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IRS Regulation of Tax Preparers to Be Challenged in Lawsuit

March 12, 2012

A nonprofit group plans to sue the Internal Revenue Service and argue that the agency’s effort to regulate tax-return preparers is unlawful.

The Institute for Justice, an organization in Arlington, Virginia, that seeks to protect individual liberties, said in a statement it will file the lawsuit tomorrow in U.S. District Court in Washington.

“They’re wildly overextending their actual authority granted by Congress,” said Dan Alban, an attorney at the institute who is representing three tax-return preparers.

The IRS regulations, which are scheduled to take effect incrementally over the next several years, require tax-return preparers to pass a competency test and meet continuing education requirements.

Last week, the IRS said it had begun sending test results and certificates for those who have become registered tax-return preparers.

Alban said the regulations benefit attorneys, certified public accountants, enrolled agents already granted authority to practice before the IRS and large tax-preparation chains such as H&R Block Inc. (HRB) Those groups either have been exempted from some of the rules or have economies of scale that give them an advantage over independent preparers.

The IRS doesn’t comment on potential or pending litigation, Grant Williams, an agency spokesman, said in an e-mail.

Reducing Tax Fraud

In a November 2011 speech to the American Institute of Certified Public Accountants, IRS Commissioner Douglas Shulman said the return-preparer program would improve compliance and limit tax fraud.

“Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers,” he said.

Alban said the IRS could accomplish those goals with return-preparer registration rules that the lawsuit won’t challenge and with existing penalties for tax fraud and other infractions.

Edward Karl, vice president for taxation at the certified public accountants group, said accountants and other professionals already have extensive testing and continuing- education standards.

“I do understand why folks who have done this for years and feel that they’re competent don’t want to change,” he said.

To contact the reporter on this story: Richard Rubin in Washington at

To contact the editor responsible for this story: Jodi Schneider at

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