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IRS regulations for tax preparers are in limbo

We live in a country acutely attuned to signs of federal overreaching. Could it be that the IRS has indeed exceeded its authority with its aggressive program to impose sweeping regulations on professional tax preparers?

That is what a federal judge in the District of Columbia ruled this month. And the ruling has thrown the regulation program into limbo, just as tax filing season gets underway. More than 80 percent of Americans rely on tax preparers to file their returns.

It is unclear how this uncertainty could affect tax litigation. For many tax preparers themselves, however, there is definitely a question about what becomes of registration fees they have already paid to the IRS.

In addition to registration, the regulations the IRS is trying to impose include such components as competency testing and continuing education. But a federal judge held on January 18 that the IRS lacks the statutory authority to issue such rules.

It's true that some states have their own state-level counterparts to the regulations proposed by the IRS. But states are not required to have such regulations.

The IRS is appealing the federal judge's ruling regarding its authority to issue comprehensive regulations for tax preparers. Congress is considering legislation that would clarify the IRS's authority in this area.

For now, however, the issue is far from resolved. And many tax return preparers who have paid many hundreds of dollars in registration fees are wondering about the status of that money. These preparers range from large tax preparation companies like H&R Block to small, "mom and pop" preparers who only do a limited number of returns.

We will continue to follow this story as it unfolds. When there is a further court ruling, or if Congress acts, we will report on it in a future post.

Source: "Wrong Side Of An Audit: Memo Argues IRS Inflated Numbers, Exaggerated Figures," Forbes, Kelly Phillips Erb, 1-31-13

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