Ruling Poses New Tax-Filing Snag

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Published January 28, 2013

| Bankrate.com

Just when you thought the 2013 federal tax-filing season couldn't get any weirder, it has.

Late last week, a federal judge ruled that the Internal Revenue Service doesn't have the authority to regulate tax preparers. As part of his decision, Judge James Boasberg of the U.S. District Court for the District of Columbia also issued an injunction against the IRS preventing it from implementing its tax preparer registration and competency testing system that the agency has been phasing in since 2011.

Now the IRS is fighting back.

The Department of Justice has filed a motion with Boasberg asking that he suspend his injunction while the tax agency appeals it.

Federal lawyers argue that the IRS has a "reasonable likelihood" of winning its appeal and that the public will suffer "irreparable harm" if his injunction isn't suspended. With tax-filing season set to finally begin Jan. 30, Uncle Sam's attorneys say the injunction will cause a "substantial disruption to tax administration" and "massive confusion" for both tax preparers and the public.

So what does all this legal wrangling mean to us taxpayers who just want to get our returns to the IRS so we can get our refunds? In most cases, despite the arguments in the IRS court filing, not that much.

The only problem that some taxpayers might encounter is if their paid tax preparer didn't obtain or renew his or her Preparer Tax Identification Numbers, or PTIN.

Although the IRS has halted PTIN issuance in the wake of the Boasberg ruling, another federal court earlier held that the PTIN and its associated fee are legal. Based on that decision from the Eleventh Circuit, the IRS set up its tax return filing system to require a PTIN from paid preparers.

Without the ID number, a tax preparer cannot file returns for clients.

Most paid tax preparers got or renewed their PTINs before the end of 2012, says Cindy Hockenberry, a manager with the National Association of Tax Professionals. But those who procrastinated are out of luck right now, as are their clients.

And, says Hockenberry, given that there will be a rush of filers when the delayed tax season opens in less than a week, some tax preparers may have just hired additional staffers who need, but now can't get, their PTINs to do their jobs. "It's certainly not their fault that they can't get their PTINs. There was no way to see this coming," she says.

The IRS has promised to issue additional PTIN guidance "in the near future." Your guess is as good as mine as to what time frame is considered near future.

If the IRS can't convince Boasberg to suspend his injunction for as long as it takes his legal peers to review it, the agency asked Boasberg to suspend it for at least 14 days so that the U.S. Court of Appeals for the District of Columbia can take a look at the matter.

Hockenberry suggests another option for the Internal Revenue Service.

"I'm surprised the IRS didn't have a member of Congress include a provision in the debt ceiling bill giving them authority to regulate prepares," she said.

Hmmm. Are you listening IRS? The Senate doesn't vote on the debt ceiling bill until next week. You might want to send some of your legislative folks to Capitol Hill ASAP.

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