IRS Regulation of Licensed Tax Return Preparers Overruled

The IRS does not have the authority to regulate the tax preparation profession and license hundreds of thousands of tax preparers, a federal judge ruled late January 18, 2013. The IRS rules requiring all paid tax return preparers to pass a competency test and meet continuing education requirements are all part of the regulatory structure the court found invalid. All three prongs of the IRS tax preparer regulation regime were affected by the ruling, including the testing, continuing education and RTRP registration requirements. However, the Preparer Tax Identification Number, or PTIN, which is part of the registration requirements, is not affected by the lawsuit.


Three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—joined forces with the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia. 


U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers in ordering the agency against enforcing its Registered Tax Return Preparer requirements. The court found the regulation and licensing rules are invalid because the IRS stretched a law allowing it to regulate people who “advise and assist persons in presenting their cases” before the agency to cover tax preparers, U.S. District Judge James Boasberg wrote in a decision yesterday. The IRS had interpreted 31 USC Section 330, an 1884 statue, as permitting the new regulations because the law allows the IRS to regulate “representatives” who “practice” before it. However, Boasberg found that “the statute’s text and context unequivocally exclude the IRS’s interpretation.” “Filing a tax return would never, in normal usage, be described as ‘presenting a case’,” Boasberg said. 


Attorney Dan Alban states, “Assuming the ruling stands, tax preparers no longer are going to need to comply with the IRS licensing requirements. It returns things to the way they were before the IRS passed those regulations in the first place. No longer do you have to get the IRS’s permission to work as a tax return preparer.”


What now?

The IRS can appeal the ruling to the U.S. Court of Appeals for the District of Columbia Circuit. The IRS had no immediate comment on the ruling, according to IRS spokesman Dean Patterson. We caution that the IRS is likely to appeal the ruling and may also ask for an injunction that would prevent the ruling from taking effect even as it appeals.


The case is Loving v. Internal Revenue Service, 12- cv-00385, U.S. District Court, District of Columbia (Washington) and is available at