The Battle is On, and Continues Between the Courts, IRS and RTRP

This article is a summary of what is happening between the courts, the IRS and tax prepares, in reference to testing and continuing education requirements for Registered Tax Return Preparers.  The latest ruling allows tax professionals to continue the testing procedure on a volunteering bases.  We encourage tax professional to do so.  Not sure how all this will turn out, however, we'll keep you posted.  Note:  The test is not that difficult, IF you know what to study.

---------

The Internal Revenue Service has filed notices with a federal district court and appeals court of its intention to appeal a judge’s ruling that struck down the mandatory testing and continuing education requirements of its Registered Tax Return Preparer regime and asked the court to suspend the January ruling that invalidated the RTRP regime.

Judge James Boasberg

 

Last month, U.S. District Judge James E. Boasberg of the District of Columbia ruled against the IRS on behalf of three independent tax preparers— Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.— who had filed suit against the IRS’s tax preparer regulatory scheme (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). The suit, known as Loving v. IRS, was brought by the Institute for Justice, a libertarian law firm in Arlington, Va. It argued that the IRS lacked the statutory authority to impose the requirements for all tax preparers to pass a competency exam and take continuing education courses, and the judge agreed.

The IRS then announced its intention to appeal the ruling and asked Judge Boasberg to suspend his original ruling, arguing that it would disrupt tax season (see IRS to Appeal Ruling Barring Licensing of Tax Preparers). Boasberg denied the IRS’s request, but clarified the ruling on February 1, enabling the IRS to re-open its Preparer Tax Identification Number, or PTIN, online registration system for tax preparers. The judge also clarified that tax preparers could take competency tests and continuing education courses on a voluntary basis, but they would not be required to do so while his injunction remained in place (see Court Modifies Ruling Invalidating Tax Preparer Regulations).

Last week, the IRS filed notices of appeal in both the district court and the D.C. Circuit Court of Appeals announcing its intention to appeal the earlier rulings, and on Monday it filed a Motion for Stay Pending Appeal in the D.C. Circuit Court, similar to the motion for a stay that it filed in the district court that Judge Boasberg had denied on February 1.

Dan Alban, the lead attorney on the case with the Institute for Justice, noted that the IRS has not filed its appeals brief yet, and probably will not for some time, as it needs to wait for the district court to transmit the case record to the court of appeal, and for the court of appeal to set a briefing schedule. Another hurdle for the IRS is that it has not yet obtained the approval of the Solicitor General for the appeal, which is required before it can proceed with the appeal. The IRS indicated in one of the briefs that it intends to file an opening brief in March and move for expedited oral argument. The IRS did not respond to a request for comment.

“Footnote 2 of their motion this week notes that they still don’t have authorization from the Solicitor General to proceed with the appeal so they actually refer to those notices as a ‘protective notice of appeal,’ meaning they’re protecting their ability to appeal if the Solicitor General gives them authorization,” Alban said in an interview Tuesday. “But, as of when they filed the brief yesterday around 3:00 or 3:30 pm, they didn’t have authorization from the Solicitor General, which they need in order to proceed with the appeal.”

The motion filed by the IRS for a stay pending appeal in the D.C. Circuit Court of Appeals is similar to the motion in the U.S. District Court that the IRS filed with Judge Boasberg. “They’re asking the Circuit Court to suspend the injunction while the case is on appeal,” Alban explained. “They’re asking for the same relief they were asking the district judge for. This will probably be heard by a panel of three judges, but it can in some cases be heard by just one judge. It’s not an emergency motion, so it probably would be heard by a panel, but that’s up to the court to make that determination.”

Alban is uncertain of when the IRS will file the actual appeal in the case. “They have filed their notice of appeal, so they’re on record as having signaled an intent to appeal in both the district court and the actual court of appeal itself,” he said. “In footnote 2 of their motion that they filed on Monday, they say they intend to file their brief in March and to request an expedited oral argument. Now that assumes that they get the approval of the Solicitor General to proceed with the appeal, and it also assumes that in order for the briefing schedule to be set, the case record needs to be transmitted from the district court to the court of appeals, and in addition the court of appeals needs to set up a briefing schedule. Those things will have to happen first. Then once they have set a briefing schedule, they would give the IRS about 40 days from when the record was transmitted or when they set the briefing schedule to file their opening brief.”

Since March is only a few days away, the court may not act that soon, but Alban conceded it was possible. “At the same time this motion for the stay pending appeal will be ongoing,” he added. “Our brief is due in a couple of weeks. They would get a reply brief, I believe, a week after that, and then the court could rule at that point.”

He estimates the briefing probably wouldn’t be completed until around March 18. The court wouldn’t be able to rule on the IRS’s motion for a stay until the briefing is completed, but the court could set a briefing schedule for the main appeal itself, Alban acknowledged.

“The motion for a stay is sort of a side issue,” he explained. “It’s not the main merits of the appeal. It’s just whether the injunction is temporarily suspended while the case is on appeal.”

Optimistic Prospects
Alban noted that the IRS is asking the D.C. Circuit for the same relief that it asked Judge Boasberg to grant in late January and that he had denied on February 1. He is optimistic about the chances of prevailing against the IRS on both the appeal and the motion for a stay.

“We think Judge Boasberg issued two very sound opinions that were well considered, authoritative and definitive on the subjects he was ruling on,” said Alban. “I’ve had a chance to review their motion for a stay, and it raises many of the same arguments they raised before Judge Boasberg, and that he rightly found to lack merit.”

In Boasberg’s second ruling, Alban noted that the judge was merely clarifying that his original order did not affect the PTIN regulations, and the IRS was not enjoined from enforcing the requirement for tax preparers to register for a PTIN. Alban doesn’t have any objection to the PTIN, nor to the judge’s clarification that tax preparers can still take competency tests and continuing education on a voluntary basis.

“I think that’s fine,” he said. “That allows people to choose whether it’s something they value. If tax preparers think that their customers would value that certification, then they can voluntarily choose to obtain it. On the other hand, if they have longtime customers who aren’t shopping around, and they’re not looking to expand their customer base and are happy with how many people they have currently, then the certification might not be worth it for them, so this gives them the freedom to choose. It also gives consumers the freedom to choose whether they want someone who has this RTRP certification or whether they want someone who has a different certification or whether they want perhaps a preparer who has prepared their taxes for 10 or 20 years, or someone who they have heard good things about through references or good word of mouth.”

The IRS, in its latest briefs, continues to make similar arguments about statutory authority dating back to an 1884 law allowing a government agency to regulate those who practice before it. The IRS also included a paragraph arguing it has “inherent authority,” but Alban noted that it is not making as much of that as it did earlier after the district court was dismissive of that argument. The IRS cited a new statute that it claimed gave it this “inherent authority,” but Alban noted that the statute is not one that the IRS told Congress it was relying upon when it passed the regulations in the first place.

 

No Additional Plaintiffs

Since prevailing in the lawsuit, the Institute for Justice has heard from well over 100 tax preparers across the country who contacted the firm either asking to join the lawsuit, express support, or simply tell their story. However, the firm so far has declined to add anyone else to the lawsuit.

“We don’t need additional plaintiffs at this point,” said Alban. “Although this case is not a class action, it effectively operates like a class action because it affects not just the three plaintiffs—Sabina Loving, Elmer Kilian and John Gambino—but it also affects all tax preparers who would have been subject to these regulations. All 350,000 tax preparers who would have been subject to this licensing scheme, according to estimates from the IRS, will benefit from this lawsuit because they no longer are forced to comply with the RTRP licensing imposed by the IRS.

“At least they benefit for now,” he added. “Obviously the case is on appeal, so that’s not final.”

The IRS Is NOT Rolling Over on the Recent Law Suite Concerning Tax Preparers, The Fight is On

It to the IRS Attorneys a couple days to respond to the most recent court ruling, but it is clear the fight is on.  The ruling will be appealed.  This will be interesting.  We have no doubt that the IRS reviewed the possible objections to licensing tax preparers, didn't they?

-------------
The Internal Revenue Service said it will appeal a court’s ruling that it lacks the power to license tax preparers, a decision that might affect as many as 700,000 people who work on clients’ returns.

Immediately discontinuing the agency’s tax preparer oversight program “would result in a substantial disruption to tax administration,” the IRS said in a court filing yesterday accompanying a request to lift a court order barring it from regulating return preparers during its appeal.
U.S District Judge James Boasberg in Washington, D.C., ruling on a lawsuit filed by three preparers, invalidated the program Jan. 18. The agency overstepped its authority by relying on an 1884 law that allows it to regulate people presenting cases before the Treasury Department, he said.

The IRS program favored large corporate providers of tax services such as H&R Block Inc. and Intuit Inc. over smaller independent return preparers, said Dan Alban, an attorney with the Institute for Justice, a self-described libertarian public interest law firm representing the plaintiffs.

Large providers lobbied the IRS “for this program that they knew would put a lot of mom-and-pop preparers out of business,” Alban said in a phone interview from the group’s Arlington, Va.’s offices. “This is an example of protectionism at its finest.”

Program Proponents
Tax-preparation companies have expressed support for the program.
“We have been proponents of oversight, not to disadvantage competitors but in favor of consumers,” said Julie Miller, a spokeswoman for Intuit, the maker of TurboTax.

The IRS said the rules were designed to impose standards on return preparers who aren’t certified public accountants, attorneys or enrolled agents already licensed to practice before the agency.
The idea, promoted by Douglas Shulman while he was IRS commissioner, was to impose minimum standards and help the agency thwart tax fraud.

The agency’s licensing program affects from 600,000 to 700,000 preparers “who are responsible for a substantial number of the more than 80 million returns filed each year,” the IRS said in court papers.
The program required preparers to register with the federal government, pass a competency test and meet continuing-education requirements. A 15-hour continuing-education regime began in 2012 and the testing was set to go into effect this year.

Registration Fees
Almost 100,000 return preparers have registered to take the test and the IRS has collected more than $100 million in registration and competency-testing user fees, according the IRS filing. The agency said it has spent more than $50 million and assigned 167 employees to operate the program.
The IRS also would probably face lawsuits and demands for fee refunds if the injunction isn’t lifted during an appeal, the court filing said.

“All these actions—and taxpayer funds—would be wasted if the Court of Appeals subsequently overturned this court’s decision and reinstated the return preparer program,” the IRS said in its request to Boasberg to suspend the injunction against the program for at least 14 days to allow an appeal.

The case is Loving v. Internal Revenue Service, 12-cv- 00385, U.S. District Court, District of Columbia (Washington

Ups! Urgent News; IRS Loses Lawsuit Challenging Authority to Regulate Tax Preparers

OK, I don't care what they say, if you have what it takes to pass the IRS test, do so.  Yes, you may be able to legally do taxes for pay, without complying with the IRS requirements, however, we strongly suggest that you go for the highest point of qualifications.  This is a our business opinion.

Coming soon Taxes Will Travel will provide an eBook to help future and existing tax preparers to pass the competency test.  Hold on, strive for the highest point of qualification, in order to trigger the highest earning potential.

..................................................

In a stunning blow to the Internal Revenue Service’s efforts to regulate the tax preparation profession, a federal judge struck down the IRS’s licensing requirements for tax preparers on Friday, including testing and continuing education.  (Our first thought was, does this mean the State of California has been wrong in demanding continuing education?)

Three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—joined forces with the Institute for Justice, a libertarian public interest law firm, in filing suit against the IRS in the U.S. District Court for the District of Columbia.
U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers in enjoining the agency against enforcing its Registered Tax Return Preparer requirements.

“Today’s ruling is a victory for hundreds of thousands of tax preparers across the country and the tens of millions of taxpayers who rely on them to prepare their taxes,” said lead attorney Dan Alban. “This was an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks. The court ruled today that Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.”
The opinion is available online at http://www.ij.org/images/pdf_folder/economic_liberty/irs_tax_preparers/irs-opinion-1-18-13.pdf. The court enjoined the IRS from enforcing its new licensing scheme for tax preparers. The ruling does not affect CPAs, Enrolled Agents and tax attorneys, who were exempted from the RTRP regime as they are already regulated under Circular 230 requirements.

“Through these regulations, the IRS set itself up as king and sought to license hundreds of thousands of tax preparers without being authorized to so do under the law,” said Institute for Justice senior attorney Scott Bullock. “But as Judge Boasberg noted, under our system of law, ‘statutory text is 0king.’”

Former IRS Commissioner Doug Shulman made tax preparer regulation a priority, aiming to root out tax preparers who were unqualified, filed fraudulent refund claims and even cheated clients, with the further goal of improving tax compliance. Shulman ended his term last November and is now a guest scholar at the Washington, D.C., think tank, the Brookings Institution. His successor, IRS Acting Commissioner Steven T. Miller will now have to deal with the fallout from the lawsuit.
Boasberg recognized that the IRS recently did a “flip-flop” with regard to its ability to license tax preparers, the Institute for Justice noted, declaring for years it did not have the authority to do so but only recently claiming that it did have that power.

The IRS can appeal the ruling to the U.S. Court of Appeals for the District of Columbia Circuit. The IRS had no immediate comment on the ruling, according to IRS spokesman Dean Patterson.
“They may very well appeal, but the District Court ruled that the IRS is enjoined from enforcing the RTRP licensing regulations,” said Alban. “Assuming the ruling stands, tax preparers no longer are going to need to comply with the IRS licensing requirements. It returns things to the way they were before the IRS passed those regulations in the first place. No longer do you have to get the IRS’s permission to work as a tax return preparer.”

He noted that the IRS’s continuing education requirements only just went into effect on January 1. “The timing on this really couldn’t have been any better,” said Alban. “Tax preparers should be able to prepare tax returns in this 2013 tax season without getting permission from the IRS. Tens of thousands of tax preparers who would have otherwise been put out of business, including two of our clients, can now continue to prepare returns.”

All three prongs of the IRS tax preparer regulation regime were affected by the ruling, including the testing, continuing education and RTRP registration requirements. However, the Preparer Tax Identification Number, or PTIN, which is part of the registration requirements, is not affected by the lawsuit.

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

It is unclear how the IRS will deal with tax preparers who were scheduled to take the competency exam. “I don’t know how the IRS is going to wind things down,” said Alban. “As of the court’s ruling today, those regulations are null and void. Tax preparers don’t have to take that exam and they don’t have to comply with those regulations. The court ruled that these regulations did not have statutory authority.”

Judge Boasberg found that the text of the relevant statute does not support what the IRS claims as its authority to regulate tax preparers.

“Without deciding whether any of these three textual points alone would be dispositive, the Court concludes that together the statutory text and context unambiguously foreclose the IRS’s interpretation of 31 USC Section 330,” the judge wrote, adding, “The IRS also makes a number of nontextual arguments in favor of its interpretation, but none of these can overcome the statute’s unambiguous text here. In the land of statutory interpretation, statutory text is king.”

“They found that the IRS misinterpreted the statute and was basically trying to use it to expand its own authority in ways that the statute didn’t authorize,” said Alban. “On the first page of the opinion, they said that ‘the statute’s text and context unambiguously foreclose the IRS’s interpretation.’”

"With an invalid regulatory regime on the IRS's side of the scale and a threat to plaintiff's livelihood on the other, the balance of hardships tips strongly in favor of plaintiffs," Boasberg wrote later in the ruling.

There was no trial in the case because there were no disputed facts, Alban noted. The ruling came after cross-motions for summary judgment. The lawsuit was originally announced in March (see Tax Preparers Sue IRS over New Requirements). The Institute for Justice filed a motion for summary judgment in September, and the IRS filed a cross-motion for summary judgment in October. “We trialed a couple of reply briefs, and that was it,” said Alban. “It was just in front of the court on the papers to rule on the case.”

The IRS had argued that the statute was unambiguous and could be read expansively to give the agency the authority that it claimed. “They also claimed that they had inherent authority as an agency to regulate anything related to what they do and the court rejected both of those arguments,” said Alban.

On the first page of the opinion, the court said, “Agency action, however, requires statutory authority. The IRS interpreted an 1884 statute as enabling these new regulations. That statute allows the IRS to regulate ‘representatives’ who ‘practice’ before it. Believing that tax-return preparers are not covered under the statute, and thus cannot be regulated, Plaintiffs—three independent tax-return preparers—brought this suit.”

“That was pretty much the basis of its decision,” Alban explained. “An agency can’t act without statutory authority, without Congress giving them authorization to do something.”

If the IRS appeals the ruling, which it is almost certain to do, Alban said the Institute would then argue the case in front of the D.C. Circuit court, and to higher courts if necessary. “If the IRS loses again in front of the D.C. Circuit, we’d be happy to argue it in front of the Supreme Court if they take the case. But all of that is speculative. I have no idea if the IRS is going to appeal the decision on this. We’ll certainly take it as far as it goes. We’re willing to represent the rights of independent tax preparers.”