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This issue has finally migrated over here. I've been batting it around with other tax professionals on another board for the last week.

The suit was over the IRS's ability to regulate all tax preparers. While only attorneys, CPAs and EAs have been able to represent taxpayers in audits and other matters with the IRS for many years, pretty much anyone could hang up a shingle and call themselves a tax preparer. The only restrictions on being a tax preparer have been at the state level.

So a couple of years ago, the IRS announced a plan to start regulating every tax preparer. They were to become Registered Tax Return Preparers, or RTRPs. To be an RTRP, you had to pass a competency exam. Then you would need some continuing education annually. Without this, you could not prepare tax returns.

A couple of preparers balked at this system, and sued the IRS. Last Friday, they won and a judge issued a permanent injunction against the IRS prohibiting them from implementing the RTRP program.

Needless to say, this has caused some confusion.

There are something like 700,000 or 800,000 unregistered tax preparers in the country. They outnumber the total of CPAs, EAs, and attorneys signing tax returns by something like 2 or 3 to one. That's a lot of people who need do nothing other than buy a copy of TurboTax to be in business.

Granted, a great many of these preparers do a fine job. But the IRS has been out to improve the quality of tax preparers for a number of years. This mandatory program was their attempt at enforcing some standards on the industry.

We'll have to see where things go from here. If I had to make a guess, it would be that the RTRP program survives, but becomes voluntary rather than mandatory. That would have to be followed up with some significant taxpayer education efforts by the IRS to explain to Joe six-pack why they should use one of these designated professionals (RTRP, EA, CPA, lawyer) to prepare their taxes rather than an unregistered preparer.

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