WASHINGTON Jan 22 The U.S. Internal Revenue
Service on Tuesday rescinded new registration and training rules
that it put in place just months ago for about 700,000 tax
return preparers, bowing to a federal court's permanent
injunction issued on Friday.
In a setback for the tax agency, the IRS said in a statement
on its web site that nonprofessional tax return preparers "are
not currently required" to register with IRS, pass a competency
test or take continuing education classes to do tax returns.
A decision from the U.S. District Court for the District of
Columbia on Friday barred the IRS from proceeding further with
its IRS Return Preparer Initiative, a new enforcement program
affecting up to 700,000 tax return preparers.
The government can appeal the decision.
The IRS "continues to have confidence in the scope of its
authority to administer this program," the agency's statement
said. "It is considering how best to address the court's order
and will take further action shortly."
The IRS said lawyers, accountants and other licensed tax
return professionals must still meet the regulatory requirements
related to their certifications.
The court ruling threw the tax preparation industry into
disarray. Thousands of independent "mom and pop" individuals, as
well as employees for tax return companies H&R Block Inc
and Jackson Hewitt Tax Service Inc were complying
with the IRS rules.
"It is quite a mess," Mark Steber, chief tax officer at
Jackson Hewitt, told Reuters.
Under the IRS requirements, preparers had 2 1/2 hours to
finish a 120-question competency test that cost $116. They also
had to take 15 hours of continuing-education classes annually.
About 55,000 individuals have already passed the test, said
Chuck McCabe, chief executive of the Income Tax School in
Richmond, Virginia. Some of these individuals will seek a refund
from the IRS for their test fee, he said.
If the court decision is not reversed on appeal, "it could
be a real can of worms," McCabe said.
Regulating tax preparers was a top priority for former IRS
Commissioner Doug Shulman before he stepped down in November.
Shulman in 2009 called for an IRS effort to root out tax
preparation fraud. The return preparer initiative began in 2011.
In March 2012, three independent tax preparers and the
Institute for Justice, a civil-liberties advocacy group,
challenged the program's legal authority. They accused the IRS
of enforcing the requirements without congressional approval.
The IRS said a law dating to 1884 gave it that authority, but
the court disagreed and halted the agency's initiative.
The IRS wants to weed out dishonest tax preparers who can
abuse their access to clients' sensitive financial data in any
number of ways. Before the IRS launched its program, there was
no federal oversight of the tax preparation industry.