No Appeal in Loving v. IRS

The IRS took no action in the matter of Loving v IRS and allowed the May 12th deadline for filing a Supreme Court appeal to pass.

In January of 2013, a federal court judge ruled that Congress had never granted the IRS authority to regulate tax return preparers, and in February of this year, the US District Court of Appeals for the District of Columbia Circuit agreed.  Writing on behalf of the court, Judge Kavanaugh summarized, “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.” 

Further appeal was seen as unlikely as there was no disagreement between the district and appeals court. In addition, IRS Commissioner, John Koskinen, previously indicated in several interviews and testimony before Congress that, though the IRS was still reviewing options, a voluntary program seemed the best approach moving forward. “The idea of a voluntary program is under consideration because we believe it is important to maintain the momentum for regulation and oversight of unregulated preparers that has built up over the last five years, and to lessen the risks to taxpayers resulting from the lack of federal education requirements.

You may read the full text of IRS Commissioner Koskinen’s April 8th testimony before Congress below:

Document Links

 

Appeals Court Rules against the IRS in RTRP Case.

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.

RTRP Case: Former IRS Commissioner Gibbs argues for IRS in Tax Notes

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

Oral Arguments Held in RTRP Case

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

Registered Tax Return Preparer Program suspended pending litigation.

In a surprise move, a US District Court judge ruled against the IRS, denying its authority to regulate tax preparers and enjoined the agency against enforcing the Registered Tax Return Preparer requirements.  The IRS has released the following statement:

“As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. On Wednesday, Jan. 24, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days.

READ ABOUT THE CASE

The name of the case is Loving, et. al. v. Internal Revenue Service, et. al., which challenges  the validity of the new regulatory scheme for “registered tax return preparers” brought under recent changes to Circular 230. The suit was brought by three independent tax preparers in conjunction with the Institute For Justice.

KEEP UP-TO-DATE

You can keep apprised of the latest developments and join the conversation at the following sites:

FREQUENTLY ASKED QUESTIONS

Can I schedule an RTRP test date? (updated 1.25.2013)
The IRS has temporarily shut down the online PTIN system; a test appointment cannot be scheduled at this time.

I am scheduled to take the RTRP test. Will I be able to take it? (updated 1.25.2013)
As of January 23, 2013, all test dates are suspended until further notice.

I am scheduled to take the RTRP test, will I get a refund? (updated 1.25.2013)
If you have scheduled to take the RTRP test, you can use the refund request form on the Prometric website, Prometric on their website or wait to see if the IRS will reinstate the RTRP exam. Contact Prometric at 800.853.6769 or 888.226.9336 for questions about refunds.  https://www.prometric.com/en-us/contact-us/Pages/reimbursement.aspx

I took the RTRP test and passed, will I receive my certificate? (updated 1.25.2013)
The IRS has not answered this question at this time.

I received my RTRP certificate, can I continue to use the RTRP designation? (updated 1.25.2013)
At this time, the IRS has not commented on the future of this designation.

Do I need to get CPE for this year? (updated 1.25.2013)
EAs, CPAs and attorneys must continue to meet their CPE requirements, as do preparers who are regulated at the state level. At this time, the IRS has suspended the continuing education requirement for other paid preparers.  This could change if the court grants the IRS request for a stay. The IRS continuing education reporting system is still available and The Phoenix Tax Group continues to report all completed continuing education to the IRS.