue to require tax preparers to register for Preparer Tax Identification Numbers, or PTINs, and the latest ruling should not affect that.

"The IRS is currently revieing the decision," the IRS said in a statement.  "The IRS continues to believe that it's critical for taxpayers to be able to rely on quality work from tax preparers."

Going forward, The IRS may continue to offer the RTRP designation on a voluntary basis or obtain authorization through congress.

You may view the ruling by clicking here.


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