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IRS Can Still Punish Preparer Misconduct Despite 'Loving' Case

The IRS technically does not have the authority to regulate tax return preparers, but it does have enforcement tools to crack down on rampant misconduct and should use them, according to the Treasury Inspector General for Tax Administration.
"Notwithstanding the decision in Loving v. IRS, the IRS has tools to hold incompetent and unscrupulous preparers accountable," the report said, citing a federal appeals court case that found the Internal Revenue Service doesn't have the statutory authority to regulate tax return preparers.
"Collection of tax preparer penalties is not effectively prioritized
or worked given that only about 15 percent of assessed penalties are being collected," the Treasury Inspector General for Tax Administration wrote in an internal audit report released July 30. More than 26,000 recipients of preparer tax identification numbers—required designations given to preparers that meet certain standards for registration—"acknowledged being tax noncompliant," said the report, dated July 25.
The report said the IRS failed to assess more than $121 million in penalties against return preparers without PTINs. Employees in the IRS Return Preparer Office told TIGTA those
assessments would require nearly 326 hours of work and result in lost income tax assessments of $295 million "if applied to the IRS's normal Tax Compliance Officer case work."
The 2014 Loving opinion, decided by the U.S. Court of Appeals for the District of Columbia Circuit, upheld a district court ruling that "the IRS's statutory authority" on these matters "cannot be stretched so broadly as to encompass authority to regulate tax-return preparers." The opinion was written by current U.S. Supreme Court nominee Brett Kavanaugh.