IRS Defends Authority to Regulate Tax Preparers in Appellate Court

September 24, 2013

Earlier today (Tuesday, September 24, 2013), the District Court of Appeals for the District of Columbia heard oral arguments in the government’s appeal of the DC Circuit Court decision in Loving v. IRS. Members will recall that in January, the District Court for the District of Columbia ruled that the IRS exceeded its authority in its registered tax return preparer program and could not require return preparers either to take continuing education or to demonstrate competency.

We have posted some detailed observations on today’s proceedings to NAEA’s Facebook page, so members who would like more details are encouraged to read those postings. Further, the Appeals Court has posted the audio recording of the proceedings, which you may link to here. We will also provide more detail in this Friday’s E@lert (September 27, 2013).

Cutting to the proverbial chase, it was not a great day to be Uncle Sam. The 3-judge panel, Judge Kavanaugh and Senior Judges Williams and Sentelle, seemed unpersuaded by the IRS’ arguments (forwarded by a senior Department of Justice litigator, Gil Rothenberg) and much more inclined toward Institute for Justice’s argument (Dan Alban, on behalf of Ms. Loving et al.) than toward the government’s argument.

As we have reminded members throughout the process, starting with the initial January 2013 decision, please remember that the case is centered on a simple, specific question: Does IRS have the authority to regulate return preparers?

At a high level, IRS needed to demonstrate in the appeals court that regulating paid return preparers through Circular 230 is not regulatory overreach, and that it in fact has legal authority to institute the return preparer oversight program. In order to do that, IRS needed to demonstrate that the language in 31 USC § 330 (the code section that creates the right to practice before Treasury) is ambiguous.

The government, at least from NAEA’s vantage point in the courtroom, did not convince the three-judge panel that preparing a tax return is representing a taxpayer’s case before the agency.

Circuit court decisions can take months and while we do not know with certainty when the decision will be rendered, we would expect a decision by the end of the year.