Monthly Archives: January 2013

IRS To Accept Returns Claiming Education Credits by Mid-February

As preparations continue for the Jan. 30 opening of the 2013 filing season for most taxpayers, the Internal Revenue Service announced today that processing of tax returns claiming education credits will begin by the middle of February.

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.

The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. People otherwise able to file and claiming these benefits can start filing Jan. 30.

As it does every year, the IRS reviews and tests its systems in advance of the opening of the tax season to protect taxpayers from processing errors and refund delays. The IRS discovered during testing that programming modifications are needed to accurately process Forms 8863. Filers who are otherwise able to file but use the Form 8863 will be able to file by mid-February. No action needs to be taken by the taxpayer or their tax professional. Typically through the mid-February period, about 3 million tax returns include Form 8863, less than a quarter of those filed during the year.

Issue Number: IR-2013-10

The IRS remains on track to open the tax season on Jan. 30 for most taxpayers. The Jan. 30 opening includes people claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction. Forms that will be able to be filed later are listed on
Updated information will be posted on

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Posted by on January 31, 2013 in New Rulings, Tax News


IRS Loses Lawsuit Challenging Authority to Regulate Tax Preparers

In a stunning blow to the Internal Revenue Service’s efforts to regulate the tax preparation profession, a federal judge struck down the IRS’s licensing requirements for tax preparers on Friday, including testing and continuing education.

Three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—joined forces with the Institute for Justice, a libertarian public interest law firm, in filing suit against the IRS in the U.S. District Court for the District of Columbia.

U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers in enjoining the agency against enforcing its Registered Tax Return Preparer requirements.

“Today’s ruling is a victory for hundreds of thousands of tax preparers across the country and the tens of millions of taxpayers who rely on them to prepare their taxes,” said lead attorney Dan Alban. “This was an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks. The court ruled today that Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.”

The opinion is available online at The court enjoined the IRS from enforcing its new licensing scheme for tax preparers. The ruling does not affect CPAs, Enrolled Agents and tax attorneys, who were exempted from the RTRP regime as they are already regulated under Circular 230 requirements.

“Through these regulations, the IRS set itself up as king and sought to license hundreds of thousands of tax preparers without being authorized to so do under the law,” said Institute for Justice senior attorney Scott Bullock. “But as Judge Boasberg noted, under our system of law, ‘statutory text is king.’”

Former IRS Commissioner Doug Shulman made tax preparer regulation a priority, aiming to root out tax preparers who were unqualified, filed fraudulent refund claims and even cheated clients, with the further goal of improving tax compliance. Shulman ended his term last November and is now a guest scholar at the Washington, D.C., think tank, the Brookings Institution. His successor, IRS Acting Commissioner Steven T. Miller will now have to deal with the fallout from the lawsuit.

Boasberg recognized that the IRS recently did a “flip-flop” with regard to its ability to license tax preparers, the Institute for Justice noted, declaring for years it did not have the authority to do so but only recently claiming that it did have that power.

The IRS can appeal the ruling to the U.S. Court of Appeals for the District of Columbia Circuit. The IRS had no immediate comment on the ruling, according to IRS spokesman Dean Patterson.

“They may very well appeal, but the District Court ruled that the IRS is enjoined from enforcing the RTRP licensing regulations,” said Alban. “Assuming the ruling stands, tax preparers no longer are going to need to comply with the IRS licensing requirements. It returns things to the way they were before the IRS passed those regulations in the first place. No longer do you have to get the IRS’s permission to work as a tax return preparer.”

He noted that the IRS’s continuing education requirements only just went into effect on January 1. “The timing on this really couldn’t have been any better,” said Alban. “Tax preparers should be able to prepare tax returns in this 2013 tax season without getting permission from the IRS. Tens of thousands of tax preparers who would have otherwise been put out of business, including two of our clients, can now continue to prepare returns.”

All three prongs of the IRS tax preparer regulation regime were affected by the ruling, including the testing, continuing education and RTRP registration requirements. However, the Preparer Tax Identification Number, or PTIN, which is part of the registration requirements, is not affected by the lawsuit.

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

It is unclear how the IRS will deal with tax preparers who were scheduled to take the competency exam. “I don’t know how the IRS is going to wind things down,” said Alban. “As of the court’s ruling today, those regulations are null and void. Tax preparers don’t have to take that exam and they don’t have to comply with those regulations. The court ruled that these regulations did not have statutory authority.”

Judge Boasberg found that the text of the relevant statute does not support what the IRS claims as its authority to regulate tax preparers.

“Without deciding whether any of these three textual points alone would be dispositive, the Court concludes that together the statutory text and context unambiguously foreclose the IRS’s interpretation of 31 USC Section 330,” the judge wrote, adding, “The IRS also makes a number of nontextual arguments in favor of its interpretation, but none of these can overcome the statute’s unambiguous text here. In the land of statutory interpretation, statutory text is king.”

“They found that the IRS misinterpreted the statute and was basically trying to use it to expand its own authority in ways that the statute didn’t authorize,” said Alban. “On the first page of the opinion, they said that ‘the statute’s text and context unambiguously foreclose the IRS’s interpretation.’”

“With an invalid regulatory regime on the IRS’s side of the scale and a threat to plaintiff’s livelihood on the other, the balance of hardships tips strongly in favor of plaintiffs,” Boasberg wrote later in the ruling.

There was no trial in the case because there were no disputed facts, Alban noted. The ruling came after cross-motions for summary judgment. The lawsuit was originally announced in March (see Tax Preparers Sue IRS over New Requirements). The Institute for Justice filed a motion for summary judgment in September, and the IRS filed a cross-motion for summary judgment in October. “We trialed a couple of reply briefs, and that was it,” said Alban. “It was just in front of the court on the papers to rule on the case.”

The IRS had argued that the statute was unambiguous and could be read expansively to give the agency the authority that it claimed. “They also claimed that they had inherent authority as an agency to regulate anything related to what they do and the court rejected both of those arguments,” said Alban.

On the first page of the opinion, the court said, “Agency action, however, requires statutory authority. The IRS interpreted an 1884 statute as enabling these new regulations. That statute allows the IRS to regulate ‘representatives’ who ‘practice’ before it. Believing that tax-return preparers are not covered under the statute, and thus cannot be regulated, Plaintiffs—three independent tax-return preparers—brought this suit.”

“That was pretty much the basis of its decision,” Alban explained. “An agency can’t act without statutory authority, without Congress giving them authorization to do something.”

If the IRS appeals the ruling, which it is almost certain to do, Alban said the Institute would then argue the case in front of the D.C. Circuit court, and to higher courts if necessary. “If the IRS loses again in front of the D.C. Circuit, we’d be happy to argue it in front of the Supreme Court if they take the case. But all of that is speculative. I have no idea if the IRS is going to appeal the decision on this. We’ll certainly take it as far as it goes. We’re willing to represent the rights of independent tax preparers.”

Washington, D.C. (January 18, 2013)
By Michael Cohn


Posted by on January 20, 2013 in New Rulings, Tax News


Fiscal Deal Passes As House GOP Clown Car Crashes, Again

Observing the Congressional Republicans repeatedly stumble in and out of their caucus clown car, blowing loud kazoos and muttering angry threats, should be painful, embarrassing, and highly instructive to any American voter with the patience to watch.  When their latest performance concluded late Tuesday night with a 257 to 187 vote passing the stopgap fiscal deal negotiated by the Senate and the White House, an unavoidable question lingered: What is wrong with those people?

The simple explanation is that the House of Representatives has increasingly been dominated over the past two decades by a coterie of tantrum-prone extremists, who lack the probity and steadiness required for democratic self-government. Their diminished capacity is reflected in the low quality of leadership they have chosen during this long twilight, from Newt Gingrich, Dennis Hastert and Tom DeLay to John Boehner and Eric Cantor, even as their politics have grown more and more extreme.

Under the stress of their incoherence, the Republican caucus is unable to escape one humiliating mess after another. The damage they routinely inflict on the country’s economy and future is reaching incalculable levels – and is almost certain to grow worse when they again hold the debt ceiling hostage next month.

By the end of the current episode – which is only an interlude rather than a true resolution – the top Republicans in the House had split, with Boehner casting a rare vote in favor, and House Budget Committee chair and former vice-presidential nominee Paul Ryan (R-WI) voting yes, along with 84 fellow Republicans and almost all of the House Democrats, while House Majority Leader and would-be Speaker Eric Cantor (R-VA) voted no. On the floor, House Ways and Means chair Dave Camp (R-MI) tried to claim that this bill is “the largest tax cut in history,” although he might have difficulty explaining why more than 150 Republicans voted against it.

The Republicans’ incompetence in government is inextricably connected with their ideological extremism, as the latest events demonstrate. Hogtied by the craziness of the ultra-right Tea Party faction, the House GOP leadership cannot even cooperate with other Republicans in the Senate – who overwhelmingly voted for the “cliff” deal negotiated with Vice President Joe Biden – let alone conduct serious discussions with the White House.

Having refused to support the leadership’s “Plan B” scheme to raise taxes only on households making $1 million or more annually – despite confident claims by Boehner and Cantor that they had counted the necessary votes — the Republican caucus made both themselves and their leaders look ridiculous. It was a dreadful right-wing plan, but still much too liberal for too many of them. Tacitly acknowledging that he could no longer manage his restless wingnuts, Boehner insisted that the Senate and White House should come up with an emergency measure on their own.

Yet when the Senate leadership, including Minority Leader Mitch McConnell, offered a bill negotiated with Vice President Joe Biden — just as Boehner had urged — the House Republicans descended into crisis. Their leaders couldn’t endorse the bill, fearing that the GOP caucus crazies would defenestrate them. But they could hardly employ their usual partisan tactics to keep the bill off the House floor, after the Senate had passed it by a vote of 89-8, with only five Republican defections. They might have noticed as well their declining numbers in every public poll, with the latest Republican-leaning Rasmussen survey showing a Democratic lead in the generic congressional contest of 11 points and climbing.

Astonishingly, they nevertheless wasted several hours debating whether to amend the bill with new spending cuts and then send it back to the Senate, where leaders of both parties would have surely and justly rejected such tardy handiwork. Consistent only in their ineptitude, the House Republicans were reportedly unable to agree among themselves on exactly how to change the bill, in any case.

Finally, they folded – or at least their leaders did – and proclaimed that they were girding themselves for the battles to come over the budget and the debt ceiling, which have now been postponed for another month or so.

The deal itself is not a bad one, from the Democratic perspective, raising significant new revenues from the wealthiest taxpayers and excluding any “grand bargain” (or raw deal) to weaken Medicare, Social Security and Medicaid. Its specific provisions are still far too generous to the highest-income taxpayers and will not, in the long run, raise enough revenue to sustain decent government, rebuild the nation’s infrastructure, and prepare for the future.

The struggle over what government should do and how to pay for its functions continues, almost immediately. And perhaps soon the president and his party will explain, without hesitation, what this brief tumble over the “cliff” has shown us, and what we may hope they have finally learned: That there is no negotiating partner among the House Republicans, who must be defeated if progress is to be possible.

January 2nd, 2013  12:25 am Joe Conason

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Posted by on January 2, 2013 in Tax Relief