Judge freezes IRS tax preparer rules for now

Fri Feb 1, 2013 6:36pm EST

(Reuters) - A U.S. judge on Friday modified an earlier order and said the Internal Revenue Service does not have to shut down a new program for registering and testing tax preparers, but he also said preparers need not take IRS tests or pay related fees.

Moving to freeze both sides in a dispute over the IRS program, Judge James Boasberg of the U.S. District Court for the District of Columbia effectively made it voluntary for about 350,000 non-professional tax preparers to take new IRS exams and continuing education. The IRS had sought to make this mandatory.

A libertarian group last year contested the IRS' authority to do this and Boasberg initially agreed, issuing an order on January 18 that threw the tax preparation industry into disarray.

With only days left before the start of this year's tax season, preparers were left to wonder whether or not they would have to take the new IRS test, pay fees and take other steps to comply with the agency's rules, representing the IRS' first attempt to regulate the tax return preparation industry.

A spokesman for the IRS did not immediately have a comment on the judge's decision late on Friday. The IRS has said previously that it planned to appeal the judge's earlier ruling.

Boasberg said that tax preparers do not need to take the test or pay the fee, but he said they do need to apply for and obtain registration numbers from the IRS.

Moreover, he said, the IRS does not need to dismantle the program the agency already has spent millions of dollars on.

"Shutting down the program would be costly and complex, and such steps would be rendered unnecessary if the court's decision is reversed" on appeal, Boasberg said in his order.

Friday's ruling was applauded by the Institute for Justice, the libertarian advocacy group that is representing three tax preparers who filed a lawsuit last year challenging the IRS.

The IRS program and Boasberg's orders have effected many industry participants, ranging from "mom and pop" businesses to employees of large companies such as H&R Block Inc and Jackson Hewitt Tax Service Inc.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh, Gary Hill and Carol Bishopric)

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