The IRS, Tax Preparers and the US Supreme Court

The IRS, Tax Preparers and the US Supreme Court

On March 13, 2012, three tax preparers filed a lawsuit against the Internal Revenue Service in the U.S. District Court for the District of Columbia.  They filed the suit because they believed that the IRS did not have the authority to license tax preparers. The plaintiffs claimed that Congress did not give the IRS authority to license tax preparers, and the IRS cannot give itself that power.

Beginning in 2011, the IRS began issuing Preparer Tax Identification Numbers (PTINs), which requires an individual to register and pay a fee, pass a competency exam, and complete 15 continuing educations credits annually.  Certified public accountants (CPAs) and enrolled agents (EAs) are exempt from competency testing and continuing education requirements.  PTINs must be included on returns that were prepared by an individual with a PTIN.

The problem is for independent tax preparers who must meet the criteria to be a Registered Tax Return Preparer (RTRP).  Without meeting the criteria to be a RTRP, an individual may not work as a tax preparer.  As a New York Tax Attorney and CPA firm, we are authorized to prepare tax returns.

On January 18, 2013 the U.S. District Court set forth an opinion that would stop the IRS from regulating tax preparers. However, on February 4, 2013, the IRS re-opened its PTIN management after being taking down immediately after the court ruling.  The IRS concluded that the ruling does not affect the requirement for paid tax return preparers to have and use a PTIN.

The IRS most likely does not like the presented outcome.  Since the ruling was made by a district court, it can be appealed by the IRS to the U.S. court of appeals, and it will be done. Understanding your IRS rights is crucial in navigating such outcomes. If taxpayers are aware of their rights, they can better prepare for potential appeals. Seeking assistance from a tax professional may also provide clarity on complex issues related to IRS decisions.

For the tax season that just started, the outcome is not exactly clear. In theory, the decision should still allow unregulated and unregistered tax preparers to file, and use their valid PTIN.  Whether or not a return submitted by an unregistered preparer will bounce within the IRS system has not been determined.