Court Modifies Ruling Invalidating Tax Preparer Regulations

A federal judge has denied the Internal Revenue Service’s request to suspend his January 18 ruling that struck down the IRS’s tax-preparer scheme as unlawful, but made some important clarifications to his original ruling. 

U.S. District Court Judge James E. Boasberg ruled Friday that no tax return preparer may be required to pay testing or continuing education fees or to complete any testing or continuing education while the injunction is in place, backing up his earlier ruling (see Court Rules Tax IRS Doesn’t Have Authority to Regulate Tax Preparers). The IRS had asked the judge to suspend his injunction on the tax preparer regulatory regime, arguing that it would disrupt tax season (see IRS to Appeal Ruling Barring Licensing of Tax Preparers).

The Institute for Justice, which had won the case on behalf of three independent tax preparers who sued to stop the IRS’s Registered Tax Return Preparer mandatory testing and continuing education regulatory regime, filed a legal brief countering the IRS’s arguments (see Tax Preparers Contest IRS Legal Ruling). In Boasberg’s latest ruling in the case Friday, he denied the IRS's motion for a stay, asking, “[W]hy should tax-return preparers continue to pay into a system the Court has found unlawful?”

However, Judge Boasberg clarified that his injunction did not affect a separate set of regulations requiring tax preparers to have a Preparer Tax Identification Number, or PTIN, or prevent the IRS from operating its testing or continuing education centers on a strictly voluntary basis.  

The court wrote today, “[S]ome preparers may wish to take the exam or continuing education even if not required to.  Such voluntarily obtained credentials might distinguish them from other preparers.”

“This is a great outcome for tax preparers nationwide,” said Dan Alban, lead attorney on the case at the Arlington, Va.-based Institute for Justice, who represented the three independent tax preparers who had challenged the IRS. “It allows them to continue preparing tax returns this tax season without having to get permission from the IRS. This is the best of both worlds—preparers who value the certification can still obtain it, but no tax preparer is forced to get a government permission slip to earn a living.”