Saturday, January 19, 2013


The issue in Loving v. Internal Revenue Service, 12- cv-00385, U.S. District Court, District of Columbia, the case which put a temporary end to the IRS return preparer regulation regime, appears to be one of preparation vs practice.  The IRS can regulate “practice” before the IRS, but preparing a tax return is NOT practice before the IRS.

A news item from Bloomberg explained -

The 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 in Washington wrote in a decision yesterday.”

The Judge observed that, “Filing a tax return would never, in normal usage, be described as ‘presenting a case’.”

I do agree that there is a big difference between “practicing before the IRS” and “preparing a tax return” - and that “preparing a tax return” is NOT “practicing before the IRS”.  I had discussed this argument here in the past in relation to the exemption from CPE and testing for CPAs and attorneys.  The question is whether the IRS has the authority to regulate preparing a tax return.

The regulation of preparers began as a perceived need by the IRS for a central registry to identify all tax return preparers.  In the past, many, but not all, preparers had applied for a PTIN to use as an alternative to entering their Social Security number on tax returns they prepared.  I was one of these preparers.  Some preparers had an IRS “CAF” number, which was related to filing a Form 2848 (Power of Attorney and Declaration of Representative) or Form 8821 (Tax Information Authorization).  The CAF number represented a file that contains information regarding the type of authorization that taxpayers have given representatives.  I also had a CAF number.   

The desire for regulation was further encouraged by a Government Accountability Office (GAO) undercover study which resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”.  The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

At the time someone within the IRS system, perhaps a member of its “civilian” advisory board, pointed out that a barber needs a license, but a tax preparer does not.

I do not question the IRS need to “register” all tax return preparers.  The issuance of a PTIN, with or without an annual registration fee, accomplishes this without causing any real problem or inconvenience.  Background checks and fingerprinting may be going a bit too far (thankfully the fingerprint requirement has been tabled), but requiring that preparers remain current in their own tax filings (but not payments) may be appropriate.  I do not think the IRS needs Congressional authority to “register” tax preparers.

The “plaintiffs” in this case, three previously unenrolled tax return preparers, allege that the IRS return preparer regulation regime will force them to go out of business because the requirements for becoming a RTRP are “prohibitive”.  To me this is garbage.   Spending $64 a year for a registration fee and perhaps $300-$500 a year on CPE, which any serious tax return preparer should be doing anyway, is certainly not “prohibitive” or even excessive.  (What I do find perhaps prohibitive is forcing tax preparers to spend many thousands per year for flawed tax preparation software in order to be able to file electronically)  Again – garbage.    

Some of those who oppose the regulation regime say that it will force “casual” tax preparers out of business.  As I have said before this is not necessarily bad.  Do you want a “casual” dentist filling your cavity, or a “casual” lawyer defending you in court, or even a “casual” barber cutting your hair?

The ultimate question is not if the requirements are too excessive.  It is whether the IRS has the authority to force tax return preparers to pass a test and take required CPE to remain in business 
I do not want to take the test (although I would if forced to) - so if this Court decision is the final word (which I do not think it will be) and it relieves me from having to take the competency exam I will not complain.  But if the decision is the final word, and it forces the idiots in Congress to ultimately legislate regulation, the result could be much worse than the current regime.


  1. I've taken the test. I am an IRS RTRP. A substantial part of the exam is on Circular 230 and "Due Diligence" and has nothing to do with actually preparing returns. Bottom line for me - being an RTRP removes the very gray area of "looking the other way" when you know a client is feeding you a bunch of BS. If my tax return business was built upon being "creative" then being an RTRP would put me out of business. The fines for failing to do "Due Diligence" can be substantial. My interpretation is that the IRS is wanting to filter out the tax return preparers who promote fraud and tax evasion. It will be fun to see what happens. Meanwhile, I now have a great reason to "refuse" working with liars and cheats. "If you tell me - I have to tell the IRS."

  2. TaxAct Preparer Edition is $119.95 plus $9 per efile, or $500 with unlimited efiling. Hardly "many thousands per year", and in line with your estimate of the cost for RTRP compliance.

  3. I practiced as a CPA for over 35 years, preparing about 400 returns per year, and still have to take this exam.I moved to a different state and prepare a couple dozen returns and had a choice of keeping my licence and paying into the thousands of dollars to stay current with CPE and fees or go into a retired status whare I only take a 2 day a year review course.
    Some CPA's who are auditors and the vast majority of lawyers can prepare returns and never take any Tax CPE.This case was decided correctly or changes in the law need to be made.