Court ruling catches Vt. tax preparers by surprise
David Nelson had spent some money and more than a little time prepping for last week’s exam.
But a little more than a week before the test to become a registered tax return preparer, a federal court threw out the Internal Revenue Service program to register preparers.
The U.S. District Court for the District of Columbia sided with three tax preparers who sued the IRS, claiming the agency did not have the authority to force their registration.
In response to the Jan. 18 decision, the IRS suspended its continuing education and testing requirements for unlicensed tax return preparers.
Nelson, who has prepared tax returns for 40 years, was surprised and disappointed by the ruling. It leaves Nelson, and others who have prepared but not taken the exam, in limbo.
The Rutland tax preparer said he took 15 hours of continuing education courses to prepare for the exam. The exam cost him an additional $116.
Although Nelson and other unlicensed tax preparers can continue operating, Nelson said what’s “disturbing for me is that I have all of this time and energy and money that I sacrificed to put into it and they suspended the exam. I can’t even take the exam if I want to or not.”
While the future of continuing education and testing remain in limbo, Kim Loewer, president of the 150-member Vermont chapter of the National Association of Tax Professionals, said regardless of whether the IRS wins its case on appeal, the time and money spent for the courses is worth the investment.
“I think my position here would be that everyone needs to be a registered tax return preparer,” Loewer said. “There has to be a certain minimum level of competency.”
Loewer, of Loewer & Associates in Middlebury, said every other profession has some kind of licensing procedure, whether it’s lawyers, doctors or cosmetologists.
“I think that education is critically important especially for a tax return preparer because of the fact that the tax laws change so frequently,” he said.
Loewer said the IRS exam to become a registered tax return preparer is meant to meet minimum competency standards.
Before last month’s court decision, unlicensed tax preparers had until Dec. 31, 2013 to pass the exam to become a registered tax return preparer. The IRS program also required 15 hours of continuing education a year.
The IRS already has in place higher certification standards to become what’s known as an enrolled agent. Certified public accountants and lawyers also have their own competency requirements.
Under existing IRS law, enrolled agents, lawyers, accountants. enrolled actuaries and enrolled retirement planners can advise and represent taxpayers before the IRS.
Because a tax return preparer cannot practice before the IRS, the court ruled that the agency has no authority to require continuing education and licensing.
Loewer said the court did not dismiss the importance of regulating tax preparers when in any year there are 80 million tax returns filed.
At Fothergill Segale & Valley, the Montpelier certified public accounting firm employs seven or eight unlicensed tax preparers. Jeff Fothergill said all have taken the continuing education courses but none have yet taken the exam.
The move by IRS to register tax return preparers continued to allow unlicensed tax preparers of CPA firms to prepare taxes but added the condition that the return now had to be signed by a CPA. But Fothergill said his firm encouraged his tax preparers to take the required courses and take the exam.
“In our case, and we may be the exception to the rule, I don’t know, but in our case we allow and want our employees to sign the tax returns they prepare, whether they’re a CPA or not,” he said.
According to the IRS, as of October, there were 1,411 tax preparers in the state. Of that number, there remained 472 who had to become either a registered tax return preparer or an enrolled agent. Nationwide, there are 717,463 tax preparers. Less than half had taken the exam to become a registered tax preparer or an enrolled agent.
The state Tax Department continues to support the IRS registration effort and is monitoring the court case, said department spokesman Michael Costa.
But Costa also said with rare exceptions the state’s tax preparers do a competent job for their clients.
“We’re really fortunate in Vermont that our tax preparers by and large do an excellent job in helping folks prepare their taxes,” he said.
Nelson said the IRS has the right idea to have tax preparers adhere to a minimum set of standards.
“The courses I took and the time I put in to turn over stones that perhaps I haven’t looked out in quite a while I think were very informative,” he said. “I think the IRS will do whatever they can to get this reinstated one way or another.”
Fothergill added that staying on top of the tax code isn’t easy with 5,000 changes in just the last 10 years. He said the changes mandated by the fiscal cliff law passed by Congress in just the latest example.
The IRS, which has asked the court to lift the injunction, said it would file an appeal.
“The IRS, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” the IRS said in a statement following the court ruling.
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