On January 18, 2013, a federal court stopped IRS “dead in its tracks” from enforcing its new regulatory scheme for registered tax-return preparers. In response, the IRS filed a motion to stay the injunction – that’s a lawyerly way of saying that the IRS asked the court not to enforce the injunction and to allow them to continue regulating tax preparers until an appeal could be heard. To win that argument, the IRS had to demonstrate, among other things, “immediate harm” if the stay isn’t granted.
On February 1, 2013, a federal court denied the IRS motion. The Court also went to great lengths to modify the injunction to make it clear that the “requirements are less burdensome than the IRS claims.” In other words, the IRS motion implied that the injunction was more over-reaching than it really was.
Regarding the controversial PTIN (preparer tax identification number), the Court first noted that the PTIN scheme was, unlike the overall regulatory scheme, specifically authorized by Congress (section 26 U.S.C. § 6109(a)(4)) and could, in theory, continue. However, the IRS could not hinge the right to obtain a PTIN on being “authorized to practice” before the IRS. It’s an important legal distinction in this ruling but practically, it makes enforcement a little tricky moving forward; for purposes of this particular matter, however, it’s moot.
What is not authorized by Congress, as U.S. District Judge Boasberg ruled originally, is the imposition of additional requirements that tax return preparers who are not otherwise exempt from these specific requirements (basically, attorneys, CPAs, enrolled agents, or enrolled actuaries) must meet in order to prepare returns. Under the IRS scheme, those preparers must pay some fees unrelated to the PTIN, pass a qualifying exam, and complete annual continuing education requirements.
And yes, yes, yes, I know that attorneys, CPAs, enrolled agents, or enrolled actuaries have other, more stringent rules already in place. There’s no need to beat me up on this point. I’m referring specifically to the exemptions imposed under the IRS scheme meant to apply solely to Registered Tax Return Preparers. Judge Boasberg suggested that the IRS could continue to operate its testing or continuing-education centers on a strictly voluntary basis since “[s]ome preparers may wish to take the exam or continuing education even if not required to. Such voluntarily obtained credentials might distinguish them from other preparers.”
Judge Boasberg found that the harms claimed by IRS “to the extent they exist, are hardly irreparable, and some cannot even be traced to the injunction.” The Judge agreed with the assertion of the Plaintiff that much of the harm claimed by IRS (such as under-utilization of testing centers) would happen even without the injunction because of the IRS’ own actions. Additionally, with respect to the fees collected by IRS, Judge Boasberg questioned – as did many tax preparers – why tax preparers should continue to pay into a system that might be found to be unlawful. If that happened, the Court noted, the IRS would be on the hook for even more money in refunds from tax preparers seeking to recover unnecessary fees.
And yes, the Court did address those claims from the IRS about what the Plaintiffs’ attorney, Dan Alban of the Institute for Justice, “allegedly told a blogger from Forbes” (that would be me) about future plans. The Court noted that, in an ego-crushing blow (I kid), it “credits sworn declarations of parties over blog posts that attribute comments to an attorney.” (*sigh*) Still, the Court found that forcing tax preparers to make a choice about how to prepare for tax season, pending an appeal, could lead to considerable harm to the Plaintiffs but not to the IRS.
Finally, the Court addressed the issue of harm to the public. In terms of tax dollars, the Court found that continue to waste dollars during the appeal wasn’t sensical. And, the Court noted, “as long as portions of such regulations remain blocked, less money will be needed.” So, the harm on a fiscal level is not immediate.
In terms of protecting the public from unscrupulous or negligent preparers (which time and again are curiously only linked to those who are not a member of a designated group), the Court again stressed that if regulation of preparers was found to be in the public interest, this matter could be more properly addressed in Congress. Under current law, the Court believes the IRS has no power to regulate preparers on its own. To suspend the injunction while the IRS figures out how to remedy that finding would only lead to more confusion for preparers and taxpayers.
As for the Plaintiffs? Clearly, they’re pleased. Attorney Alban said, about the ruling, “[t]his is a great outcome for tax preparers nationwide. It allows them to continue preparing tax returns this tax season without having to get permission from the IRS. This is the best of both worlds —preparers who value the certification can still obtain it, but no tax preparer is forced to get a government permission slip to earn a living.”
