Court of Appeals holds that the IRS does not have the authority to regulate tax return preparers

On Tuesday the U.S. Court of Appeals for the District of Columbia Circuit found that the IRS had exceeded its statutory authority when it attempted to regulate tax return preparers. Loving v. Internal Revenue Service, No. 13-5061 (Feb. 11, 2014).

The Secretary of the Treasury is authorized to "regulate the practice of representatives of persons before the Department of the Treasury." 31 U.S.C. sec. 330(a)(1). However, until 2011, the IRS had not attempted to regulate tax return preparers under section 330. In 2011, the IRS issued new rules requiring tax return preparers to register with the IRS, pay fees, pass a qualifying exam, and complete continuing education courses.

Three tax return preparers who would have been subject to these new requirements challenged the regulations. The Court agreed with the tax return preparers, finding that tax return preparers are not "representatives" and therefore not covered by section 330. The Court noted that "tax-return preparers do not practice before the IRS when they simply assist in the preparation of someone else's tax return."

The Court considered Chevron U.S.A. Inc, v. NRDS, 467 U.S. 837 (1984), which stands for the proposition that a court "must accept an agency's authoritative interpretation of an ambiguous statutory provision if the agency's interpretation is reasonable." The Court found that the IRS's interpretation because it was foreclosed by the statute (section 330), and that the "IRS's interpretation would also fail because it is unreasonable in light of the statute's text, history, structure, and context."

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