IRS Appeals Decision Striking Down Tax Return Preparer Registration Program

The IRS filed a Notice of Appeal to the United States Court of Appeals for the District of Columbia Circuit of the Jan. 18 district court decision that struck down the IRS’s registered tax return preparer program and enjoined it from enforcing the regulations (Loving, No. 1:12-cv-00385-JEB (D.D.C) (Defendant’s Notice of Appeal)). On Monday, the IRS also made a motion asking the district court to stay the injunction, pending the outcome of the appeal. Earlier, the IRS had attempted unsuccessfully to have the injunction lifted (see “Court Upholds Injunction; IRS Reopens PTIN System”).

Background

The IRS in 2011 began regulating all tax return preparers who prepare and file tax returns for compensation. In May 2011, it issued final regulations (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 argued that its regulation of tax return preparers is permitted under 31 U.S.C. Section 330, which allows the IRS to regulate “representatives” who “practice” before it.

Three independent tax return preparers brought suit in federal court, arguing that they are not covered by the statute and that the IRS has no authority to regulate their preparation of tax returns. They sought injunctive and declaratory relief and moved for summary judgment, which the U.S. District Court for the District of Columbia granted (see “Federal Court Strikes Down IRS Tax Return Preparer Registration Program”). It is that judgment that the IRS is appealing.