Arguments Presented in Loving vs. IRS Tax Preparer Regulation Case

Posted on October 18, 2013 · Posted in Industry News

On September 24 2013 a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit heard the Obama administration’s argument in the government’s appeal of the DC Circuit Court decision to regulate tax return preparers in Loving v. IRS. Earlier this year the District Court for the District of Columbia ruled that the IRS exceeded its authority in its registered tax return preparer program and could not require return preparers either to take continuing education or to demonstrate competency. Department Tax Division lawyer Gilbert Rothenberg argued for the IRS. Institute for Justice attorney Dan Alban argued for the plaintiffs independent tax preparers Sabina Loving John Gambino and Elmer Kilian.

Speaking before judges Kavanaugh Williams and Sentelle Mr. Rothenberg said that the IRS should be allowed to compel unregulated tax return preparers to pass a competency test and take annual continuing education classes. But Mr. Alban said that “Congress never gave the IRS authority to regulate tax preparers.”

Many of the questions put forward by the panel of judges involved the definition of representative and whether or not tax preparers are representatives – whether preparing a return is offering a service or in fact representation. Judges also asked why it took the IRS 130 years to exercise its authority to regulate return preparers.

Mr. Rothenberg cited the “Horse Act of 1884” as providing authority for the IRS to regulate tax preparers. The Horse Act also known as the General Deficiency Appropriation Bill (H.R. 2735) concerned Americans who brought Civil War loss claims against the U.S. government often for dead or missing horses. Agents would press war loss claims for a fee usually a percentage of the claim collected. The government started regulating these intermediary agents certifying honest ones as “Enrolled Agents” a title used today by tax professionals who represent clients before the IRS. The IRS argued that tax return preparers represent their customers in much the same way that Enrolled Agents do and so the agency should be able to expand regulation to include preparers. In fact the original statute included the term “other people” in addition to “agents” indicating that the word representative should not be narrowly defined as an agent.

But Mr. Alban argued that tax return preparers do not represent clients as do Enrolled Agents but rather merely provide a paid service for clients. Tax preparers do not advise and assist in presenting cases. “Preparing a tax return is not a representative act” Alban said. “It is performing a service certainly but there’s no representation.” He cited as an example that tax preparers cannot sign the tax return on behalf of the taxpayer – taxpayers must sign returns themselves. In addition Mr. Alban also stated that when tax preparers do sign a tax return all they are signing is that to the best of their knowledge the return contains no fraudulent information. Tax preparers do not advise and assist when presenting any cases; rather that tax return preparation is a mandatory self-assessment pertaining to IRS compliance and collections functions which are non-adversarial.

A decision in the case is expected by the end of this year.