In the world of tax preparer oversight, the last three weeks were quite eventful!
It all began in March last year when three tax preparers filed a lawsuit against the IRS. The suit sought to end the testing requirements that required tax return preparers demonstrate competency. In order to continue preparing tax returns for their clients, they would need to take 15 hours of continuing education courses.
Two weeks ago, it was announced that U.S. District Court Judge James E. Boasberg, DC District Court, had ruled in favor the plaintiffs. He declared that, contrary to IRS assertions, the agency doesn’t have the statutory power to regulate individual tax preparers. The Judge ordered the IRS to stop administering tests to verify the competence of tax return preparations.
It was revealed that the IRS had, in collaboration with the Justice Department moved to lift the initial imposition while it prepared an appeal to file within the next 30 day.
After the initial decision by Judge Boasberg, the lead attorney representing the tax preparers filed suit against the IRS. He was confident that Judge Boasberg would stop the IRS from requiring tax preparers to pass a competency test.
On February 1, however, the Judge, in collaboration with the Department of Justice, responded to the IRS motion and modified his previous decision. The IRS is not required to close down its tax return preparers registration system, but the modified decision by the Judge makes it non-mandatory that tax preparers take the competency test and pay any applicable testing fees to IRS. The Judge’s modified ruling allows preparers to take the test at their own discretion and they are not required pay the fees. To be eligible for tax returns, tax preparers will still need to apply for and receive a registration number from the IRS.
According to the new ruling, IRS will not be required to remove the complicated and expensive program it had already created at a cost over millions of dollars. Such steps would have been unnecessary if the court’s decision was reversed.
The IRS indicated that it would appeal the US District Court’s decision that the IRS does not have the power of licensing the hundreds of thousands tax preparers who prepare individual tax returns. This refers to the fact that a complete cessation of the tax preparer oversight program would significantly disrupt tax administration. Already, the deadline for individual returns has been delayed to January 30, which was later moved to January 30. Some returns may not be processed until later.
One thing is certain, given the events of the past few weeks. The Court’s decision to suspend RTRP competency testing will be appealed by the IRS. The original lawsuit filed by the plaintiffs will continue to seek to undermine the IRS’ plans to regulate the tax preparation sector.
However, judging from the opinions of tax professionals who have passed and studied for the RTRP test, it is essential to prevent fraud and malpractice, reduce gross errors in tax returns that end in the taxpayer’s disadvantage, and, above all, to show professional pride and demonstrated competence. This will benefit the tax professional by increasing taxpayers trust in their tax preparer.