* IRS Return Preparer Initiative ruled "invalid" -judge
* Up to 700,000 people potentially affected
By Patrick Temple-West
WASHINGTON, Jan 18 In a surprising blow to the
U.S. Internal Revenue Service, a federal judge on Friday barred
the agency from regulating thousands of non-professional tax
return preparers, throwing into doubt a multimillion-dollar
enforcement program already underway.
The implications for the upcoming tax season were not
immediately clear. But an attorney representing plaintiffs in
the case said the decision would allow unregulated tax preparers
to once again file taxes beginning on Jan. 30.
The decision from the U.S. District Court for the District
of Columbia granted the plaintiffs a permanent injunction to
stop the 2011 IRS tax return preparer regulatory program.
The ruling could affect up to 700,000 tax return preparers
- ranging from independent "mom and pop" preparers to employees
for H&R Block Inc and Jackson Hewitt.
Regulating tax preparers was a top priority for former IRS
Commissioner Doug Shulman before he stepped down in November.
An IRS spokesman had no immediate comment late on Friday.
Shulman in 2009 called for an IRS effort to root out tax
preparation fraud. The IRS Return Preparer Initiative began in
2011. It requires tax preparers to register with the IRS. It
also requires preparers, especially those without other
professional credentials, to pass competency tests and take
classes to maintain their IRS registration.
The agency requested $35 million from Congress for the
program in President Barack Obama's fiscal 2013 budget and has
already awarded federal contracts for the program.
A key question ahead for the government will be whether or
not to appeal the decision, said Robert Kerr, senior director of
government relations for the National Association of Enrolled
Agents, a tax-preparers trade group.
"Clearly the decision will be surprising to the tax
preparation community," Kerr said. "It does raise fundamental
questions about what happens next," adding it would be
surprising if the government does not appeal the decision.
'STRAIGHT-UP POWER GRAB'
In March 2012, three independent tax preparers and the
Institute for Justice, a conservative civil-liberties advocacy
group, challenged the program's legal authority. They a c cused
the IRS of enforcing the requirements without congressional
The IRS said a law dating to 1884 gave it that authority,
but the court disagreed.
"With an invalid regulatory regime on the IRS's side of the
scale and a threat to plaintiff's livelihood on the other, the
balance of hardships tips strongly in favor of plaintiffs,"
wrote Judge James Boasberg, who was nominated by Obama in 2010.
"The IRS was really overstepping its statutory authority,"
Dan Alban, an attorney for the Institute for Justice, said in an
interview on Friday. The Return Preparer Initiative "was a
straight-up power grab."
"The decision came down in time for tax preparers who
otherwise would have had to close their shops (to) open back up
again and operate in the 2013 tax season," Alban said.
The IRS wants to weed out dishonest tax preparers who can
abuse their access to clients' sensitive financial data. Before
the IRS launched its program, there was no federal oversight of
the tax preparation industry.
The case is Sabina Loving, et al, v. Internal Revenue
Service, U.S. District Court for the District of Columbia, No.