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IRS loses latest round in tax preparer regulation lawsuit

Things have been tough for the Internal Revenue Service recently.

The tax agency has taken some hits from the House Ways and Means Oversight Subcommittee chair (and the public) for two video tapes produced at the IRS' own studio in a Maryland suburb of D.C.

Now an appellate court has refused the IRS' request that an injunction preventing testing of tax professionals be lifted.

GavelIn January, a federal judge nullified IRS regulations that require preparers who aren't lawyers, CPAs or enrolled agents to pass a competency test and take annual continuing education courses.

The registration component of the IRS proposal remains in place.

But the IRS had asked the appeals court to let the testing system resume while the case was on appeal.

But the District of Columbia Circuit Court of Appeals three-judge panel upheld U.S. District Court Judge James E. Boasberg's refusal to lift the injunction against the federal tax preparer licensing/testing program.

In its very brief ruling, the panel said:

Upon consideration of the motion for stay pending appeal, the opposition thereto, and the reply, it is

ORDERED that the motion for stay be denied. Appellants have not satisfied the stringent requirements for a stay pending appeal.

So the IRS' requirements for mandatory tax preparer testing and continuing education remain on hold.

Both sides are set for the eventual court battle -- no date has been set for briefing or oral arguments -- over the IRS' regulatory proposal.

"We will continue to fight the IRS' unlawful power grab on appeal," Dan Alban, the Institute for Justice attorney who is representing the three independent tax preparers who filed the lawsuit against the agency. "Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power."

The IRS, however, insists its effort to ensure tax preparer competency ultimately will be upheld.

"We remain confident in our legal authority and remain committed to protecting taxpayers through implementing reasonable standards in this area," said the IRS in a statement after the appellate ruling. "Our appeal of the original district court opinion is being actively pursued."

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Wishful thinking during the appellate process?

Jay Wiedwald

IRS web-site discussing preparer credentials hasn't been updated since 1/30/13, and still claims testing and credentialing are required.

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