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Regulation of Return Preparers

A recent decision from the DC District Court throws a monkey wrench into IRS efforts to regulate tax-return preparers.

As of Friday, January 18, 2013, the United States District Court for the District of Columbia has enjoined the IRS from enforcing the regulatory requirements for registered tax-return preparers.  In accordance with this order, tax-return preparers covered by this program are not currently required to register with the IRS, to complete competency testing, or secure continuing education.  The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents, or enrolled actuaries.

The Internal Revenue Service plans to appeal the decision and is confident that it possesses the authority under 31 USC § 330 and Circular 230 to regulate return preparers.  On Wednesday, January 24, the IRS and Justice Department asked for the injunction to be lifted.  Regardless of the outcome of that request, an appeal is planned within the next 30 days.

The DC District Court essentially concluded that the statute on which the IRS bases its authority to regulate return preparers is unambiguous and limits IRS regulatory authority in this context to "representatives" who "practice" before the IRS.  The Court notes that the statute "defines the 'practice of representatives' in a way that does not cover tax-return preparers."  The IRS has indicated that it will continue to evaluate the scope of the Court's order in determining its next steps.

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