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Tax preparer community awaits ruling on appeal of IRS regulations

This is a follow-up to our October 1 post, in which we wrote about the IRS's attempt to defend its proposed stepped-up regulations of professional tax preparers.

As we explained in that post, a federal judge ruled last winter that the IRS had exceeded its statutory authority in trying to roll out a new regulatory framework for tax preparers without any additional authorizing legislation from Congress. The ruling came in a case called Loving v. IRS.

In this post, we will look at some of the considerations involved in the case beyond the purely legal arguments.

First of all, it is worth noting how many paid professional tax preparers there are across the country. The IRS has estimated the number in the neighborhood of 1 million - give or take 100,000 or so either way.

Obviously that's a lot of tax preparers, regardless of whether the total number is under or over a million.

To be sure, some of these people are already regulated by authorities other than the IRS. This would include attorneys, for example, who are regulated by state bar associations, not the IRS. Certified public accountants (CPAs) also have a separate regulatory structure.

But that still leaves a lot of paid tax preparers who are not subject to regulation. In terms of numbers of returns filed, the national taxpayer advocate puts the number of returns filed by these unregulated preparers at more than 40 million.

The IRS wants paid preparers to not only register with the IRS, but also to pass a qualifying exam and satisfy ongoing requirements for continuing education.

What isn't clear, however, is whether the IRS has the authority to impose these requirements without any further action by Congress.

A federal appeals court recently heard arguments in the IRS's appeal of the lower court ruling that said the IRS lacks this authority. But the appeals court has not yet ruled.

Clearly, though, tax preparers are very involved in the operation of the tax system. After all, that system is very complicated, yet largely based on voluntary compliance. Though voluntary compliance is backed by the threat of audits or criminal tax charges, tax preparers still help millions of people navigate this complex system by preparing returns for them.

Source: Forbes, "Loving You Is Easy -- When You're An Unregulated Commercial Tax Return Preparer," Christopher Bergin, Oct. 29, 2013

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