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Saturday, May 18, 2024 | Back issues
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Solo Tax Preparers Duck IRS Regulation Attempt

WASHINGTON (CN) - A federal judge struck down expensive obstacles the IRS created for nonattorney, uncertified preparers of tax returns seeking payment for their services.

The Internal Revenue Service has long regulated lawyers, certified public accountants and other tax professional, but private, non-attorney tax preparers remained outside its statutory reach.

This changed in 2011 when the IRS adopted new rules requiring such tax preparers to pass a qualifying exam, pay an annual application fee and take 15 hours of continuing-education courses each year.

The regulations defined a tax-return preparer as a person who "prepares for compensation or who employees one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claim for refund of tax under the Internal Revenue Code."

U.S. District Judge James Boasberg said that the IRS has estimated its "new rule sweeps in 600,000 to 700,000 new tax-return preparers who were previously unregulated at the federal level."

"Agency action, however, requires statutory authority," Boasberg wrote.

Claiming that the agency had no such authority, three independent tax preparers filed suit.

One of the plaintiffs in the case, Sabina Loving, works on the South Side of Chicago serving low-income clients, according to the ruling. She claimed that adherence to the new regulations would force her to raise rates, costing her clients and money.

Boasberg found little support for claims that the IRS drew its authority from an 1884 statute that allows the IRS to regulate "representatives" who "practice" before it.

The penalty provisions of the regulations would wipe out federal laws pertaining to tax preparers, according to the ruling.

Boasberg also credited claims that the regulations injure tax preparers by damaging their businesses.

"With an invalid regulatory regime on the IRS's side of the scale and a threat to plaintiff's livelihood on the other, the balance of hardships tips strongly in favor of plaintiffs," he wrote.

The judge granted the tax preparers' motion for summary judgment, killing the regulations.

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