Appeals Court Rules In Favor Of Independent Tax Preparers

The Circuit Court of Appeals for the District of Columbia today ruled that the IRS has no legal authority to impose nationwide licensing and other requirements on tax-return preparers.  The decision upholds the January, 2013, ruling by US District Court Judge James E. Boasberg, which struck down the IRS’s proposed regulations as unlawful.  

Appeals case No. 13-5061, Sabina Loving et al v. Internal Revenue Service et al can be found here.  The opinion of the court was filed by Circuit Judge Brett Michael Kavanaugh, who wrote in part: “In this case, three independent tax-return preparers contend that the IRS’s new regulations exceed the agency’s authority under the statute. The precise question is whether the IRS’s statutory authority to “regulate the practice of representatives of persons before the Department of the Treasury” encompasses authority to regulate tax-return preparers. The District Court ruled against the IRS, relying on the text, history, structure, and context of the statute. We agree with the District Court that the IRS’s statutory authority under Section 330 cannot be stretched so broadly as to encompass authority to regulate tax-return preparers. We therefore affirm the judgment of the District Court.” 

Both courts rejected the IRS’s claim that tax-preparer licensure was authorized by an 1884 statute (31 U.S.C. § 330) governing the representatives of Civil War soldiers seeking compensation for dead horses. 

The Court held, “The IRS may not unilaterally expand its authority through such an expansive, atextual, and a historical reading of Section 330. As the Supreme Court has directed in words that are right on point here, the “fox-in-the-henhouse syndrome is to be avoided . . . by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority.” City of Arlington v. FCC, 133 S. Ct. 1863, 1874 (2013). We affirm the judgment of the District Court.” 

“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 Institute for Justice claims that more than 350,000 tax return preparers would have been affected by the regulations, and that tens of thousands of mom-and-pop preparers would be put out of business.  

The Wall Street Journal, in its assessment of the case, noted that “Big-foot tax preparers like H&R Block and Jackson Hewitt lobbied for the regulation and have been explicit in hoping it will squeeze lower-priced competition.”  The drafting of the regulations was overseen by former H&R Block CEO Mark Ernst, and several financial analysts have concluded they benefit the company.

Source:  US District Court of Appeals for the District of Columbia at http://www.cadc.uscourts.gov/internet/opinions.nsf/B63C3129A4FE761985257C7C00539949/$file/13-5061-1479431.pdf