The D.C. Circuit Court of Appeals ruled Tuesday that the IRS had no legal authority to impose a nationwide licensing scheme on tax return preparers that would have required testing and continuing education as Registered Tax Return Preparers.
The decision affirms a January 2013 ruling by U.S. District Court Judge James E. Boas berg, which struck down the IRS’s new regulations as unlawful. In the case, known as Loving v. IRS, both courts rejected the IRS’s claim that tax-preparer licensure was authorized by an obscure 1884 statute governing the representatives of Civil War soldiers seeking compensation for dead horses.
“This is a major victory for tax preparers—and taxpayers—nationwide,” said Dan Alban of the Institute for Justice, the lead attorney for the three independent tax preparers who filed the suit. “The court found that Congress never gave the IRS the power to license tax preparers, and the IRS cannot give itself that authority.”
The appeals court held, “If we were to accept the IRS’s interpretation of [the statute], the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry. Yet nothing in the statute’s text or the legislative record contemplates that vast expansion of the IRS’s authority.”
More than 350,000 tax-return preparers would have been subject to the regulations. The attorneys for the preparers argued that the regulations would have put tens of thousands of mom-and-pop preparers out of business and increased the cost of tax-return preparation for millions of taxpayers.
“My customers—not the IRS—should be the ones who get to choose who prepares their taxes,” said Sabina Loving, an independent tax preparer from Chicago and the lead plaintiff in the case. “I have a right to earn an honest living without getting permission from the IRS.”
The court ruled that “[t]he IRS may not unilaterally expand its authority through such an expansive, a textual, and a historical reading of [the statute].”
“We think it’s a major victory for both independent tax preparers and taxpayers,” Institute for Justice senior attorney Scott Bullock said in an interview. “The three-judge panel unanimously affirmed all the fundamental points of the District Court’s opinion and held that the IRS does not have the authority to regulate tax preparers under the statute and under the legislative history of the law. The IRS simply cannot assume that authority to license tax preparers. They need to go to Congress to get that authority. That's what the D.C. Circuit held. They gave six separate reasons for affirming the District Court opinion and just really affirmed it across the board.”
Bullock hopes the IRS decides not to pursue further appeals in the case. “It has now been rejected by four judges, both the District Court and by three D.C. Circuit judges,” he said. "They do have the right to petition the entire D.C. Circuit. I believe they have 45 days to do so. The federal government has a little bit longer than most folks. Then the court will decide that relatively quickly. Then, after that, the next step for them would be to go before the Supreme Court and they would have 90 days. If they decide not to petition the entire D.C. Circuit, it would be 90 days from today. If they do decide to petition the entire D.C. Circuit and they reject that, it would be 90 days from whenever that order rejecting the en banc petition came though.”
When Judge Boas berg clarified his original decision last year, he ruled that the IRS can continue to require tax preparers to register for Preparer Tax Identification Numbers, or PTINs, and the latest ruling should not affect that. However, it should also bring some relief to tax professionals.
“It was a big relief to many of the independent tax preparers when the decision was first handed down,” said Bullock. “Hopefully this will end the matter once and for all and they would not be subjected these new licensing requirements, but it’s up to the IRS if they decide to continue to appeal.”
The IRS was noncommittal on whether it plans future appeals. “The IRS is currently reviewing the decision,” the IRS said in a statement. “The IRS continues to believe that it’s critical for taxpayers to be able to rely on quality work from tax preparers.”
Bullock believes the IRS should provide refunds to tax preparers who paid to take the tests and continuing education courses before the RTRP regime was invalidated by the courts.
“I believe they would probably be required to do that, and they [the tax preparers] would have the right if they so choose not to be subjected to these licensing requirements.”
“Administrative agency overreach threatens the economic liberty rights of entrepreneurs,” said Institute president and general counsel William Mellor in a statement. “This precedent ensures that agencies must follow the law and cannot exceed the power given to them by Congress.” As the Court noted, “‘fox-in-the-henhouse syndrome is to be avoided . . . by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority.’”
IRS Commissioner John Koskinen has indicated he would be open to offering the certification on a voluntary basis to tax preparers if the IRS loses the appeal. “If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’” said Koskinen during a press conference last month after he was sworn in as commissioner. “Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”
Bullock indicated the Institute for Justice would have no problem with a voluntary certification scheme. “We made that very clear in our statements because they [the IRS] had asked the D.C. Circuit to stay the ruling, and they had stated they had no power to even do this on a voluntary basis,” said Bullock. “And we had said, ‘That’s not true. You can offer this, but you can’t require licensure. But if you want to do this on a voluntary basis, you’re free to do so.’ And the district court judge made it clear that the IRS was free to do this on a voluntary basis, but they could not legally require it, it. If they did that, that of course would end the legal dispute.”
The D.C. Circuit Court of Appeals ruled Tuesday that the IRS had no legal authority to impose a nationwide licensing scheme on tax return preparers that would have required testing and continuing education as Registered Tax Return Preparers.
The decision affirms a January 2013 ruling by U.S. District Court Judge James E. Boas berg, which struck down the IRS’s new regulations as unlawful. In the case, known as Loving v. IRS, both courts rejected the IRS’s claim that tax-preparer licensure was authorized by an obscure 1884 statute governing the representatives of Civil War soldiers seeking compensation for dead horses.
“This is a major victory for tax preparers—and taxpayers—nationwide,” said Dan Alban of the Institute for Justice, the lead attorney for the three independent tax preparers who filed the suit. “The court found that Congress never gave the IRS the power to license tax preparers, and the IRS cannot give itself that authority.”
The appeals court held, “If we were to accept the IRS’s interpretation of [the statute], the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry. Yet nothing in the statute’s text or the legislative record contemplates that vast expansion of the IRS’s authority.”
More than 350,000 tax-return preparers would have been subject to the regulations. The attorneys for the preparers argued that the regulations would have put tens of thousands of mom-and-pop preparers out of business and increased the cost of tax-return preparation for millions of taxpayers.
“My customers—not the IRS—should be the ones who get to choose who prepares their taxes,” said Sabina Loving, an independent tax preparer from Chicago and the lead plaintiff in the case. “I have a right to earn an honest living without getting permission from the IRS.”
The court ruled that “[t]he IRS may not unilaterally expand its authority through such an expansive, a textual, and a historical reading of [the statute].”
“We think it’s a major victory for both independent tax preparers and taxpayers,” Institute for Justice senior attorney Scott Bullock said in an interview. “The three-judge panel unanimously affirmed all the fundamental points of the District Court’s opinion and held that the IRS does not have the authority to regulate tax preparers under the statute and under the legislative history of the law. The IRS simply cannot assume that authority to license tax preparers. They need to go to Congress to get that authority. That's what the D.C. Circuit held. They gave six separate reasons for affirming the District Court opinion and just really affirmed it across the board.”
Bullock hopes the IRS decides not to pursue further appeals in the case. “It has now been rejected by four judges, both the District Court and by three D.C. Circuit judges,” he said. "They do have the right to petition the entire D.C. Circuit. I believe they have 45 days to do so. The federal government has a little bit longer than most folks. Then the court will decide that relatively quickly. Then, after that, the next step for them would be to go before the Supreme Court and they would have 90 days. If they decide not to petition the entire D.C. Circuit, it would be 90 days from today. If they do decide to petition the entire D.C. Circuit and they reject that, it would be 90 days from whenever that order rejecting the en banc petition came though.”
When Judge Boas berg clarified his original decision last year, he ruled that the IRS can continue to require tax preparers to register for Preparer Tax Identification Numbers, or PTINs, and the latest ruling should not affect that. However, it should also bring some relief to tax professionals.
“It was a big relief to many of the independent tax preparers when the decision was first handed down,” said Bullock. “Hopefully this will end the matter once and for all and they would not be subjected these new licensing requirements, but it’s up to the IRS if they decide to continue to appeal.”
The IRS was noncommittal on whether it plans future appeals. “The IRS is currently reviewing the decision,” the IRS said in a statement. “The IRS continues to believe that it’s critical for taxpayers to be able to rely on quality work from tax preparers.”
Bullock believes the IRS should provide refunds to tax preparers who paid to take the tests and continuing education courses before the RTRP regime was invalidated by the courts.
“I believe they would probably be required to do that, and they [the tax preparers] would have the right if they so choose not to be subjected to these licensing requirements.”
“Administrative agency overreach threatens the economic liberty rights of entrepreneurs,” said Institute president and general counsel William Mellor in a statement. “This precedent ensures that agencies must follow the law and cannot exceed the power given to them by Congress.” As the Court noted, “‘fox-in-the-henhouse syndrome is to be avoided . . . by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority.’”
IRS Commissioner John Koskinen has indicated he would be open to offering the certification on a voluntary basis to tax preparers if the IRS loses the appeal. “If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’” said Koskinen during a press conference last month after he was sworn in as commissioner. “Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”
Bullock indicated the Institute for Justice would have no problem with a voluntary certification scheme. “We made that very clear in our statements because they [the IRS] had asked the D.C. Circuit to stay the ruling, and they had stated they had no power to even do this on a voluntary basis,” said Bullock. “And we had said, ‘That’s not true. You can offer this, but you can’t require licensure. But if you want to do this on a voluntary basis, you’re free to do so.’ And the district court judge made it clear that the IRS was free to do this on a voluntary basis, but they could not legally require it, it. If they did that, that of course would end the legal dispute.”
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