On Tuesday, February 11, 2014, The U.S. Court of Appeals for the District of Columbia Circuit nixed the Internal Revenue Service’s attempt to regulate commercial tax return preparers, thus upholding a district court decision from last year. As reported on Forbes.com, in an effort curtail tax preparer fraud, the IRS issued regulations in 2011 which required tax return preparers to take a certification exam, pay annual fees and take continuing education coursework. These regulations were legally based upon an 1884 statute that authorizes the IRS to “regulate the practice of representatives of persons before the Department of Treasury.”
Soon after these regulations were put into effect, three independent tax return preparers filed a lawsuit (Loving v. IRS), arguing that these regulations exceeded the authority of the IRS. The federal district court ruled in favor of these independent preparers, and the appellate court has upheld the ruling as well.
WHAT DOES THIS MEAN?
The IRS was attempting to regulate an area of tax preparation due to the numerous cases of return preparer fraud as it is one of the notable “Dirty Dozen Tax Scams of 2013”. Unfortunately, the IRS relied on a very dated statute from 1884 that ultimately did not apply or assist in attempts to over step their boundaries regarding regulation. “The IRS overstepped its legislative mandate, and the judicial branch had to rein in the agency,” says Charles Ruchelman, a tax lawyer with Caplin & Drysdale in Washington, D.C. Despite this setback, many states are now becoming the catalysts for tax preparer regulations, with New York becoming the fourth state to regulate them, effective December 11, 2013.
HOW DOES THIS AFFECT YOU?
The Justice Department issued a press release highlighting its ongoing efforts to shutdown fraudulent tax return preparers and those promoting tax fraud schemes. In the last year, they have obtained permanent injunctions (i.e. – Orders to cease operations) against more than 60 preparers and promoters including Mo’ Money Taxes, a Memphis, TN – based chain and ITS Financial LLC’s Instant Tax Service, as well as independent operators.
Though the IRS can no longer seek to regulate tax preparers as a means to curtail fraudulent activities of certain tax preparers, many states have taken up the slack in terms of regulations efforts to avoid any further damage to unsuspecting tax payers. It is imperative that you are comfortable and are trusting of the companies and persons handling your taxes. This includes hiring a certified public accountant or an accountant with a proven and reliable track record.
Rashida Maples, Esq. is Founder and Managing Partner of J. Maples & Associates (www.jmaplesandassociates.com). She has practiced Entertainment, Real Estate and Small Business Law for 9 years, handling both transactional and litigation matters. Her clients include R&B Artists Bilal and Olivia, NFL Superstar Ray Lewis, Fashion Powerhouse Harlem’s Fashion Row and Hirschfeld Properties, LLC.
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