The Internal Revenue Service has filed notices with a federal district court and appeals court of its intention to appeal a judge’s ruling that struck down the mandatory testing and continuing education requirements of its Registered Tax Return Preparer regime and asked the court to suspend the January ruling that invalidated the RTRP regime.
Last month, U.S. District Judge James E. Boasberg of the District of Columbia ruled against the IRS on behalf of three independent tax preparers— Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.— who had filed suit against the IRS’s tax preparer regulatory scheme (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers). The suit, known as Loving v. IRS, was brought by the Institute for Justice, a libertarian law firm in Arlington, Va. It argued that the IRS lacked the statutory authority to impose the requirements for all tax preparers to pass a competency exam and take continuing education courses, and the judge agreed.
The IRS then announced its intention to appeal the ruling and asked Judge 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 week, 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 on Monday it 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.
Dan Alban, the lead attorney on the case with the Institute for Justice, noted that the IRS has not filed its appeals brief yet, and probably will not for some time, as it needs to wait for the district court to transmit the case record to the court of appeal, and for the court of appeal to set a briefing schedule. Another hurdle for the IRS is that it has not yet obtained the approval of the Solicitor General for the appeal, which is required before it can proceed with the appeal. The IRS indicated in one of the briefs that it intends to file an opening brief in March and move for expedited oral argument. The IRS did not respond to a request for comment.
“Footnote 2 of their motion this week notes that they still don’t have authorization from the Solicitor General to proceed with the appeal so they actually refer to those notices as a ‘protective notice of appeal,’ meaning they’re protecting their ability to appeal if the Solicitor General gives them authorization,” Alban said in an interview Tuesday. “But, as of when they filed the brief yesterday around 3:00 or 3:30 pm, they didn’t have authorization from the Solicitor General, which they need in order to proceed with the appeal.”
The motion filed by the IRS for a stay pending appeal in the D.C. Circuit Court of Appeals is similar to the motion in the U.S. District Court that the IRS filed with Judge Boasberg. “They’re asking the Circuit Court to suspend the injunction while the case is on appeal,” Alban explained. “They’re asking for the same relief they were asking the district judge for. This will probably be heard by a panel of three judges, but it can in some cases be heard by just one judge. It’s not an emergency motion, so it probably would be heard by a panel, but that’s up to the court to make that determination.”
Alban is uncertain of when the IRS will file the actual appeal in the case. “They have filed their notice of appeal, so they’re on record as having signaled an intent to appeal in both the district court and the actual court of appeal itself,” he said. “In footnote 2 of their motion that they filed on Monday, they say they intend to file their brief in March and to request an expedited oral argument. Now that assumes that they get the approval of the Solicitor General to proceed with the appeal, and it also assumes that in order for the briefing schedule to be set, the case record needs to be transmitted from the district court to the court of appeals, and in addition the court of appeals needs to set up a briefing schedule. Those things will have to happen first. Then once they have set a briefing schedule, they would give the IRS about 40 days from when the record was transmitted or when they set the briefing schedule to file their opening brief.”
Since March is only a few days away, the court may not act that soon, but Alban conceded it was possible. “At the same time this motion for the stay pending appeal will be ongoing,” he added. “Our brief is due in a couple of weeks. They would get a reply brief, I believe, a week after that, and then the court could rule at that point.”
He estimates the briefing probably wouldn’t be completed until around March 18. The court wouldn’t be able to rule on the IRS’s motion for a stay until the briefing is completed, but the court could set a briefing schedule for the main appeal itself, Alban acknowledged.
“The motion for a stay is sort of a side issue,” he explained. “It’s not the main merits of the appeal. It’s just whether the injunction is temporarily suspended while the case is on appeal.”
Alban noted that the IRS is asking the D.C. Circuit for the same relief that it asked Judge Boasberg to grant in late January and that he had denied on February 1. He is optimistic about the chances of prevailing against the IRS on both the appeal and the motion for a stay.
“We think Judge Boasberg issued two very sound opinions that were well considered, authoritative and definitive on the subjects he was ruling on,” said Alban. “I’ve had a chance to review their motion for a stay, and it raises many of the same arguments they raised before Judge Boasberg, and that he rightly found to lack merit.”
In Boasberg’s second ruling, Alban noted that the judge was merely clarifying that his original order did not affect the PTIN regulations, and the IRS was not enjoined from enforcing the requirement for tax preparers to register for a PTIN. Alban doesn’t have any objection to the PTIN, nor to the judge’s clarification that tax preparers can still take competency tests and continuing education on a voluntary basis.
“I think that’s fine,” he said. “That allows people to choose whether it’s something they value. If tax preparers think that their customers would value that certification, then they can voluntarily choose to obtain it. On the other hand, if they have longtime customers who aren’t shopping around, and they’re not looking to expand their customer base and are happy with how many people they have currently, then the certification might not be worth it for them, so this gives them the freedom to choose. It also gives consumers the freedom to choose whether they want someone who has this RTRP certification or whether they want someone who has a different certification or whether they want perhaps a preparer who has prepared their taxes for 10 or 20 years, or someone who they have heard good things about through references or good word of mouth.”
The IRS, in its latest briefs, continues to make similar arguments about statutory authority dating back to an 1884 law allowing a government agency to regulate those who practice before it. The IRS also included a paragraph arguing it has “inherent authority,” but Alban noted that it is not making as much of that as it did earlier after the district court was dismissive of that argument. The IRS cited a new statute that it claimed gave it this “inherent authority,” but Alban noted that the statute is not one that the IRS told Congress it was relying upon when it passed the regulations in the first place.
No Additional Plaintiffs
Since prevailing in the lawsuit, the Institute for Justice has heard from well over 100 tax preparers across the country who contacted the firm either asking to join the lawsuit, express support, or simply tell their story. However, the firm so far has declined to add anyone else to the lawsuit.
“We don’t need additional plaintiffs at this point,” said Alban. “Although this case is not a class action, it effectively operates like a class action because it affects not just the three plaintiffs—Sabina Loving, Elmer Kilian and John Gambino—but it also affects all tax preparers who would have been subject to these regulations. All 350,000 tax preparers who would have been subject to this licensing scheme, according to estimates from the IRS, will benefit from this lawsuit because they no longer are forced to comply with the RTRP licensing imposed by the IRS.
“At least they benefit for now,” he added. “Obviously the case is on appeal, so that’s not final.”