* Court upholds January 2013 lower court ruling
* U.S. tax authority cannot regulate preparers -court
By Patrick Temple-West
WASHINGTON, Feb 11 An Obama administration
campaign against tax-return fraud suffered a blow on Tuesday
when an appeals court invalidated the first federal rules for
unregulated tax-return preparers.
A three-judge appellate panel upheld a lower court's January
2013 ruling that said the U.S. Internal Revenue Service does not
have the power to impose test-taking and continuing education
requirements on hundreds of thousands of tax-return preparers.
"We agree with the District Court that the IRS's statutory
authority ... cannot be stretched so broadly as to encompass
authority to regulate tax-return preparers," the U.S. Court of
Appeals for the District of Columbia said in a unanimous ruling.
The tax-collecting IRS said in a statement that it is
reviewing the decision. "The IRS continues to believe that it's
critical for taxpayers to be able to rely on quality work from
tax preparers," the agency said in a statement.
With the April 15 tax filing deadline two months away, the
court ruling means that, for now, the status quo will prevail in
the tax-return preparation industry, which annually helps about
80 million Americans complete and file their tax paperwork.
About a third of the $9.4 billion tax-return business is
controlled by H&R Block Inc and three other large
companies. The remaining two-thirds is divided among licensed
and unlicensed preparers, many of them mom-and-pop operations.
LIBERTARIAN GROUP CHALLENGES IRS
The IRS took steps starting in 2011 to regulate unlicensed
return preparers for the first time, with a program requiring up
to 700,000 of them to meet testing and education requirements.
But independent preparers complained. Then in 2012, a
libertarian activist group called the Institute for Justice sued
the IRS, arguing that Congress never gave the agency authority
to regulate preparers.
In January 2013, U.S. District Court Judge James Boasberg
issued an injunction halting the IRS's regulatory program. The
Justice Department appealed his decision and lost on appeal.
The institute praised the latest ruling. "It's a big win for
tax preparers," said Dan Alban, the lawyer who argued the case
for the institute.
It was unclear whether or not the Obama administration would
appeal Tuesday's ruling. If it does, it would seek a U.S.
Supreme Court review.
Separately on Tuesday, the U.S. Justice Department issued a
statement on its 2013 efforts "to combat fraudulent tax-return
preparers and promoters of tax-fraud schemes," citing recent
cases it has brought against "abusive schemes and scams."
After the ruling, a Justice Department spokeswoman said, "We
are, of course, disappointed with today's decision ... We are
studying the opinion and weighing our options."
H&R Block CEO Bill Cobb said in a statement that the court
decision was a blow to taxpayers. "It is outrageous that all
consumers don't enjoy basic protections with such a significant
financial transaction as tax preparation," he said.
The Institute for Justice has said that H&R Block supports
the IRS regulations because they would help the company squeeze
smaller competitors out of business.
The IRS rules would not apply to lawyers, accountants and
"enrolled agents" who are already licensed.
The court ruling may prompt more states to regulate
preparers on their own, tax professionals said on Tuesday.
Currently, California, Oregon, Maryland and New York have
laws that regulate tax preparers. But a state-by-state
regulatory patchwork could become dysfunctional, experts said.
The case is Sabina Loving et al v. Internal Revenue Service,
U.S. Court of Appeals for the District of Columbia Circuit, No.