A federal appeals court has refused to lift an injunction by a lower court against the Internal Revenue Service’s tax preparer regulation regime.

In a brief ruling, the U.S. Court of Appeals for the District of Columbia ruled Wednesday, “Upon consideration of the motion for stay pending appeal, the opposition thereto, and the reply, it is ordered that the motion for stay be denied. Appellants have not satisfied the stringent requirements for a stay pending appeal.” The ruling effectively means that the IRS’s requirements for mandatory testing and continuing education of all tax preparers remains suspended.

In January, a federal judge in Washington, D.C., ruled that the IRS lacked the statutory authority to impose its Registered Tax Return Preparer regime after three tax preparers filed suit challenging the requirements (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). The trio of independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.—were represented by the Institute for Justice, a libertarian law firm in Arlington, Va.

The IRS then announced its intention to appeal the ruling in the case, known as Loving v. IRS, and asked the judge, James E. Boasberg, to suspend his original ruling, arguing that it would disrupt tax season (see IRS to Appeal Ruling Barring Licensing of Tax Preparers). Boasberg denied the IRS’s request, but clarified the ruling on February 1, enabling the IRS to re-open its Preparer Tax Identification Number, or PTIN, online registration system for tax preparers. The judge also clarified that tax preparers could take competency tests and continuing education courses on a voluntary basis, but they would not be required to do so while his injunction remained in place (see Court Modifies Ruling Invalidating Tax Preparer Regulations).

Last month, the IRS filed notices of appeal in both the district court and the D.C. Circuit Court of Appeals announcing its intention to appeal the earlier rulings, and then filed a Motion for Stay Pending Appeal in the D.C. Circuit Court, similar to the motion for a stay that it filed in the district court that Judge Boasberg had denied on February 1.

The two sides then filed a pair of competing documents with the appeals court earlier this month. The tax preparers filed a vigorous response to the IRS’s motion for a stay pending appeal (see Tax Preparers Challenge IRS Legal Maneuver). The IRS then fired back Thursday with its own reply brief, contending that it had established the usual appeals court requirement of the likelihood of success on its appeal (see IRS Fires Back at Tax Preparers Who Won Court Rulings).

On Wednesday, the D.C. Circuit Court of Appeals denied the IRS’s renewed request to suspend a January 18 ruling that struck down the IRS’s new tax-preparer licensing scheme as unlawful.

A three-judge special panel of the D.C. Circuit upheld Judge Boasberg’s refusal to lift his injunction against the IRS’s registered tax return preparer regulations. The appeals court’s brief order found that the IRS “ha[d] not satisfied the stringent requirements for a stay pending appeal.”

“This ruling protects the rights of our clients and hundreds of thousands of tax-return preparers to continue earning an honest living while this case is on appeal,” said senior attorney Scott Bullock at the Institute for Justice, the lead attorney on appeal for the three independent tax preparers who challenged the regulations. “The IRS claimed that the sky would fall if the injunction remained, but both the district court and the appeals court saw through that rhetoric.”

“We will continue to fight the IRS’s unlawful power grab on appeal,” said Institute for Justice attorney Dan Alban, who won the case in the district court. “Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.”

“This is very similar to what happened in the district court below,” Alban noted. “The IRS is attempting to get the court to suspend the injunction while the appeal is pending, and now both the  district court and the court of appeal have denied the IRS’s motion to do that, so the injunction will remain in place during the pendency of the appeal.”

Alban noted that the next major step will be the merits briefing which will conclude with an oral argument before a three-judge panel of the D.C. Circuit. “Right now, we’re waiting for the court to issue a scheduling order setting forth the briefing schedule and also setting an oral argument date.”

However, Alban sees the appeals court ruling as a vindication of the original finding by the lower court. “I don’t know how much it goes to the merits of the case because the court doesn’t analyze the merits specifically, but I think it vindicates our position that the IRS has been claiming that ‘the sky is falling, the sky is falling’ because of this injunction, and neither the district court nor the court of appeals gave any credence to those arguments," he said. "I think they saw through them and saw them for the exaggerations that they were.”