After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers. U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.
So now what?
I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months. It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.
Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:
“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”
So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation. This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.
As of this writing, the IRS has yet to comment.
So who wins? Small unenrolled preparers are big winners. They are now free of the brain-dead RTRP bureaucracy. Enrolled Agents are also big winners. The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers. But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.
The losers? The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations. The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors. And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.
When at first you get enjoined, try, try again. In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.” Apparently he dusted himself off and went right back to work. From a Department of Justice Press release:
The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.
Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.
No, you can’t give a tax free “tool allowance” to employees. And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.
In case you were wondering: Iowa explains sales tax treatment of Groupons.
Companies that make medical devices are paying a 2.3% excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.
Paul Neiffer, IRS Announces April 15 Farmer Deadline
Jack Townsend, Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence. A discussion of the Fiore case, which I discussed last week.
TaxGrrrl, Why Justice Matters, Revisited
Richard Morrison, Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)
Roberton Williams, How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe AMT.”
Robert D. Flach, RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS
Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)
Kay Bell, Tax filing preparation checklist
Brian Strahle, Is Your Company Paying Too Much Virginia BPOL?
OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale. C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.
Tags: Allen Davison, Brian Strahle, Dan Alban, Dan Meyer, Enrolled Agents, Gongol, Jack Townsend, Jana Luttenegger, Kay Bell, Paul Neiffer, preparer regulation, Preparers, Ray Nagin, Richard Morrison, Robert D Flach, Roberton Williams, RTRP, Russ Fox, Shulman, tax crime, TaxGrrrl