Back in December I noted the Institute for Justice’s lawsuit challenging the IRS’ regulations of unenrolled tax professionals (preparers who are not CPAs, Enrolled Agents, or attorneys). The IRS had publicly stated that the lawsuit was without merit. They better rethink that attitude as a federal judge disagrees.
Today, Judge James Boasberg ruled that the IRS has no statutory authority to regulate unenrolled preparers for return preparation. The crux of this case boils down to an 1884 statute on who can practice before the Treasury Department. Section 330(a)(1) states that the Secretary of the Treasury may “regulate the practice of representatives before the Department of the Treasury. [emphasis in opinion]” Section 330(a)(2)(D) allows the Secretary to require that the representative demonstrate…”competency to advise and assist persons in presenting their case. As Judge Boasberg notes,
Section 330(a)(2), like §330(a)(1), does not disclose who those covered “representative” are. But it does tell us what the representatives do — what their “practice” is, in the words of both subsections: representatives “advise and assist persons in presenting their cases.” This statutory equating of “practice” with advising and assisting the presentation of a case provides the first strike against the IRS’s interpretation. Filing a tax return would never, in normal usage, be described as “presenting a case.”
There’s more, though. Judge Boasberg notes that all of the preparer penalties within Title 26 (the Tax Code) wouldn’t be needed if §330(b) covered tax return preparers.
The better answer, consistent with the general/specific canon, is that § 330(b) does not create a comprehensive penalty scheme against tax-return 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 U.S.C. § 330.
The conclusion of the Court is that the IRS overstepped its bounds. Plaintiffs seek declatory and injunctive relief. By failing to object to these remedies, Defendants have forfeited any challenge to them. The Court, moreover, concludes that both remedies are appropriate here.
Plaintiffs first seek a declaratory judgement that Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” brough under Circular 230 by 76 Fed. Reg. 32,286. The Court will grant this declaratory relief.
Plaintiffs also ask the court to permanently enjoin Defendants from enforcing this IRS registration scheme against tax-return preparers. As the scheme is impermissible, such injunctive relief also appears proper…With an invalid regulatory regime on the IRS’s side of the scale and a threat to Plaintiffs’ livelihood on the other, the balance of hardships tips strongly in favor of Plaintiffs. Finally, the public interest would be served by a permanent injunction because the IRS’s new Rule is ultra vires. The Court will therefore grant permanent injunctive relief as well.
While the IRS is certain to appeal, it appears that the RTRP program is dead (at least for now). It will likely take an act of Congress to expand the IRS’s regulatory power to unenrolled preparers. And that’s not likely to happen in the current Congress.