Posts Tagged ‘RTRP’

The IRS Has Better Things To Do than the RTRP Designation

Monday, January 13th, 2014

Recently, there has been some discussion in the tax blogosphere regarding the Registered Tax Return Preparer (RTRP) designation. The IRS wanted to make this a mandatory designation for unenrolled tax professionals (those who are not Enrolled Agents, CPAs, or attorneys). The IRS’s goal of a mandatory designation was challenged in federal court; the IRS lost last January and has appealed the decision (a ruling on the appeal is likely in the next few months).

New IRS Commissioner John Koskinen is proposing that if the IRS loses the court case that the RTRP designation continue as a voluntary program. Just last week the Taxpayer Advocate noted that the budget of the IRS needs to be increased. As I’ve said on a few occasions, that has no chance of happening until the IRS scandal is resolved. The IRS also noted that they may have to use funding from other IRS programs to administer ObamaCare.

Given that the IRS is short of funds, why should the IRS use precious funds to administer a voluntary program given that there are mandatory programs that they must enforce? Indeed, another point mentioned in the Taxpayer Advocate’s report was that identity theft programs at the IRS still need lots of work; that would be a far better use of any money gained by shutting down the mandatory RTRP program.

I also agree with Jason Dinesen: The RTRP program will hurt Enrolled Agents. There’s a saying among economists: If you promote something, you get more of it. If the IRS promotes the RTRP designation, there will be more RTRPs (to the detriment of EAs).

I do understand Robert Flach’s basis behind the idea of a voluntary organization promoting unenrolled (but skilled) tax professionals. I just believe that there’s no compelling reason that the IRS need be promoting this.

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IRS Loses Again to Institute for Justice

Saturday, February 2nd, 2013

Two weeks ago, a court ruled that the IRS had no legal grounds to regulate unenrolled tax preparers. The IRS filed a motion seeking a stay of the court’s injunction against the IRS. Late yesterday, Judge James Boasberg (the same judge who made the ruling two weeks ago) denied the IRS’s motion.

The IRS argued in its motion that the IRS would be irreparably harmed if a stay were not granted. The Court disagreed, and agreed with the Institute for Justice’s argument that most of the money that the IRS has received has been for PTIN registration, not the registration of unenrolled tax preparers. (PTINs–Preparer Tax Identification Numbers–are issued to tax professionals and are noted on every return filed. This identifies the preparer, and helps the IRS search for unscrupulous preparers.) But the PTIN program was never challenged (indeed, such a challenge would likely fail as the PTIN program is specifically authorized by statute), just the RTRP (Registered Tax Return Preparer) program. “As Plaintiffs point out, the IRS’s expenses and staff cover both the registered-tax-return-preparer program and the PTIN program, and Plaintiffs do not challenge the latter.”

The Court then throws cold water on the IRS’s argument of harm to the agency:

The IRS’s liability, moreover, turns on the case’s merits, not on the stay. If the Court issues a stay and its merits decision is affirmed above, then the IRS will be on the hook for even more money in refunds. In any event, why should tax-return preparers continue to pay into a system the Court has found unlawful?

The IRS further argues that there would not be harm to others if the injunction were lifted; one of the points the IRS makes is that Dan Alban’s interview with Kelly Erb in Forbes said that one of the three plaintiffs would prepare returns for this year. (Mr. Alban is the lead attorney for the plaintiffs.) But two plaintiffs would be out of business (at least; the other plaintiff might be going out of business after this tax season). The Court summarized it well:

[I]f the injunction is stayed, then all preparers are faced with a Hobson’s choice: they must decide whether (1) to skip the registration requirements, gambling on an affirmance by the Court of Appeals or a reversal that is issued early enough that they could still fulfill their requirements by the end of the year, or (2) to satisfy the testing and continuing-education requirements, knowing that this might well be wasted time, effort, and expense. The harm is thus considerable.

The IRS also lost on its argument that there would be a harm to the public interest by the injunction; “the granting of the injunction effects far less a change in the landscape of tax preparation than does implementation of the regulations.”

The next step for the IRS is to file an appeal to the Court of Appeals for the District of Columbia. The IRS can ask that court to stay the injunction. However, I suspect the DC Circuit will let the injunction stand until the decision is reached. I think Judge Boasberg’s decision makes sense. In any case, expect the IRS to ask the DC Circuit for a stay of the injunction within the next two weeks, and then expect the case to be argued there (regardless of whether the stay is granted or not) this summer or fall.

UPDATE: I just saw that the IRS has restarted the PTIN registration. Tax professionals do need a PTIN (so do those who are going to take the Special Enrollment Examination to become an Enrolled Agent). It appears that the Institute for Justice’s argument that the PTIN system and the RTRP program were easily separated was dead-on accurate.

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Institute for Justice 2, IRS 0

Friday, January 18th, 2013

Back in December I noted the Institute for Justice’s lawsuit challenging the IRS’ regulations of unenrolled tax professionals (preparers who are not CPAs, Enrolled Agents, or attorneys). The IRS had publicly stated that the lawsuit was without merit. They better rethink that attitude as a federal judge disagrees.

Today, Judge James Boasberg ruled that the IRS has no statutory authority to regulate unenrolled preparers for return preparation. The crux of this case boils down to an 1884 statute on who can practice before the Treasury Department. Section 330(a)(1) states that the Secretary of the Treasury may “regulate the practice of representatives before the Department of the Treasury. [emphasis in opinion]” Section 330(a)(2)(D) allows the Secretary to require that the representative demonstrate…”competency to advise and assist persons in presenting their case. As Judge Boasberg notes,

Section 330(a)(2), like §330(a)(1), does not disclose who those covered “representative” are. But it does tell us what the representatives do — what their “practice” is, in the words of both subsections: representatives “advise and assist persons in presenting their cases.” This statutory equating of “practice” with advising and assisting the presentation of a case provides the first strike against the IRS’s interpretation. Filing a tax return would never, in normal usage, be described as “presenting a case.”

There’s more, though. Judge Boasberg notes that all of the preparer penalties within Title 26 (the Tax Code) wouldn’t be needed if §330(b) covered tax return preparers.

The better answer, consistent with the general/specific canon, is that § 330(b) does not create a comprehensive penalty scheme against tax-return preparers…

Without deciding whether any of these three textual points alone would be dispositive, the Court concludes that together the statutory text and context unambiguously foreclose the IRS’s interpretation of 31 U.S.C. § 330.

The conclusion of the Court is that the IRS overstepped its bounds. Plaintiffs seek declatory and injunctive relief. By failing to object to these remedies, Defendants have forfeited any challenge to them. The Court, moreover, concludes that both remedies are appropriate here.

Plaintiffs first seek a declaratory judgement that Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” brough under Circular 230 by 76 Fed. Reg. 32,286. The Court will grant this declaratory relief.

Plaintiffs also ask the court to permanently enjoin Defendants from enforcing this IRS registration scheme against tax-return preparers. As the scheme is impermissible, such injunctive relief also appears proper…With an invalid regulatory regime on the IRS’s side of the scale and a threat to Plaintiffs’ livelihood on the other, the balance of hardships tips strongly in favor of Plaintiffs. Finally, the public interest would be served by a permanent injunction because the IRS’s new Rule is ultra vires. The Court will therefore grant permanent injunctive relief as well.

While the IRS is certain to appeal, it appears that the RTRP program is dead (at least for now). It will likely take an act of Congress to expand the IRS’s regulatory power to unenrolled preparers. And that’s not likely to happen in the current Congress.

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Sometimes the Cynics Are Right

Monday, December 24th, 2012

Joe Kristan of Roth & Company (a CPA in Des Moines, Iowa, and proprietor of the Roth Tax Update Blog) noted the following this morning:

IRS preparer rules may create a catastrophic preparer shortage. A press release last week from the IRS urging preparers to take the new Registered Tax Return Preparer examination saves the real news until the end (my emphasis):

So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

It’s likely the population of authorized return preparers will crash. That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block. A reduction in preparer supply will increase prices. It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether.

This sparked some interesting tweets on Twitter. (My twitter handle is @russcfox, btw.) Robert Flach asked whether the IRS would really force hundreds of thousands of tax professionals out of business; he’s hoping for ‘grandfathering’ of established tax professionals as RTRPs. Robert is subject to the RTRP requirements (he’s not an Enrolled Agent, CPA, or attorney). Jason Dinesen, an Enrolled Agent in Iowa, responded that he thinks the IRS will extend the deadline. Joe Kristan responded that the reduction in numbers is their goal. I then said, “The cynics are usually right when dealing with government.” I don’t expect grandfathering, I don’t expect an extension, and while I don’t think the IRS’ goal is a reduction in competition, I definitely think that’s an unstated goal of the regulations. Jason then noted that there would be fewer preparers for the IRS to regulate and less competition for H&R Block.

For Robert, the best hope is the lawsuit that was filed by the Institute for Justice and three tax preparers challenging the regulations. The IRS’ institutional mentality is for more regulations, not less. The RTRP program allows for more bureaucrats and a larger budget for the IRS–goals for any Washington government middle manager. The IRS won’t back down unless a court tells them to. I think the lawsuit has a decent chance: There’s nothing in the law stating that the IRS has the right to regulate every tax professional prior to preparing a return. (The IRS absolutely has the right under the law to seek injunctions against tax professionals who are committing fraud, etc. But that’s after a preparer prepares returns, not before he does so.)

I’m cynical about government. My cynicism is a result of seeing how government at all levels has acted since 1983. I remember in debate that anything we proposed would be, “a self-perpetuating program….” Somehow, the idea of a government for the people of a limited size and scope has been lost. Expecting the IRS to act any differently than anybody else in Washington would be shocking.

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