(A version of this commentary also appears on WorkForward, the blog of the National Community Tax Coalition.)
The movement toward common-sense regulation of paid tax preparers has hit a bump, but hopefully not for long.
A federal judge has ruled against the Internal Revenue Service’s efforts at better-safeguarding the financial security of the tens of millions of taxpayers who turn to commercial preparers each year. However, NCTC and the VITA field strongly urge federal policymakers to take the next wisest, appropriate steps necessary to ensure taxpayers don’t lose ground in the pursuit of accurate and high-quality services – steps that include the possibility of an appeal.
On Jan. 18 in Washington, U.S. District Court Judge James Boasberg ruled that the IRS lacked the statutory authority to impose the regulations that have been phasing-in since 2009, including continuing-education classes and a competency exam. The opinion came in response to a lawsuit brought on behalf of three commercial preparers last spring.
The judge’s order also enjoined the IRS against even temporarily retaining the regulations, during any appeals process. However, a higher court arguably could order otherwise and allow the regs to be kept in place while the issue continues to work its way through the legal system.
Providers of free tax preparation for low- and moderate-income, working families have worked with the IRS for years in pursuit of basic, federal rules to ensure quality of service for the 60 percent of taxpayers who make use of commercial help with their returns. We strongly encourage policymakers to stay this important course.
Free, volunteer-based services as VITA long have been subject to fundamental training requirements and quality standards. In fact, the accuracy rate for returns prepared by such volunteer programs hit an impressive 92 percent last year, according to the latest IRS’ Quality Statistical Sample review.
Meanwhile, it’s significant to note that several states – from Maryland to Oregon – also have zeroed-in on the great need for paid-prep regulations by adopting their own. The federal court ruling does not appear to affect these welcome efforts.
The federal regulations do not apply to certain paid preparers, such as CPAs, attorneys, and Enrolled Agents.
UPDATE: On Wednesday, Jan. 23, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days. The IRS announced in a recent statement that it “is continuing to evaluate the scope of the court’s order in determining consistent next steps.” You can read the full statement here on their website.