A federal judge on Friday barred the IRS from imposing a series of new regulations, including a competency exam, on hundreds of thousands of tax preparers.
U.S. District Judge James Boasberg in Washington ruled against the IRS in favor of three tax preparers who filed suit last year with the help of a libertarian legal group, the Arlington, Va.-based Institute for Justice.
Since 2011, in response to what it says has been a growing problem of poorly done returns, the IRS has sought to impose a series of new regulations on tax preparers. That included a requirement to pass a qualifying exam, paying an annual application fee, and taking 15 hours annually of continuing-education courses.
Attorneys and certified public accountants would have been exempt from the regulations.
The Institute for Justice argued that the IRS lacked the statutory authority to impose the regulations and said they would put tens of thousands of mom-and-pop tax preparers out of business, because the regulations were onerous and create a competitive disadvantage to the attorneys and CPAs who were exempt.
The judge's order includes an injunction that bars implementation of the regulations, which have been put in place on a piecemeal basis. The competency exam was to have taken effect in 2014.
Dan Alban, an Institute for Justice attorney, said the timing of the ruling is good because tax preparers who could have been put out of business will be able to work during the coming tax season.
"It is also good for the public at large because the cost of preparing a tax return was about to go up" as a result of the increased regulations, Alban said.
Alban called the IRS plan "an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks."
The IRS argued in court that it not only had the statutory authority to impose the regulations, but also had the inherent authority to do so.
An IRS spokesman declined comment Friday on the judge's ruling.
The government can seek to appeal.
Paid tax preparers fill out 60 percent of all U.S. tax returns, according to a study from the Government Accountability Office, a congressional watchdog agency. The GAO has found significant problems over the years in the quality of work done by them. In one 2006 study, the GAO took tax returns to 19 different commercial tax preparers, and 17 of 19 incorrectly calculated the taxes due.