A controversial Internal Revenue Service program faces another legal battle as the American Institute of Certified Public Accountants filed a federal lawsuit in July 2014 against the agency for its voluntary education and testing program for tax preparers. The IRS program was mandatory until a previous lawsuit in federal court halted the government agency's new rule. This latter lawsuit is in the same federal district as the previous litigation.
Under the new IRS rule, unlicensed tax preparers may register with the IRS, take 18 hours of continuing education courses every year and take an annual test. Once volunteers finish these steps, unlicensed preparers are good until the next year. The IRS changed the original aim of the test, which mandated all unlicensed preparers enroll in the program. A lawsuit filed by the group Institute for Justice in 2012 forced the IRS to alter its strategy.
The IRS claims 60 percent of federal preparers operate without any oversight whatsoever. The government agency tried to reign in wayward tax preparers in 2011, the first time the government attempted to do so. A year later, the initial lawsuit was filed. The U.S. Court of Appeals for the District of Columbia ruled in February 2014 that the IRS did not have the authority to force every preparer to certify with the agency.
An estimated 700,000 preparers are not attorneys, accountants or enrolled agents. The IRS claims rogue preparers do a poor job, and some even file dishonest returns on behalf of taxpayers. Part of the problem lies in a complicated income tax system that changes yearly. Taxpayers with complex returns may not keep up with changes, and they rely on professional tax preparers to ensure returns are accurate and follow the law. Tax credits and deductions change or expire from year to year, and taxpayers risk an audit if they attempt to claim a credit or deduction that no longer exists.
Despite a complicated system, not all preparers who deal with income taxes have a professional degree. Four main companies, including H&R Block, control one-third of the tax preparation industry. The remaining two-thirds are licensed and unlicensed people who help taxpayers with income taxes. The IRS program is designed to make consumers more confident about choosing a third party to prepare taxes.
The decision by the federal appeals court in February 2014 stated that the IRS must wait for Congress to authorize the mandatory program. The basis of that lawsuit claimed the IRS cannot regulate tax preparers, only taxpayers and tax collection.
The newer lawsuit believes the government agency's voluntary program is an unlawful exercise of power. The AICPA believes the IRS should use "data already at its disposal" to reign in unethical preparers. Even though the IRS is no longer requiring tax preparers to enroll in the education program, the federal court must further clarify its ruling to determine if Congress has the power to authorize the voluntary certifications for tax preparation professionals.
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