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Oral Argument Held in Loving v. IRS Case Regarding Tax Return Preparers

Written by John Ams
 IRS Building


A three-judge panel of the U.S. Court of Appeals for the District of Columbia this morning heard the IRS appeal of the District Court decision that the IRS does not have the authority to regulate tax return preparers.  NSA Executive Vice President John Ams attended the hearing and has the following observations:

First, the IRS could not have drawn a worse three-judge panel since each of the judges is a Republican appointed by President Ronald Reagan.  Prior decisions by each of the three judges indicate they are unlikely to find IRS regulatory authority unless they can be directed to wording in a statute clearly giving IRS that authority.  Sure enough, the first question at the hearing was, “Did Congress empower the IRS to regulate tax return preparers?” 

Of course, the IRS at the hearing argued that it has broad congressional authority to write tax code rules.  The attorneys for Loving, et al, responded that there is no such authority in the statute.  Which is it?  We have set out the text of the relevant statute, 31 USC §330, below:

(a) Subject to section 500 of title 5, the Secretary of the Treasury may—

(1) regulate the practice of representatives of persons before the Department of the Treasury; and

(2) before admitting a representative to practice, require that the representative demonstrate— 

(A)    good character;

(B)    good reputation;

(C)    necessary qualifications to enable the representative to provide to persons valuable service; and 

(D)    competency to advise and assist persons in presenting their cases.

In order to determine what is or is not permissible under the statutory language, the court is expected to apply the well-known Chevron test, first enunciated in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984)).  Chevron review entails a two-step inquiry. The first step asks whether “the intent of Congress is clear” – that is, “whether Congress has directly spoken to the precise question at issue.”  If the intent of Congress is clear, that is the end of the matter.  However, if the statute is silent or ambiguous with respect to the specific issue, the reviewing court must proceed to step two, asking whether the agency’s interpretation “is based on a permissible construction of the statute.”

In an effort to apply the first step of the Chevron test to the statute above, the judges this morning first asked the IRS whether there is any statute defining “practice” as that term is used in (a)(1) above.  After some discussion, the IRS attorney had to concede there is no language in a statute, case law, or even public discourse defining practice before the IRS.

The panel of judges then asked whether it is the IRS position that it has always had the authority to regulate preparers.  The response was yes, since this would be regulating the practice of representatives of persons before the Department of Treasury.  One of the members of the panel, Judge David Sentelle, was openly skeptical of the IRS view that it has had such authority for 130 years but has only recently chosen to exercise that authority. 

The IRS seemed to struggle in responding to two follow up questions:

1.  If the Congress has already given IRS the authority to regulate preparers, then why would it have been necessary or even useful for bills to be introduced in a number of prior Congres
 
ses giving the IRS the explicit authority to regulate preparers?  Do the bills infer that such authority is currently lacking? 
The IRS response was simply to state that (a)(1) above already provides the authority, a response that the judges seemed disinclined to accept.

2.  If a preparer is a “representative of persons before the Department of the Treasury” in (a)(l), then why is it not necessary for such representatives to have a power of attorney?

The IRS response basically was that (a)(1) provided regulatory authority that the IRS could – or could not – exercise as it deemed necessary.  By contrast, the attorney for Loving responded that this illustrated the difference between the compliance function and the tax controversy function.  The tax return preparation function was part of compliance and, at that point, the preparer is merely providing a service.  The service is assisting the taxpayer in preparing a return that the taxpayer must sign and submit to the IRS.  It is only when the IRS disputes the return and a tax controversy arises that the preparer or other professional may provide a representation function.  It is this representation, according to Loving, that is subject to (a)(1) and for which the IRS may require a representative to have all four of the qualities listed in (a)(2).

At the end of the hearing, we and other observers were left with the definite impression the judges did not believe the statute unambiguously gives the IRS the authority to regulate preparers.  Rather, we questioned whether the judges believe the statute is unambiguous in not granting the IRS that authority.

The Court is expected to take several months to announce a decision, and it may even be sometime in 2014 before there is a resolution.  Meanwhile, we are left to wonder whether any of the IRS’s arguments are sufficient to convince the Appeals Court panel to overturn the lower court ruling in favor of Loving.  At this writing, it does not seem so. 

Related link:
Oral Argument Recording 9/24


 


John Ams
Executive Vice President
National Society of Accountants
jams@nsacct.org
www.nsacct.org  

22 Comments

  1. 1 Thunder 06 Feb
    Is this new effort to regulate tax preparers really about having so many uneducated and fraudulent tax preparers who "rip people off" that the IRS had to rush to do something to protect the American taxpayer?  No. This is simply about a government who wants to regulate regulate regulate and control control control the people.  Not to mention just another way of generating more income by calling it a regulatory fee.  If the IRS was so concerned about tax preparers and how their tax returns are filed,  they would have made this move a long time ago - they've had 130 years to make the claims they are making now.
  2. 2 Wendell Hall 18 Jan
    We can improve the standard by applying the RTRP continuing education and exam requirements only to new tax preparers.  It is not fair to require tax preparers who have been making a living for years as tax preparers to suddenly risk that method of making a living.  What makes sense is to "Grandfather"  in all previous preparers, and, if they had been designated as RTRP's prior to January 2013, let them continue to be called that until they retire or pass away.
  3. 3 Mel Mann 06 Jan
    I have been preparing tax returns for over 35 years.  I have seen way too many incompetant tax preparers get their clients into trouble by sheer ignorance of the basic tax laws.  I did not understand why anyone would have any problem having tax preparers regulated and tested.  It is in the best interest of the public to have this regulated.  
    I say give the IRS all of the powers it needs to keep the tax preparartion business in line.  Shake out the incompetant tax preparers.
    I took the RTRP exam, and it was a helpful "tune-up" on basic tax regulations.  Anybody who wants to pass the exam - CAN pass the exam with a few months of online study course.   This court case is rediculous.  
  4. 4 ELIZABETH 26 Nov
    Hi all.  I was in the 1st bunch to pass RTRP exam along with 2 others in my office.  I had also applied to be part of designing the exam but was NOT chosen.  My honest opinion about the exam...NO ONE CAN FAIL it!!!  All the answers are in 1040 index, and just a guess those that are whining about taking it or depriveing our rights are the ONES WHO NEED to take it or at best keep up on ALL new tax laws & tax updates. We work for our clients they lose out when we as tax professionals don't get them all they deserve.  Since we now register our PTINS every year, I think IRS can keep track of all the uneducated/un-CPE preparers, after all how else could they send out these new EITC letters????  See we are all just #'s.  
  5. 5 Bud 08 Nov
    I passed and we should have higher standards and ethics as professionals! Loving should lose.
  6. 6 CC 29 Oct
    I hope the IRS wins, all of our preparers (4) took and passed the RTRP test August 2012 and obtained the required 12 CPEs.  Due to this law suit the designation of RTRP is no longer valid nor recognized. 

    Too much time and money wasted chasing preparers that don't have a clue and/or are dishonest.  Mandatory testing and CPE would help reduce errors and fraud. 

    If Loving wins hopefully the IRS will follow through and get Congress to give them the ability to impose testing and educational requirements on everyone preparing tax returns.  If not, I wonder if the IRS will be giving those of us that took classes and paid to take the test a refund?

  7. 7 Dan 28 Oct
    I took and passed the RTRP exam. I have been preparing tax returns now for over 4 years. I feel the test was very helpful reminder on somethings, and the continue ed credits are good for keeping people up to date on new tax laws, etc. If someone is against continuing ed, and having a license to prepare taxes, I think they are crazy. I have seen a lot of mistakes from previous taxpreparers, that claim wrong deductions, or take credits when they are not allowed and it makes the individual taxpayer have to either payback money from the mistakes of someone messing up the return. I am for the IRS to bring that certification back. Who would not want a designation? I mean it will make you look more professional, plus you could charge a little bit more for the certification. I mean they require Doctors to have licenses, Attorneys to have licenses, then why not tax prepare-rs?   
  8. 8 concerned citizen 23 Oct
    As for me, I have been doing taxes for 15 years, and its a ever changing field, with new laws, and codes.The test is not designed to be taken every year, but just one time... what good is that? I went to school, took my classes, and keep up with my CPE hours, and always do more than I need, because realistically, 15 hours is not a whole lot! The test doesn't prove anything, I agree with the earlier comment, why not audit us as tax preparers, and weed out the incompetent and work from there, but it is a good idea for everyone to be registered.
  9. 9 Thetaxman 22 Oct
    Ok, I cannot sit quietly any longer!  I am a former Revenue Agent with 26 years experience.  Before you assume I am biased, hear me out ok?  My former colleagues & I used to always wonder how any Tom, Dick or Harry, without any prior education, training or experience in accounting or tax could put up a sign "TD & H Tax Service" and begin preparing returns.  They had no inkling of an idea what "due diligence" meant.  As agents, when the manager ask us to peruse through classified returns and select those to "examine", which do you think we chose first?  Right, the "self-prepared" and those prepared by Unenrolled  agents, because those returns had the most audit potential!  We felt that something should have been done long before, to protect the taxpayers from potential fraud or under-statement/negligence penalties.  I have been retired for four years and I am currently a tax professional(enrolled agent).  I'm now working the other side of the desk and I can truthfully say that the problems encountered with IRS reps is real, but I must also admit that all those practices by taxpayers/preparers that we were warned/trained about were right on the money as well!
  10. 10 david 22 Oct
    I passed the RTRP in October 2012, and I just passed the SEE test this year.  I've been a tax preparer for 8 years, 2 years for Liberty Tax, and the last 6 for a CPA firm.  When I worked at Liberty, I saw rampant incompetence, and I suspected fraud in a few cases.  Therefore, I am reluctantly in favor of the IRS regulating tax preparers and requiring tests like the RTRP exam.  Now, having said that, the IRS needs to get it's act together and become a politically neutral government organization.  They have the power to destroy the live of an American citizens; therefore, all biased IRS agents need to be uncovered and FIRED.  The targeting of Tea Party groups is disgusting, and if the IRS doesn't put an end to these shenanigans, the will LOSE. 
  11. 11 George M 18 Oct
    I feel like the Ca ctec testing is a fair review. I have been preparing returns for over 10 years now. RTRP is a good idea however if they can just add the required questions onto the State review which has 15 hrs or Fed and maybe pass the burden to the state it will simplify the process. I e annual testing 35 to 40 hour including state and ethics. I am 100 percent in agreement for all background checks. Here is something else, what if they monitor us preparers on an annual basis in terms of errors?.. This way the ones who are not really qualified to do this job get filtered and can be subject to additional requirements..... Any thoughts?
  12. 12 George M 18 Oct
    I feel like the Ca ctec testing is a fair review. I have been preparing returns for over 10 years now. RTRP is a good idea however if they can just add the required questions onto the State review which has 15 hrs or Fed and maybe pass the burden to the state it will simplify the process. I e annual testing 35 to 40 hour including state and ethics. I am 100 percent in agreement for all background checks. Here is something else, what if they monitor us preparers on an annual basis in terms of errors?.. This way the ones who are not really qualified to do this job get filtered and can be subject to additional requirements..... Any thoughts?
  13. 13 Terrence Connor 10 Oct
    It appears that Loving may win. What a shame it would be. After preparing Tax Returns for fivre years I see the value in passing a test like the RTRP. I see the value in having each preparer armed with a set of minimum standard requirements that prepare the preparer to work in the field of tax preparation. We as preparers are working hand-in-hand with the IRS to get each Return we prepare CORRECT. It follows that all preparers across the USA should be operating under the same set of standards. The RTRP Test, or one similar to it, would certainly help to achieve this.
    I work for a company that demands all preparers to participate in training during the off-tax season period. It is valuable to us as preparers and thus we are better able to perform our duties.It is train or the Highway.
    Should not all tax preparers do the same?
  14. 14 DAVID MEDOZA 30 Sep
    I AM ALSO GLAD THAT THE IRS OVER REACH COULD BE STOPPED.I AM ALSO THANFUL FOR THE PEOPLE THAT BROUGHT UP THIS CASE.I DON'T BELIEVE THE IRS CAN BE TRUSTED TO REGULATE WITHOUT BIAS.I DON'T UNDERSTAND BECAUSE WE TAKE ALL THE TEST REQUIRED TO BE A TAX PREPARER ESPECIALLY HERE IN CALIFORNIA WHERE THE TEST REQUIREMENT ARE   RATED AS TOUGH OR TOUGHER THAN THE IRS TEST REQUIREMENTS. WITH THE IRS TESTING ,THEY DON'T HELP THE TAX PREPRER AFTER TAKING THE TEST TO WHICH QUESTIONS WERE MISSED BY PREPARER SO NEXT TIME THEY CAN RE STUDY AND CORRECT THEIR ANSWERS SO WHEN THEY TAKE THE TEST AGAIN THEY HAVE A BETTER CHANCE OF PASSING. SOMETIMES IT COULD BE A MATTER OF ONE OR TWO QUESTION  OF NOT PASSING THE TEST. AS FOR ME I HAVE BEEN DOING TAXES FOR OVER 20 YEARS AND I STILL TO THIS DAY HATE TAKING TEST. I KNOW WHAT I AM DOING BUT I DON 'T FEEL THE IRS SHOULD DEPRIVE ME OF MAKING A LIVING TO SUPPORT MY FAMILY.AT LEAST HERE IN CALIFORNIA AFTER TAKING MY TEST (EXAM) TO GET MY LICIENCE, AT LEAST THEY GIVE THE OPPORTUNITY TO HELP ME GET THE CORRECT ANSWER TO PASS THE TEST AGAIN IF I FAIL THE FIRST TIME.  SO HOPEFULLY WE CAN CONTIUE TO FIGHT THE IRS BECAUSE WHEN YOU GIVE THE GOVERNMENT TO MUCH POWER  THEY ALWAYS ABUSE THE SYSTEM.
  15. 15 Anonymous 27 Sep
    @Valerie Wilcoxson - Do you have proof that people are getting ripped off in the community where you practice? If you do, then you should call the IRS hotline and turn them in. Isn't that one of a certified accountants regulated responsibilities? 
  16. 16 Valerie Wilcoxson 27 Sep
    A true shame. I practice in a heavily populated non English speaking community and these people are being abused by preparers who take advantage of the language barrier. The preparers are not educated and suffer zero consequences. It makes zero sense that we are allowed to do such sensitive work with no regulations.
  17. 17 Florida 26 Sep
    I am glad that the IRS's over reach could be stopped.  I am thankful for the people that brought this case.  The IRS cannot be trusted to regulate without bias.  Perhaps a new organization needs to be formed, a self regulatory body for tax prepares, such as FINRA is to the licensed investment representatives.  Certainly I would not trust the IRS with the unbiased execution of this task, they want to make the tax preparer pay fines for a tax return that is prepared with information provided by the client and based on the clients records, their plan raise more revenues by impounding tax preparers' earnings arbitrarily, God forbid they erroneously investigate you  (anyone that has ever tired to fix an IRS mistake knows how hard it is to fix it) and instill more fear as they are known to do.  Proof of this is the threatening letters they sent out Letter 4809 (Rev. 10-2011) to thousands of tax preparers, threatening them with the possibility of many fines, it is about collecting more money.  In times past the IRS has been able to detect fraud, persecute those behind it and even has, in fact convicted many tax preparers after proving their own malfeasance.
  18. 18 Anonymous 26 Sep
    @Donya Oneto- These so called unlicensed tax preparers have been doing people's taxes for decades. Why are you concerned now about what others are doing to make a living? If you don't want to keep current, then don't. If you don't want to continue CPE, then don't. 

    I hope that Loving wins this case. It is about freedom. Why should we as a free people be regulated about the choices that we make? If people choose the wrong option, then it is job security for others. With the advent of the internet all preparers can be researched.
  19. 19 Judd Conway 26 Sep
    @ Donya Oneto:  The issue before the court is not whether tax preparers  should be regulated.  It is whether the IRS had the legal authority to regulate them in the way that it opted to follow.  The problem is that it is settled law in the area of Administrative Law that the regulatory authority (in this case the IRS) has only the authority expressly given it in the relevant legislation.  Although I favor having the IRS exercise such regulatory authority, I agree with the US District Court (and with the probable opinion of this court panel) that Congress did not give the IRS the legal power to adopt such regulations without specific authority from Congress.  Even if this (likely) ruling is taken to the entire 11th circuit, or to the Supreme Court, the result will be the same.  Congress needs to act to give the IRS the ability to adopt such regulations.  
  20. 20 Claire Berlin (NSA) 26 Sep
    Hi Andrew- absolutely! I will email you details. 
  21. 21 Andrew J Piernock Jr 25 Sep
    May I use this blog to post to the PSTAP list serve

    Andrew J Pienrock, Jr. ATP
    State Director PA
  22. 22 Donya Oneto 25 Sep
    Why shouldn't tax preparers be regulated?  Shouldn't at a minimum basic background check be required.  As a profession we get some very sensitive confidential information from our clients.  If a preparer is not an EA or CPA or attorney, or other certification, then who or whom is regulating them and ensuring they meet standards applicable to any profession.
    I guess I don't get why we who keep current, pay our licensing fees, take continuing ed to stay current, follow regulations or risk having our certification licensing, etc., taken away.  Until someone can adequately explain this to me, I hope the Loving's lose this case.

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