Federal Court Rules Against IRS

Posted by Siegel Tax Law on May 2, 2013

Federal Court Strikes Down IRS Attempt to Regulate Tax Return Preparers

In a clear rebuke to the Internal Revenue Service, the United States District Court for the District of Columbia held that the IRS had no authority to impose regulations on hundreds of thousands non-attorney, non-CPA, and non-EA tax return preparers. The regulations required these preparers to pass a qualifying examination, pay annual fees and take fifteen hours of continuing education per year. The IRS contended that a law first passed in 1880 authorizing the Department of the Treasury to regulate “representatives” who “practice” before it supported its authority to impose these regulations. The Court decided those federal statutes that authorize the regulation of practice before the IRS apply only to advising and assisting with the “presentation of a case.” Since the preparation and signing of a tax return are not the “presentation of a case,” the IRS has no power to impose these regulations.

The Court also rested its decision on the fact that Congress has passed ten different potential penalties against return preparers. For example, IRC § 6694(a) allows the IRS to impose the greater of $1,000 or 50% of the income the preparer earned on the return for understatement of tax liability due to an unreasonable position and or the greater of $5,000 or 50% of the income that a preparer earned on the return for understatement of tax liability due to willful or reckless conduct. Congress, therefore, has already spoken on how it wants to regulate preparers. “In other words, if the ‘representatives’ that the IRS could penalize under (its attempted regulation) include tax-return preparers, the IRS would be able to punish everything covered by the ten penalties in Title 26 – and more – with considerable discretion over the size of the penalty. That unstructured independence by the IRS would trample with specific and tightly controlled penalty scheme in Title 26.”

The IRS has appealed, but in a first round, the Court of Appeals refused to lift the injunction against the IRS while the appeal is pending.

We will continue to watch how this power grab plays out. In the meantime, be sure to get your IRS help from Siegel Tax Law in Kansas City. Call our tax relief attorney now for tax resolution services.