Over the past two years, the IRS has taken steps to implement a monitoring process designed to ensure the competency of tax professionals to ensure greater accuracy in the preparation of individual tax returns. The IRS based its authority to implement the program on a law enacted in 1884 that allows the agency to regulate “representatives” who “practice” before it gave them legal grounds to implement the program and bypass the legislative process.

In introducing the new regulation for tax preparers, the IRS’s primary stated goal was to improve tax compliance by rooting out unqualified tax preparers and unscrupulous professionals who were shown to have committed a number of violations ranging from filing claims fraudulent to deceive their customers.

However, a recent court decision ruled that while the law in question gives the IRS the authority to regulate attorneys, enrolled agents, certified public accountants, and other professionals who represent clients in “cases” before the IRS, that authority is not extends to individual tax preparers. In effect, the judge ruled that the IRS has no legal basis to impose a requirement on tax preparers to take a competency test and maintain a Preparer Tax Identification Number (PTIN) in order to file federal tax returns.

The ruling affected all three aspects of the IRS tax preparer regulation program, namely the requirements for testing, continuing education, and RTRP registration, but did not affect the Preparer Tax Identification Number, or PTIN, required for register. This is because the PTIN is covered by regulation under a separate legal authority. However, the court ruling prevents the IRS from conditioning the issuance of the PTIN on the acquisition of the RTRP credential, first.

The court decision has received mixed reviews. Some industry advocates believe the IRS should halt the tax preparer regulation process until it can legally enforce it. On the other hand, a sizable number of preparers endorse competency testing and continuing professional education as critical factors in establishing and/or raising the quality of returns filed by tax preparers to ensure adequate service and potential representation of tax preparers. taxpayers.

To some, IRS oversight appears to be a way of instilling professional pride and they feel that the title of Registered Tax Return Preparer would add prestige to the profession as a mark of someone who has met the required qualification and standard of conduct. They favor continuing the tests even if it is voluntarily.

For others, the professional standards provided for in the proposed regulations are not much, citing the need for oversight and education to stop misrepresentation and outright fraud by unqualified or unscrupulous tax professionals.

The IRS has responded to the Court’s decision by announcing on January 22 that it is working with the Department of Justice and is confident that it is, in fact, within the scope of its authority to administer the program it has established to regulate the work of individual tax preparers. . The IRS states in the same announcement that it is currently considering how best to address the court order and will take further action shortly.

Amid the uncertainty over the ultimate outcome of the litigation now underway, it might not be a bad idea for tax preparers to continue preparing as if they have to take the test at some point in the near future. If the final decision of the courts is in favor of the plaintiffs in the case against the IRS, studying the material would help tax preparers gain knowledge, thus making them better able to better serve their clients. If the decision is reversed in favor of the IRS, those who continued to study will be ready for the test in short order and with a good chance of passing the test and earning their RTRP credentials.