Court Tells IRS It Can’t Regulate Commercial Tax Preparers

By Debbie Stein

For some time we’ve been reporting on the IRS effort to institute regulations that would improve the quality of the paid tax preparers that so many low-income working families rely on. Those regulations would have required paid preparers to register, complete mandatory training and a competency exam, be certified and undergo continuing education to ensure preparers remain versed in the details of ever-changing tax laws.

Unfortunately, a court struck down those regulations, and on February 11, the DC Court of Appeals upheld the lower court decision that invalidated those regulations.

We continue to believe that these regulations are necessary to protect low-income taxpayers. Many preparers for low-income people prepare their returns incorrectly, either by accident or deliberate fraud. In many cases that have been prosecuted by the IRS, paid preparers inappropriately claimed refundable tax credits for the taxpayer, knowing that the taxpayer would willingly pay their fees to secure the large refund promptly. When the IRS detected the error, the taxpayer was responsible for repaying the incorrect refund and penalties even though the paid preparer was at fault. (Note that volunteer tax preparers, such as those at VITA sites, are already regulated.)

It is too soon to know whether the IRS will appeal this decision. If they don’t, Congress has the authority to authorize such regulations.