Filing season update: tax preparer regulation, IRS staffing

The IRS has now begun processing tax returns for early filers. But whether you have filed your taxes or not, it remains important to keep informed about tax issues. This year, one of those issues is the status of professional tax preparers. Another is the possibility that the IRS, along with other federal agencies, may experience significant budget cuts if Congress and the President do not reach an agreement to prevent them.

Most Americans rely on tax preparers to get tax returns completed and filed on time. As the percentage of taxpayers who use preparers has increased, the IRS has been seeking to expand its regulation of tax preparers. We wrote about these requirements in our December 27 post.

But the IRS’s efforts at imposing registration, testing and continuing education requirements for professional preparers have met with legal challenges. Indeed, last month a federal judge found that the IRS had gone beyond its authority. The case was brought by several independent tax preparers who contended the regulations were overly burdensome and put them at a disadvantage in competing with larger tax preparation companies.

It is possible that Congress will step in to clarify the IRS’s role in regulating tax preparers. And the IRS is expected to appeal the federal judge’s ruling. For now, however, there is much that remains unresolved about the degree to which the IRS can issue regulations for tax preparers.

Meanwhile, the IRS is bracing for the possibility that, like all federal agencies, it could experience serious budget cuts unless Congress acts by March 1 to stop across-the-board cuts. The cuts were called for in 2011 legislation that raised the nation’s debt ceiling. The fiscal-cliff deal six weeks ago did not forestall them.

If such cuts happen, it will definitely affect the ability of the IRS to perform tax audits. We will therefore continue to monitor this story as it unfolds.

Source: “Judge rules against IRS again in tax preparer suit,” The Plain Dealer, 2-1-13

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our page on IRS audits and appeals.