RTRP and CE Requirements Ruled Invalid

Post Date: 1/21/13
Last Updated: 1/22/13

Summary

Cross References
- Loving v. IRS, U.S. District Court for the District of Columbia, January 18, 2013

U.S. District Judge James E. Boasberg has ruled that the IRS lacks statutory authority to issue and enforce regulations under Circular 230 concerning Registered Tax Return Preparers (RTRPs), their requirement to pass a competency test, and their requirement to take annual continuing education (CE). The judge also permanently enjoined the IRS from enforcing these regulations on other tax return preparers.

Background. In 2011, the IRS began regulating hundreds of thousands of unlicensed tax return preparers who prepare and file tax returns for compensation. The IRS regulations require each preparer to pass a qualifying exam, pay an annual application fee, and take 15 hours of continuing-education courses each year. The IRS interprets an 1884 statute as enabling them to regulate all tax return preparers.

Under Title 31 of the U.S. Code, Section 330, the Treasury Secretary has authority to regulate people who practice before the Treasury Department. As the IRS is a bureau of the Treasury Department, this statute covers practice before the IRS as well. Using this statutory authority, the IRS issued regulations under Circular 230 with a long list of duties and restrictions relating to practice before the IRS. These regulations have historically applied to attorneys, CPAs, Enrolled Agents (EAs), and other specified tax professionals. The 2011 revision to Circular 230 brought all tax return preparers under its coverage. The IRS estimated that the new rule brings 600,000 to 700,000 new tax return preparers who were previously unregulated at the federal level.

Among other things, these new rules defined “practice” as a tax return preparer as including the preparing and signing of tax returns and claims for refund and other documents for submission to the IRS.

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