UPDATE 1-U.S. judge freezes IRS tax preparer rules for now

Fri Feb 1, 2013 6:35pm EST

* Order spares tax preparers from taking tests, paying fees

* IRS allowed to keep program intact for now, judge orders

By Patrick Temple-West

Feb 1 (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 Jan. 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.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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