Wednesday, September 25, 2013


Yesterday morning, as I mentioned in the BUZZ, a three-judge panel of the U.S. Court of Appeals for the District of Columbia heard oral arguments in the IRS appeal of the District Court decision in Loving v IRS.

Three tax return preparers, Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisconsin, had argued that the IRS exceeded its statutory authority by imposing a mandatory Registered Tax Return Preparer (RTRP) regulation regime.  In January U.S. District Court Judge James E. Boasberg ruled in their favor, putting an immediate halt to the RTRP program.

This victory came as a great surprise to the tax preparation community, me included, as well as the Internal Revenue Service.  It was a true David vs Goliath victory.

I personally did not agree with the Loving et al argument that the requirement to maintain continuing professional education in taxation was “prohibitive”.  I strongly felt, and still feel, that if a serious tax professional was not already taking at least 15 hours in CPE in taxation he or she should have been.  The cost of such CPE is reasonable, and is a necessary cost of doing business. 

What I did agree with, as did the Court, was the assertion that the IRS did not have the authority to “license” tax return preparers.

National Society of Accountants Executive Vice President John Ams attended the hearing and reported his observations in “Oral Argument Held in Loving v. IRS Case Regarding Tax Return Preparers” at the NSA BLOG.

Here is some highlights from John’s observations (any highlights are mine) -

First, the IRS could not have drawn a worse three-judge panel since each of the judges is a Republican appointed by President Ronald Reagan.  Prior decisions by each of the three judges indicate they are unlikely to find IRS regulatory authority unless they can be directed to wording in a statute clearly giving IRS that authority.  Sure enough, the first question at the hearing was, ‘Did Congress empower the IRS to regulate tax return preparers?’ 

The judges also “asked the IRS whether there is any statute defining ‘practice’ as that term is used in (a)(1) above.  After some discussion, the IRS attorney had to concede there is no language in a statute, case law, or even public discourse defining practice before the IRS.”

John quotes the text of the relevant statute, 31 USC §330 -

“(a) Subject to section 500 of title 5, the Secretary of the Treasury may—

(1) regulate the practice of representatives of persons before the Department of the Treasury; and

(2) before admitting a representative to practice, require that the representative demonstrate—

(A) good character;

(B) good reputation;

(C) necessary qualifications to enable the representative to provide to persons valuable service; and

(D) competency to advise and assist persons in presenting their cases.”

Dan Alban of the Institute for Justice, the attorney for the three preparers, spoke on the difference between preparation and practice.

Dan explained, and I agree, that in preparing a 1040 “the preparer is merely providing a service.  The service is assisting the taxpayer in preparing a return that the taxpayer must sign and submit to the IRS.  It is only when the IRS disputes the return and a tax controversy arises that the preparer or other professional may provide a representation function.” 

It is this “representation function” that is “practice before the Department of the Treasury”.

Reflecting on the hearing, Dan Alban told me –

“It went very well today.  The judges seemed very engaged and we were encouraged by their lines of questioning.  They seemed rather skeptical of the IRS’s arguments and generally receptive to our position.  They seemed focused on the meaning of the statutory language, and also noted the significance of the long period of time (130 years) that it had taken for the IRS to suddenly “find” this new power in the statute (31 U.S.C. 330).”

Dan also gave me the link to the audio of the oral argument.  Click here.

When will we hear the panel’s decision?  John Ams tells us -

The Court is expected to take several months to announce a decision, and it may even be sometime in 2014 before there is a resolution.”

Based on what he observed at the hearing, John does not feel the panel will overturn the lower court ruling in Loving v IRS.  Others attending the hearing agree.  Let us hope they are correct.


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