This hasn’t been a good year for the IRS. Everyone is aware of the current scandal involving the IRS’s regulating tax-exempt 501(c)(4) organizations. However, only the tax preparer community and regulators have generally followed Loving et. al. v. IRS et. al. Back in January, the plaintiffs–three “unenrolled” tax professionals–won an injunction against the IRS’s scheme to regulate tax professionals. The IRS has appealed the decision, with the case to be heard this fall by the Court of Appeals for the District of Columbia.
Both the IRS (the appellants) and the unenrolled tax professionals (the appellees) have filed briefs to the DC Circuit. I joined an amicus curiae (literally, “friend of the court”) brief with fellow tax bloggers Joe Kristan and Jason Dinesen along with the Tax Foundation (and others).
My professional society, the National Association of Enrolled Agents (NAEA) is very much in favor of the regulations. Indeed, in last week’s newsletter (distributed by email to members of the NAEA) there were several paragraphs on Loving. As for what the NAEA would like:
Unfortunately for those who believe IRS should be providing some minimal oversight to a multi-billion dollar business conducted in part at kitchen tables by those who believe the costs of education would kill their business model, the fact that attorneys for the plaintiff/appellee don’t appear to know very much about either taxation or representation is probably not a significant stumbling block for their case, which centers on whether IRS has authority under Circular 230 to regulate return preparers.
So why am I against the IRS regulating unenrolled tax professionals? Quoting from the brief:
As an Enrolled Agent, Mr. Fox is not directly affected by the regulations. Nevertheless, based on his extensive experience in tax practice, he has a number of objections to the regulations. In addition to the defects in the regulations described by the district court, the plaintiffs-appellees, and this brief, Mr. Fox objects to the regulations because the IRS already has ample statutorily authorized tools to apply against incompetent or unscrupulous tax-return preparers; because the regulations will not be effective in eliminating incompetent or unscrupulous tax-return preparers; because they will give a tacit stamp of approval to preparers who are not competent; because they will have the effect of driving many low-volume tax-return preparers out of business, thereby increasing the cost of tax-return preparation services for the clients of those preparers; and because administering the regulations will require scarce IRS resources that could be better used for other purposes, such as combatting identity theft.
There’s another reason, too: I don’t believe the IRS has the authority to regulate tax professionals. I believe that the Institute for Justice (the non-profit that has provided the legal counsel for the plaintiffs-appellees) is absolutely correct that the IRS doesn’t have authority to regulate tax professionals. That’s not covered in the amicus curiae brief because those arguments are part of the plaintiffs-appellees brief.
My fellow tax bloggers also have good reasons for joining the amicus curiae brief. Jason Dinesen:
As an Enrolled Agent, Mr. Dinesen is not directly affected by the regulations. Nevertheless, Mr. Dinesen believes the regulations would have an indirect adverse effect on his business (and on Enrolled Agents generally) because the Registered Tax Return Preparer designation created by the regulations would have the effect of diminishing the value of the Enrolled Agent designation in the market for tax-preparation services, largely because the number of Registered Tax Return Preparers would be substantially greater than the number of Enrolled Agents.
As a CPA, Mr. Kristan is not directly affected by the regulations. Nevertheless, based on his longstanding and extensive experience in tax practice, Mr. Kristan has a number of objections to these regulations. In addition to the defects in the regulations described by the district court, the plaintiffs-appellees, and this brief, Mr. Kristan objects to the regulations because they will reduce options for consumers of tax-preparation services by driving many low-volume but competent and conscientious tax-return preparers out of business because of the cost of compliance with the regulations; will increase the compliance cost and burden on low-volume tax-return preparers that remain in business; will increase the cost of tax preparation services without increasing the value of those services; will prompt some low-income individuals to resort to tax-return preparers who will evade compliance with the regulations; will prompt some low-income individuals to prepare their own returns, rather than using paid preparers, resulting in less accurate returns; will prompt some low-income individuals to cease filing altogether; will adversely affect Enrolled Agents by diminishing the value of their Enrolled Agent designation; and will likely ultimately be extended to CPAs, attorneys, and Enrolled Agents.
Both Jason and Joe note that the proposed RTRP (Registered Tax Return Preparer) designations would diminish the Enrolled Agent credential. I agree with that, though I think this is less of an issue for my business because I’m established. For potential new EAs competing against the possible huge numbers of RTRPs, this could be a real issue.
Additionally, the Tax Foundation joined the brief because, “[T]he Tax Foundation believes the costs of the regulations substantially exceed potential benefits.” Two unenrolled preparers, Tonda Gordon and Dennis Tafelski, also joined the brief. Ms. Gordon noted that she would be adversely effected (she had to increase her fees) and, “Ms. Gordon objects to the regulations because they are unnecessary, since, in Ms. Gordon’s experience, most tax return preparers to whom the regulations apply are competent and conscientious; and because the regulations are not targeted to the problems they are intended to address but instead are broadly applicable to many situations where no problems exist.” Mr. Tafelski’s objections are also germane:
In addition to the defects in the regulations described by the district court, the plaintiffs-appellees, and this brief, and the direct effects of the regulations on him, Mr. Tafelski objects to the regulations because they will result in substantially increased tax-return preparation fees for the types of retired individuals for whom Mr. Tafelski has prepared returns; because they contain no exemption for low-volume preparers such as himself; because the regulations’ exemption for attorneys and CPAs is unwarranted because of the normal absence of tax-specific continuing education requirements for attorneys and CPAs; and because the IRS has seldom made use of its existing statutorily authorized tools for regulating tax-return preparers, such as the tax-return preparer penalty.
The next brief due is the IRS’s reply brief to the plaintiffs-appllees brief. That’s due in a couple of weeks. The arguments in the case will likely be heard this fall.