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District Court Prevents IRS Regulation of Tax Return Preparers…But the IRS Strikes Back

On Behalf of | Jan 28, 2013 | Uncategorized |

On January 28, 2013, in Loving v. IRS, the U.S. District Court for the District of Columbia found in favor of Sabina Loving and two other plaintiffs who challenged the Internal Revenue Service’s (IRS) ability to govern tax return preparers pursuant to regulations issued in 2011. The 2011 regulations required, in part, registration with the IRS and use of a registration number when preparing returns known as the Preparer Tax Identification Number (PTIN).

The 2011 rules were based on 31 U.S.C. Section 330, which authorizes the Treasury Secretary to “regulate the practice of representatives of persons before the Department of the Treasury.” As an agency of the Department of Treasury, the IRS is within the purview of the statute. The issue before the District Court was whether tax return preparers were “practicing” before the IRS, and thus the Department, when they prepare and sign tax returns on behalf of taxpayers. In a lengthy analysis where the Court parsed the language of the statute, and applied rules of statutory construction, Judge James E. Boasberg, found that tax returns preparers were not practicing before the IRS, so the IRS could not regulate them under the authority granted by the statute.

Judge Boasberg further granted the plaintiff’s motion on summary judgment and also entered a permanent injunction preventing the IRS from enforcing the 2011 tax return preparer rules. The IRS quickly responded to the Court’s ruling by posting an announcement on its website (available here) acknowledging that those tax return preparers specifically covered by the registration and reporting rules were no longer required to comply with the Regulation.

The decision in Loving, does not apply to attorneys, enrolled agents, or CPAs. These practitioners are still subject to the rules for practice before the IRS. Though the injunction is permanent, the IRS did not wait long to respond.

On January 23, 2013, the IRS filed a “Motion to Suspend Injunction Pending Appeal” to set aside, at least for now, the district court’s decision.

In its motion, the IRS stated that:

•· It believes it would ultimately prevail on appeal.

•· It would suffer irreparable harm from the injunction due to all the work already done on setting up the Return Preparer system.

•· The plaintiffs would not suffer substantial harm; indeed, they had indicated they would likely continue their practices this year even before the court decision was announced.

•· Suspension of the injunction was in the public interest.

The Federal Rule of Civil Procedure 62(c), allows Courts are allowed to suspend injunctions in cases where an appeal is pending, so it can be assumed that the IRS will appeal the case.

To read the case holding, click here.


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