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IRS Return Preparer Regs Derailed
by Warren Peterson
On January 18, 2013, the
United States District
Court for the District of Columbia
decided Loving v.
Internal Revenue Service, 1 derailed
the IRS’ efforts to regulate hundreds
of thousands of tax return preparers
who are not attorneys, CPAs or
enrolled agents with the IRS (hereinafter
“unenrolled preparer”). The
IRS had promulgated regulations
that required unenrolled preparers
to register with the IRS, pass a
qualifying exam, pay an annual
application fee and take 15 hours of
continuing education each year.
Three unenrolled preparers
brought suit to enjoin the regulations.
In an opinion issued just in
time to throw things into a turmoil
for this tax season, the District Court
granted summary judgment to the
plaintiffs finding that the IRS did
not have the statutory authority to
regulate unenrolled preparers.
The IRS’ effort to regulate unenrolled
preparers was prompted by
Youngman & Ericsson, LLP
1981 North Broadway • Suite 300
Walnut Creek, CA 94596
Tax Lawyers.
www.youngman.com (925) 930-6000
the increasing importance of third
parties and tax preparation software
in the preparation of tax returns.
In 2007 and 2008, over 80 percent
of federal individual income tax
returns were prepared by paid tax
preparers or by taxpayers using tax
preparation software. The IRS has
estimated that there may be 1.2 million
paid preparers. 2
Organizations such as the IRS National
Taxpayer Advocate 3 and the
Treasury Inspector General for Tax
Administration (TIGTA) 4 have each
identified errors and omissions in
the preparation of tax returns by
both unenrolled preparers and national
tax preparation chains. Many
critics argued that the wide-open
nature of the industry makes it difficult
to ensure minimum competence
and ethical standards for unenrolled
preparers. 5
The IRS has been focusing on
this issue since June 2009, when the
Commissioner of the IRS, Douglas
Shulman, initiated the Return Preparer
Review. The IRS solicited input
from the public which led to the
following recommendations:
1. Mandatory tax return preparer
registration.
2. Mandatory competency examinations
for unenrolled preparers.
3. Required continuing professional
education for unenrolled
preparers.
4. Extension to unenrolled preparers
of the ethical standards established
by Treasury Department
Circular 230. 6
The IRS implemented these recommendations
by adopting regulations.
The system was to go into full
effect as of the beginning of 2013.
The IRS reported that 88 percent
of those expressing an opinion favored
registration of unenrolled
preparers. Those who addressed
the issues of minimum education
and testing requirements were 90
percent in favor of such requirements.
7 At the same time, others did
not favor the direction the IRS was
taking on regulation of unenrolled
preparers. There were objections to
the costs and burden the regulatory
regime would place on return preparers,
with the costs likely being
passed onto taxpayers. 8
This opposition to the new regulatory
requirements prompted the
filing of Loving. The District Court
determined that the key question
was whether tax return preparers
are ‘representatives’ who ‘practice’
before the IRS” (Loving, p. 9). The
court considered the meaning of
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 17