On February 11th, 2014, the US District Court of Appeals for the District of Columbia Circuit issued its ruling in Sabina Loving et. al. v IRS et. al.  Writing on behalf of the court, Judge Kavanaugh summarizes:

“We agree with the District Court that the IRS’s statutory authority under Section 330 cannot be stretched so broadly as to encompass authority to regulate tax-return preparers. We therefore affirm the judgment of the District Court.” 

The court lists and explains 6 reasons to support its opinion:

1. The court does not accept the IRS argument that tax preparers are “representatives of persons.”
2. While tax preparers could be deemed to have a “practice”, it is not a “practice….before the Department of Treasury.”
3. The court disagrees with the IRS’s reading of the history of Section 330. The history of Section 330 does not support the IRS’s interpretation.
4. The IRS’s interpretation is inconsistent with the “broader statutory framework” and would make existing laws for regulating tax return preparers essentially unnecessary.
5. Courts should tread lightly when interpreting congressional intent in a manner that would empower an agency to make major political or economic decisions.
6. The IRS never before claimed that Section 330 authorized the agency to regulate tax-return preparers.  While an agency may update the interpretation of statutes it administers, it is clear that no previous IRS administration claimed this authorization because it is incorrect to do so.

It is not known at this time if the IRS plans an appeal.  You may read the full text of the ruling below.

Document Links

Ruling: Sabina Loving et. al v IRS et. al.

In the October 2013 issue of Tax Notes, former IRS Commissioner Lawrence B. Gibbs argues that the District Court erred when it ruled in Loving v. IRS that the Treasury had no authority to regulate currently unregulated commercial preparers.  The article, which originated as a presentation at Villanova’s Annual Law Review Symposium, makes the following points:

• The language and history of the statutes authorizing Circular 230 regulations make it difficult to believe that Congress intended to authorize the Treasury to regulate tax professionals who interact with the IRS regarding returns that have already been filed, but not the tax professionals that prepare those returns.
• Tax preparation is indeed “representation” and that a tax professional preparing a return is analogous to an attorney preparing a will, both clearly representational activities. People could do it themselves, but they often engage a professional to advise, assist and prepare the documents.
• That since Plaintiffs and Defendants have each presented differing interpretations of the key statutory phrase of section 330(a), “the practice of representatives of persons before the Department of the Treasury,”  the phrase should be considered “ambiguous.” Therefore the federal court must accept the IRS’s interpretation as correct under the precedent for determining whether to grant deference to a government agency’s interpretation of a statute set forth by “Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc”

The full Tax Notes is available in the documents links section below. It has been filed with the U.S. Court of Appeals for the District of Columbia Circuit by Appellants under Federal Rules of Appellate Procedure, Rule 28j.

Document Links

• Appellants’ filing letter (IRS et. al.)
• Tax Notes article
• Appellees’ response letter (Sabina Loving et. al.)

Oral arguments for Loving v IRS were held in the US District Court of Appeals for the District of Columbia Circuit on September 24th, 2013.  Judges Kavanaugh, Williams and Sentelle questioned lawyers for Appellants and Appellees on a variety of subjects, but focused primarily on the definition, history, and legislative intent of the terms “representation” and “presenting a case.” An audio recording of the complete oral arguments is freely available on U.S. Court of Appeals for the District of Columbia Circuit website.

Appeal Documents

• U.S. Court of Appeals Oral Arguments
• Reply Brief for the Appellants (IRS et. al.)
• Amici Curiae in Support of Plaintiffs-Appellees
• Brief of Plaintiffs – Appellees (Sabina Loving et. al.)
• Brief Amici Curiae of Former Commissioners of Internal Revenue
• Brief for Amici Curiae National Consumer Law Center and National Community Tax Coalition 
• Brief for the Appellants (IRS et. al.)