DC Court of Appeals Rules Against IRS: Loving Decision Upheld

This morning the US Court of Appeals for the District of Columbia unanimously upheld the district court’s decision in Loving v. IRS. This means that the IRS’s goal of mandating licensing for all tax professionals is dead. At some future date Congress might enact such laws, but until that happens the RTRP designation is likely dead.

The IRS had interpreted an 1884 statute “signed by President Chester A. Arthur” (how often can I put President Chester Arthur into a blog post!) that regulated the practice of representatives of persons before the Department of the Treasury (31 U.S.C. § 330(a)(1)) to mean they could regulate all tax professionals.

In our view, at least six considerations foreclose the IRS’s interpretation of the statute.

That’s what the Court found, and let’s go over each in turn.

First is the meaning of the key statutory term “representatives.” In its opening brief, the IRS simply asserts that there “can be no serious dispute that paid tax-return preparers are ‘representatives of persons.’” IRS Br. 31 n.11. Beyond that ipse dixit, however, the IRS never explains how a tax-return preparer “represents” a taxpayer. And for good reason: The term “representative” is traditionally and commonly defined as an agent with authority to bind others, a description that does not fit tax-return preparers…

Put simply, tax-return preparers are not agents. They do not possess legal authority to act on the taxpayer’s behalf. They cannot legally bind the taxpayer by acting on the taxpayer’s behalf. The IRS cites no law suggesting that tax-return preparers have legal authority to act on behalf of taxpayers.

The second problem is that “practice…before the Department of the Treasury” doesn’t mean tax preparation. And for my friend Scott, some of the argument in this section turns on grammar: Congress used an “and” rather than an “or” in Section 330(a)(2), and the IRS’s view that practice before Treasury meant preparing tax returns was wrong.

The third issue is that Section 330 was enacted for people making claims against the Treasury. Here’s the Court’s excerpt:

[T]he Secretary of the Treasury may prescribe rules and regulations governing the recognition of agents, attorneys, or other persons representing claimants before his Department, and may require of such persons, agents and attorneys, before being recognized as representatives of claimants, that they shall show that they are of good character and in good repute, possessed of the necessary qualifications to enable them to render such claimants valuable service, and otherwise competent to advise and assist such claimants in the presentation of their cases. [Emphases in original]

The Court didn’t believe that this meant tax preparers.

The fourth issue is that the broader statutory framework already includes regulations on tax preparers.

Under the IRS’s view here, however, all of Congress’s statutory amendments would have been unnecessary. The IRS, by virtue of its heretofore undiscovered carte blanche grant of authority from Section 330, would already have had free rein to impose an array of penalties on any tax-return preparer who “is incompetent,” “is disreputable,” “violates regulations prescribed under” Section 330, or “with intent to defraud, willfully and knowingly misleads or threatens the person being represented or a prospective person to be represented.”

The fifth issue is that the scope of authority that the IRS claimed was beyond the scope anticipated by Congress in passing Section 330. I think this is the weakest of the six reasons as noted by the Court: There was no tax preparation industry in 1884. Still, it’s another point where the IRS lost.

The final issue is that the IRS never interpreted the law during the 127 years preceding 2011 as giving it the authority to regulate tax professionals.

Until 2011, the IRS never interpreted the statute to give it authority to regulate tax-return preparers. Nor did the IRS ever suggest that it possessed this authority but simply chose, in its discretion, not to exercise it. In 2005, moreover, the head of the IRS’s Criminal Investigation Division testified to Congress that “[t]ax return preparers are not deemed as individuals who represent individuals before the IRS.” Fraud in Income Tax Return Preparation: Hearing Before the Subcommittee on Oversight of the House Committee on Ways and Means, 109th Congress (2005) (testimony of Nancy J. Jardini). At the same hearing, the National Taxpayer Advocate – the government official who acts as a kind of IRS ombudsperson – stated to Congress that “the IRS currently has no authority to license preparers or require basic knowledge about how to prepare returns.”

All-in-all, the IRS’s proposed regulations on tax professionals are as dead as the dodo bird.


I’ve had quite a few individuals ask me why I’m against regulating tax professionals. I’m regulated as an Enrolled Agent; why shouldn’t others? After all, I report on bozo tax professionals all the time.

If Congress lawfully decides that regulating tax professionals should be done, that’s fine. However, I am very much opposed to the huge expansion of government during the past thirty years. The real problem is the huge complexity of the Tax Code, and the biggest villain here is Congress. Rather than regulating tax professionals, we need to regulate (gut) the Tax Code itself.

Finally, I want to congratulate

One Response to “DC Court of Appeals Rules Against IRS: Loving Decision Upheld”

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