IRS Permanently Enjoined From Enforcing Tax Preparer Regulations

By Jenny Tsay, Esq. on February 27, 2014 | Last updated on March 21, 2019

Admit it, you feel a secret joy when the IRS was permanently enjoined from enforcing regulations on the little people.

In Loving v. IRS, the D.C. Circuit held that the IRS lacked the authority to enforce the Treasury Department Circular 230, which imposed regulations on tax return preparers.

This case demonstrates that minor nuances in statutory language can cost you the case.

Statutory Interpretation

The Treasury Department Circular 230, issued by the IRS, was controversial because it created a new category of tax return preparers ("registered tax return preparers") and subjected them to the ethical standards and rules. Under the new rules, the tax return preparers were barred from representing taxpayers before IRS appeals officers and other similar employees.

In Loving, a group of registered tax return preparers claimed the IRS lacked the authority to issue those regulations against them. In its defense, the IRS cited 31 U.S.C. §330 and argued that the statute gives the Department of Treasury the authority to regulate people who practice before it. While the statute does give the IRS that power, the court found that tax return preparers don't fall into that category.

IRS's Interpretation of The Statute Is Wrong

The D.C. Circuit provided six reasons why the IRS's statutory interpretation was incorrect when applied to the tax return preparers.

  1. Tax return preparers aren't "representatives" under the statute because they aren't agents of taxpayers and don't have the legal authority to act on their behalf.
  2. "Practicing" before the Department of Treasury is limited to investigations, adjudicative proceedings, and hearings. While the tax return preparers could provide advice on the taxpayer's liability, the definition of "practice" in the statute isn't to be construed in the abstract and helping someone file a tax return certainly doesn't warrant an appearance in an IRS proceeding.
  3. Tax return preparers don't have the "competency" to represent taxpayers in a hearing, like a lawyer would, so the plain language of the statute rules them out.
  4. Congress has already enacted several statutes that pertain specifically to tax return preparers, so the IRS's statutory interpretation oversteps Congress.
  5. Congress never wanted the scope of the statute to be as large as the IRS hoped to make it.
  6. IRS officials of the past have blatantly stated that the IRS doesn't have the authority to regulate tax return preparers, so why would they suddenly have the power now?

So if your clients are tax return preparers, you can let them know that the IRS is enjoined from regulating them. Just don't forget to remind your other clients about tax issues in their upcoming filings.

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