In a move to protect taxpayers from unscrupulous tax return preparers, the U.S. Internal Revenue Service has asked a federal judge to reconsider his earlier order that shut down the agency’s first attempt to regulate the tax return preparation industry.

With up to 700,000 preparers potentially affected, the agency on Wednesday asked U.S. District Judge James Boasberg to suspend a permanent injunction he issued against the IRS program last week.

Boasberg, a judge in U.S. District Court for the District of Columbia, issued his unexpected injunction halting the program late on Friday, throwing the tax preparation industry into disarray days before tax season was slated to begin on Jan. 30.

Thousands of tax return preparers – ranging from independent, “mom and pop” individuals to employees of leading firms such as H&R Block and Jackson Hewitt – have paid hundreds of dollars in fees for a program that is now in limbo.

In response to Boasberg’s injunction, the IRS on Tuesday rescinded registration and testing requirements for preparers that it had begun imposing under the program. Known as the IRS Return Preparer Initiative, it was launched in 2011 to regulate the preparer industry for the first time and to crack down on abuses of taxpayers’ sensitive financial information.

Warning of “substantial disruption to tax administration” from the sudden shutdown, the agency said it planned to formally appeal the judge’s injunction within 30 days.

The Justice Department, which would have to back any IRS appeal, has not yet made a decision, the IRS said.

In ordering his halt to the program, Boasberg said the IRS did not have congressional authority to impose it. His initial injunction came after opponents of the program filed a lawsuit in March 2012, contending the IRS lacked the authority.

MILLIONS SPENT, COLLECTED

The IRS said it has already spent $50 million to get the program up and running. About 100,000 nonprofessional tax preparers have already registered to take a new competency test, and the IRS has collected more than $100 million in fees from the program, the agency said in its court filing.

The IRS warned of class-action lawsuits from tax preparers and breach-of-contract costs if the program remains shut down.

Dan Alban, an attorney with the libertarian advocacy group Institute for Justice, representing the three tax preparer plaintiffs who originally sued over the program, said they will file an opposition to the IRS’s request.

If Boasberg overturns his own injunction now, “it’s only going to make things worse,” Alban said on Thursday.

Tax-preparation business Jackson Hewitt said it supported the IRS and hoped to see the regulations back on track.

“We are certainly in support of all actions to reinforce and set quality preparer standards,” said Mark Steber, chief tax officer for Jackson Hewitt.

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(Reuters)