Decision Striking Down Tax Return Preparer Regulations Upheld on Appeal

Court Decisions

The IRS’s attempt to regulate unenrolled tax return preparers was dealt another blow when the D.C. Circuit Court of Appeals held that the agency exceeded its statutory authority by issuing regulations imposing various requirements on tax return preparers (Loving, No. 13-5061 (D.C. Cir. 2/11/14), aff’g No. 1:12-cv-00385 (D.D.C. 1/18/13)). In the decision, the appeals court held that 31 U.S.C. Section 330, which authorizes the IRS “to regulate the practice of representatives of persons before the Department of the Treasury” does not permit the IRS to impose its rules on the estimated 600,000 to 700,000 unenrolled tax return preparers or allow it to require them to pass a certification test, pay a fee, and take continuing education courses.

The IRS issued final regulations in 2011 (T.D. 9527) making 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 and requiring them to pass a qualifying exam, pay an annual fee, and take 15 hours of continuing education courses each year. The IRS based its authority to regulate tax return preparers on 31 U.S.C. Section 330, which allows the IRS to regulate “representatives” who “practice” before it.

The federal district court for the District of Columbia held in January 2013 that the regulations exceed the IRS’s authority under Section 330 and enjoined it from enforcing the regulations. The IRS appealed, and the D.C. Circuit affirmed the lower court’s decision.