WASHINGTON (Reuters) - In a surprising blow to the U.S. Internal Revenue Service, a federal judge on Friday barred the agency from regulating thousands of non-professional tax return preparers, throwing into doubt a multimillion-dollar enforcement program already underway.
[Former IRS Commissioner] Shulman in 2009 called for an IRS effort to root out tax preparation fraud. The IRS Return Preparer Initiative began in 2011. It requires tax preparers to register with the IRS. It also requires preparers, especially those without other professional credentials, to pass competency tests and take classes to maintain their IRS registration.Before this law, tax preparers already were required to identify themselves by signing the tax return and providing an identifying number (either a social security number or an ID assigned by the IRS).
Apparently, that wasn't enough and I can see why the IRS wanted more control. There are a lot of tax preparers who aren't CPAs and, therefore, aren't bound by a code of ethics, held to the same level of responsibility (or liability), aren't required to pass competency exams, or complete any continuing education. Also, there is no oversight of tax preparers at the state level except in a handful of states.
To be clear, we're talking about non-professional tax preparers. These are people who do not already have industry designations such as CPAs, or Enrolled Agents. These were your mom-and-pop outfits.
In our office, the new registration rules changed exactly nothing as everyone was exempted by the fact that we are already CPAs, directly supervised by one, or didn't prepare tax returns. All the CPAs in our office were already required to pass competency exams and were required to take continuing education. They rest of us volunteered for continuing education or were otherwise instructed by our employer to go.
But now it's been ruled that the IRS did not have the authority to regulate (non-professional) tax preparers, the argument being that their mandate only allows them to regulate those who represent taxpayers before the IRS which is not the same thing.
With this reversal, the press is publishing opinions such as this which makes it seem that the industry on the whole was untrustworthy:
“Taxpayers are going to go into filing season without preparers who are prepared,” Olson said in an interview yesterday.
This gets me because we spend a heck of a lot of time getting prepared. We spent a lot of time doing it before this regulation and will continue to do so without it.
But this was my favorite quote:
The IRS rules were criticized by some because of the new fees they slapped on practitioners, but broadly supported as a way to regulate a free-wheeling industry and fight tax refund fraud.
My word: Accountant
Your word: Free-wheeling? Really? Have you ever met me?
To be honest, I never really cared about the regulation. It was a nuisance but so what? What bothers me is the IRS sold my e-mail address to every fly-by-night tax prep school that hoped to cash in on the new education requirements.
I had to get a new spam filter.
I'm sorry about the people who got hurt by unscrupulous preparers. It's not cool - not for the victims and not even for the IRS regardless of how you might feel about them. It and makes the rest of us look bad.