In Uncategorized on 01/21/2013 at 15:18

Doug Shulman’s legacy, as brought to fruition by Dave Williams at the Return Preparers Office of IRS, namely the regulation of hitherto-unregulated tax return preparers via the Circular 230 RTRP (Registered Tax Return Preparers, pronounced “retreps”) provisions, has been torpedoed by Judge Boasberg in Loving vs. IRS, Civil Action 12-385, filed 1/18/13, in US District Court for the District of Columbia.

Sabina Loving and two other paid return preparers claim that IRS has no statutory authority to require them to take a test, pay an annual fee, and take 15 hours of CPE each year.

Judge Boasberg agrees. The 1884 statute (31 USC §330), which gives the Secretary of the Treasury authority to regulate representatives of claimants appearing before the Department, doesn’t give IRS authority to regulate those who merely prepare returns. Of course, if they show up at examination of a return they prepared, that’s another story.

The test is Chevron, of course; see my blogpost “Carpenter, Colony, Chevron and Mayo”, 4/26/11. When questioning the validity of a regulation, first see if Congress has spoken unambiguously; if so, game over, and the statute rules, says Chevron. Only if Congress either hasn’t spoken, or has spoken ambiguously, does a Court test whether the regulation is arbitrary, capricious or manifestly contrary to the statute, says Mayo.

Judge Boasberg says that §330 is clear: you have to do more than fill out a self-assessment, which is all that a tax return is, to represent someone before the IRS. And Congress could well desire to have those who deal with examination and appeals demonstrate greater expertise and character than one who fills out a return.

Moreover, Congress has enacted a number of specific preparer penalties, all of which would be overturned if IRS could use its penalty powers under Circular 230 to regulate preparers, as well as deprive them of certain procedural due process.

While IRS may have valid policy considerations, the statute remains, and only Congress can allow the procedures IRS desires. Likewise, prior inconsistencies in IRS’ position on preparers would only be relevant if we go to the arbitrary or capricious analysis, but we need not go there, says Judge Boasberg.

You can be sure we’ll be hearing more about this. I know the professional associations will be following this case as it proceeds.

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