For the past two years, the IRS has taken steps to implement a monitoring process designed to ensure the competence of tax professionals to ensure greater accuracy in the preparation of individual tax returns. The IRS based its authority to implement the program on a law enacted in 1884 that allows the agency to regulate “representatives” who “act” before giving them legal grounds to implement the program and circumvent the legislative process.

In introducing the new regulation for tax preparers, the stated IRS primary goal was to improve tax compliance by unskilled tax preparers and unscrupulous professionals who were shown to have committed a number of violations ranging from filing of fraudulent claims to the scam of their customers.

However, a recent court decision has ruled that while the aforementioned law gives the IRS the authority to regulate attorneys, registered agents, public accountants, and other professionals who represent clients in “cases” before the IRS, that authority does not extends to individual tax preparers. In effect, the judge ruled that the IRS has no legal basis to require tax preparers to undergo a proficiency test and maintain a Preparer Tax Identification Number (PTIN) in order to file federal tax returns.

The ruling affected all three aspects of the IRS tax preparer regulation program, namely the requirements for testing, continuing education, and RTRP registration, but it does not affect the Preparer Tax Identification Number, or PTIN, required to register. This is because the PTIN is covered in a regulation under a separate legal authority. However, the court ruling prevents the IRS from conditioning the issuance of the PTIN on the acquisition of the RTRP credential in the first place.

The court decision has been met with mixed criticism. Some industry advocates believe the IRS should stop the tax preparers’ rulemaking process until it can legally enforce it. On the other hand, a considerable number of preparers weigh in supporting proficiency testing and continuing professional education as critical to establishing and / or raising the quality of returns filed by tax preparers to ensure adequate service and possible representation. of taxpayers.

For some, IRS oversight appears to be a way to instill professional pride and they feel that the title of Registered Tax Return Preparer would add prestige to the profession as a mark of someone who has met the required qualification and standard of conduct. They are in favor of continuing the tests even if they are voluntary.

For others, the professional standards envisioned in the proposed regulations are no big deal, citing the need for supervision and education to stop misrepresentation and outright fraud by unskilled or unscrupulous tax professionals.

The IRS responded to the Court’s decision by announcing on January 22 that it is working with the Department of Justice and is confident that it is indeed within the scope of its authority to administer the program it has established to regulate the work of individual tax preparers. . . The IRS states in the same announcement that it is currently considering the best way to address the court order and will take further action shortly.

Amid the uncertainty about the final outcome of the litigation that is ongoing, it may not be a bad idea for tax preparers to continue to prepare as if they have to take the test at some point in the near future. If the final decision of the courts is in favor of the plaintiffs in the case against the IRS, studying the material would help tax preparers gain knowledge, making them better able to better serve their clients. If the decision is reversed in favor of the IRS, those who continued studying will be ready to take the test in the short term and with a good chance of passing the test and obtaining their RTRP credentials.

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