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IRS regulation of tax preparers: an update

It's been over a month now since a federal judge ruled that the IRS had exceeded its statutory authority in its proposed new regulatory framework for professional tax preparers. As we discussed in our January 30 post, California's state-level regulation of preparers remains in place despite the ruling.

Still, the IRS and the national taxpayer advocate continue to be about questionable conduct by tax preparers. Sometimes tax preparers alter information on their clients' tax returns without the client's knowledge. By altering this information, unscrupulous preparers may attempt to get inflated tax refunds. Or they may try to divert refunds to themselves.

The IRS is aware, however, that the federal court ruling last month has put a crimp for now in its plans to expand its regulation of tax preparers. On its website, the agency continues to encourage preparers to get or renew a preparer tax identification number (PTIN). But the IRS is careful to clarify that these requirements were not affected by what it obliquely refers to as "recent litigation."

That litigation, of course, was the federal court ruling that the IRS had exceeded its authority. To be sure, the agency still hopes to overturn the ruling on appeal. For now, though, it has had to scale back its plans to require a competency exam and continuing education for all tax preparers.

It should also be noted, in this connection, that there are certain groups of tax professionals who are already licensed by state or federal authorities in other ways. These include attorneys, CPAs and enrolled agents. Even if the IRS's authority for its proposed new rules is restored, those groups are likely to remain exempt.

Source: "Setback on tax preparer regulations," The Washington Post, Michelle Singletary, 2-25-13

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

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