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Regulation of tax preparers: California rules remain in place

The IRS has been progressively tightening its regulation of professional tax preparers. In this blog, we've been monitoring the roll out of such new requirements as competency testing and continuing education for tax preparers.

Last week, however, a ruling by a federal judge in the District of Columbia called into question the statutory authority the IRS has been using to implement its new regulations. The judge held that the federal law that the agency has relied upon does not grant it the authority to institute such sweeping regulations.

The IRS is expected to appeal the ruling. For now, at least, the ruling has created a degree of uncertainty about the validity of the agency's regulation efforts. But in California and other states, it is important to also note that state-level regulation of tax preparers is not affected by the recent federal ruling.

In California alone there are nearly 42,000 professional tax preparers. A state-initiated nonprofit group, the California Tax Education Council (CTEC), has been working on regulations that are quite similar to those of the IRS. These state-level rules are going forward, regardless of what happens to the IRS's preparer regulations.

At both the state and federal levels, the rules can get fairly complicated. For example, it is important to be clear, at the outset, about which groups of paid tax preparers the rules apply to. In California, for example, there are exemptions for attorneys and certified public accountants, as well as enrolled agents.

For preparers who are not in one of those three groups, the California regulations begin with registration. There are also firm guidelines on education and the posting of surety bonds.

Source: "California Tax Preparers Must Still Meet Rules Despite IRS Court Decision," Yahoo! Finance, 1-25-13

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our tax litigation page.

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