Appeals Court Refuses to Lift Injunction in Return Preparer Regulation Case

Court Decisions

The IRS lost another round in its court battle over its plan to regulate tax return preparers when the D.C. Circuit denied its motion to stay an injunction halting the IRS’s return preparer regulation program, pending appeal of a lower court’s decision (Loving, No. 1:12-cv-00385-JEB (D.C. Cir. 3/27/13) (order)). In denying the IRS’s motion, the court said the IRS had “not satisfied the stringent requirements for a stay pending appeal.”

In 2011, the IRS implemented a plan to regulate tax return preparers who prepare and file tax returns for compensation. It issued final regulations (T.D. 9527) that made previously unenrolled return preparers (i.e., return preparers who are not CPAs, attorneys, or enrolled agents) subject to Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), for the first time. The regulations also required them to pass a qualifying exam, pay an annual fee, and take 15 hours of continuing education courses each year.

Three independent tax return preparers brought suit in federal district court, arguing that the IRS has no authority to regulate their preparation of tax returns. The District Court for the District of Columbia granted them injunctive and declaratory relief, stopping the IRS from enforcing the regulations (see News Notes, “IRS Regulation of Tax Return Preparers Struck Down,” 44 The Tax Adviser 139 (March 2013)).

In February, the IRS filed a Notice of Appeal to the D.C. Circuit and moved for a stay of the district court’s injunction, pending the outcome of the appeal. The appeals court has now denied that motion, keeping the injunction in place and preventing the IRS from reinstating its return preparer regulation program until the appeals court rules on the case. As this item went to press, oral arguments in the case had not yet been scheduled.