California Tax Preparers Must Still Meet Rules Despite IRS Court Decision

A judge barred IRS from its tax preparer regulations, but California still has requirements

SACRAMENTO, Calif.--(BUSINESS WIRE)--The Internal Revenue Service announced Thursday it plans to appeal a court’s ruling that it lacks the power to enforce exam and continuing education requirements on certain tax preparers, a decision that affects close to 42,000 California tax preparers.

“The IRS tax preparer initiative is very similar to California requirements as far as its focus on tax education and consumer protection”

“The IRS tax preparer initiative is very similar to California requirements as far as its focus on tax education and consumer protection,” said Mary Beth LaMunyon-Jones, chair of the California Tax Education Council (CTEC), a state-mandated nonprofit organization that registers unlicensed tax preparers.

Last year the IRS started requiring certain tax preparers to complete 15 hours of continuing education each year and pass a competency exam by the end of 2013. Only attorneys, certified public accountants (CPAs) and enrolled agents (EAs) were exempt since they must already meet testing and educational requirements.

In California, paid tax preparers who are not attorneys, CPAs or EAs are required by state law to register with CTEC. CTEC-registered tax preparers (CRTPs) must complete 60 hours of qualifying education, obtain a $5,000 surety bond to protect clients against fraud, plus complete 20 hours of continuing education each year. Despite CTEC’s requirements, the IRS did not exempt CRTPs from its new rules.

“We are getting a lot of phone calls about this IRS ruling. We just keep telling tax preparers that CTEC is still in effect,” said Celeste Heritage, CTEC administrator.

The lawsuit, filed by the libertarian Institute for Justice on behalf of three independent tax preparers, challenged the IRS’ exam and educational requirements on grounds that Congress never gave the IRS authority to regulate tax preparers.

“It was one of the biggest differences between what the IRS was doing and what CTEC is. CTEC has the legislative authority. CTEC is law,” said LaMunyon-Jones.

One portion of the IRS initiative the lawsuit did not challenge was its recent requirement that all paid tax preparers (including attorneys, CPAs and EAs) obtain a Preparer Tax Identification Number (PTIN). It is still unclear if the IRS will continue to enforce the PTIN requirement.

“It was expected the IRS would appeal. They invested a lot into this program as did tax preparers. Many tax preparers, including me, already paid to take the test and have been paying our PTIN renewal fee each year,” said LaMunyon-Jones. “We’ll see what happens.”

CTEC is a nonprofit organization that was established in 1997 by the California State Legislature to protect taxpayers against fraud and incompetent tax preparers. To report illegal tax preparers, visit www.ctec.org or call (877) 850-CTEC for more information.