The U.S. Internal Revenue Service said it will appeal a court’s ruling that it lacks the power to license tax preparers, a decision that might affect as many as 700,000 people who work on clients’ returns.
Immediately discontinuing the agency’s tax preparer oversight program “would result in a substantial disruption to tax administration,” the IRS said in a court filing accompanying a request to lift a court order barring it from regulating return preparers during its appeal.
U.S District Judge James Boasberg in Washington invalidated the program Jan. 18, ruling in a lawsuit filed by three tax preparers.
The agency’s licensing program affects from 600,000 to 700,000 preparers “who are responsible for a substantial number of the more than 80 million returns filed each year,” the agency said.
The IRS suspended its regulation of tax-return preparers after a federal court ruling said the agency lacked authority, removing a tax-compliance tool that was years in the making.
With the tax-filing season starting January 30, hundreds of thousands of return preparers won’t have to register with the federal government, pass a competency test or meet continuing-education requirements. The court decision undercuts work that persuaded the IRS to impose the rules to protect filers, said Nina Olson, the national taxpayer advocate whose office is an independent organization within the agency.
“Taxpayers are going to go into filing season without preparers who are prepared,” Olson said in an interview yesterday. “This is a consumer protection regulatory scheme.”
Boasberg, picked for his post by President Barack Obama, wrote that the IRS overstepped its authority by relying on an 1884 law that allowed it to regulate people presenting cases before the Treasury Department.
“Filing a tax return would never, in normal usage, be described as ‘presenting a case,’” he wrote. “At the time of filing, the taxpayer has no dispute with the IRS; there is no case to present.”
The IRS responded yesterday by suspending the program. The 15-hour annual continuing-education requirement started in 2012 and the testing requirement was taking effect this year.