Court throws out IRS preparer regulation scheme!

January 18th, 2013 by Joe Kristan
Soon-to-be-former-IRS Commissioner Douglas Shulman

Doug Shulman shows what’s left of his signature achievement, the preparer regulation scheme.

So passes Doug Shulman’s legacy:

For the reasons set forth in the accompanying Memorandum Opinion, the Court ORDERS that:

1. Plaintiffs’ Motion for Summary Judgment is GRANTED;

2. Defendants’ Motion for Summary Judgment is DENIED;

3. Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” created by 76 Fed. Reg. 32,286;

4. Defendants are permanently enjoined from enforcing such scheme; and

5. Judgment is ENTERED in favor of Plaintiffs.

The IRS can, and almost certainly will, file an appeal to preserve its preparer regulation power grab, but losing on summary judgment and being enjoined from enforcing the new rules is a complete shutout for them in District Court.

I am glad that the IRS lost in court.  I have hoped the regulations would be overturned, and I thought they should be illegal, but I am not a master of the law covering IRS regulatory problems.  Regardless of whether they are legal, I have always thought the regulations unwise.

The regulations have been sold as a way to assure taxpayers of quality preparation by making them pass a test and take CPE.  Yet the test is a joke, an open-book review of Publication 17.  The IRS has already waived the CPE requirement for 2013.  The IRS has already undermined their own arguments.

To me, the real purposes of the regulations have been:

  • to expand the power of the IRS by increasing their grip on preparers, while
  • helping the well-connected national tax franchise outfits by eliminating many of the small independent preparers who compete with them.

Too cynical?  Seeing that the IRS has abandoned its stated goals, the unstated goals are all that are left.  Considering that the former CEO of H&R Block wrote the rules for the IRS, it’s hard to make the case that this was done with the taxpayer in mind.

What does it mean?  It looks to me that the IRS has to stop its RTRP regime in its tracks, absent a stay on the ruling from the District Court or the D.C. Circuit Court of Appeals.  No more rulemaking, no more RTRP open book tests, and no more approval of tax CPE by the IRS.  No more cashing the $63 RTRP checks.  Refunds?  It would serve them right, but I don’t know.

Meanwhile, it’s back to the Wild West days of two years ago, when taxpayers had to rely on the reputations and credentials of individual preparers, rather than on a worthless pretend certification from the IRS.  Oh, the humanity!  Congratulations for the Institute for Justice, the legal team behind the suit.

UPDATE, 1/21: more here.

Other coverage:

Katherine Mangu-Ward, Mom-and-Pop Tax Prep Firms Defeat IRS! (

AP, IRS loses lawsuit in fight against tax Preparers.

Related: David Brunori, Government Power, Cronyism, and the IRS Running Amok

UPDATE, 1/19. 

TaxProf, Court Says IRS Lacks Authority to Regulate Tax Preparers

Russ Fox, Institute for Justice 2, IRS 0

Joseph Henchman, Court Strikes Down IRS’s Arbitrary Tax Preparer Licensing Requirements  (Tax Policy Blog)

Kay Bell, IRS loses lawsuit challenging tax preparer registration, testing

Robert D. Flach, YOU COULD HAVE KNOCKED ME OVER WITH A FEATHER!, MORE ON THE TAX PREPARER REGULATION COURT CASE, AND THE BEAT GOES ON . . .  I like this: “Joe Kristan is as expected, a pig in reality tv over the court decision.”  If he calls me “Snooki,” I’ll know he’s really upset.

Trish McIntire, “Licensing Pity Party

Janet Novack, Federal Judge Shoots Down IRS Attempt To Regulate All Paid Tax Preparers

Some practitioners are upset about the ruling (see Trish McIntire).  None of us should have the right have the government  lock potential competitors out of the market — even if we don’t think the competitor is adequately trained.  It’s the customers’ money, and it’s up to them to make the choice.



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