A law firm representing a trio of independent tax preparers who successfully forced the Internal Revenue Service to suspend mandatory testing and continuing education of tax preparers also filed the latest arguments in the case Friday in an effort to deflect the IRS’s appeal of the district court rulings.
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The three preparers -- Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis. -- won a victory against the IRS in January when U.S. District Court Judge James E. Boasberg ruled in their favor and found the IRS had exceeded its statutory authority in imposing its Registered Tax Return Preparer requirements (see Court Rules IRS Doesn’t Have the Authority to Regulate Tax Preparers).
The IRS appealed, and Judge Boasberg clarified the ruling in February, 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 (seeCourt Modifies Ruling Invalidating Tax Preparer Regulations). However, an appeals court in the District of Columbia turned down the IRS’s request to lift an injunction against mandatory testing and continuing education (see Appeals Court Refuses to Lift Injunction against IRS Tax Preparer Regulation).
In the “merits brief” filed Friday by the plaintiffs in the Loving v. IRS case, the preparers' attorneys fended off the IRS’s argument in a brief the agency filed on March 29 that tax preparers were subject to regulation by the Treasury Department since they act as “agents” on behalf of taxpayers. The merits brief, filed by the Institute of Justice, a libertarian law firm based in Arlington, Va., argued that the district court correctly found that Section 330 of the Tax Code unambiguously forecloses the IRS’s new interpretation of the statute.
“The IRS argues that Section 330(a)(2)(C) is sort of an alternative type of practice before the IRS to the type of practice described in Section 330 (a)(2)(D)," said Dan Alban, lead attorny in the case with the Institute for Justice. "Then secondly the IRS argues that statutory overlap is permissible, so the fact that some of these statutes would render each other obsolete doesn’t matter. We point out that those statutes can overlap to some extent. When one statute eclipses another statute or displaces another statute, that presents concerns for how you’re interpreting the statutes.
"Since this case is a question of statutory interpretation, statutes are supposed to be interpreted in a way that gives full meaning to all of the provisions of the statute, so if interpreting Section 330 in the way that the IRS does would render others statutes in Title 26 essentially displaced or obsolete, that would be a problematic interpretation and would be something that the court should avoid,” he pointed out.
In the merits brief, the plaintiffs also partially respond to a brief filed in support of the IRS last month from five former IRS commissioners (Mortimer M. Caplin, Sheldon S. Cohen, Lawrence B. Gibbs, Fred T. Goldberg Jr. and Charles O. Rossotti) as well as another brief filed by the National Consumer Law Center and the National Community Tax Coalition, also on behalf of the IRS.
The former IRS commissioners had contended that tax return preparers advise and assist taxpayers in presenting their cases before the U.S. Treasury. They noted that the District Court equated “representation of persons” (which may be regulated by the Treasury Department under 31 U.S.C. Section 330) with advising and assisting in presenting a case, and amici curiae assume that position to be correct for purposes of this brief. However, they argued that the District Court erred in concluding that “[f]iling a tax return would never, in normal usage, be described as ‘presenting a case.’”
The former IRS commisioners argued that contrary to the district court’s opinion, preparing and filing a tax return is indeed the presentation of a case, in which taxpayers pursue a wide variety of financial claims against the Treasury. “Most significantly, Congress has decided to administer an increasingly wide variety of government assistance programs through the federal income tax system, including assistance for low income families, health care, education, and homebuyers," they said. "In each instance, preparing and filing a tax return is the sole means by which taxpayers are able to present to Treasury their qualification for these programs and to obtain the financial assistance intended by Congress. The IRS is able to administer tens of millions of claims for government financial assistance each year with little or no dispute only because the tax return provides such an efficient and safe mechanism for handling these cases. In this manner, the advice and assistance to taxpayers provided by tax return preparers responsible for preparing the taxpayers’ returns make them ‘representatives’ of the taxpayers subject to potential regulation under 31 U.S.C. Section 330.”
“A lot of the arguments raised in that brief are more policy arguments,” Alban said of the brief filed on behalf of the former IRS commissioners. “This is a case of statutory interpretation. It’s a case that turns on whether or not Congress has given the IRS statutory authority to license tax preparers, and the policy arguments presented by the former commissioners simply don’t address that issue. They do raise one legal argument, and we address it briefly in our brief, but primarily we are responding to the IRS itself. In fact, the IRS’s position contradicts the legal argument made by the former commissioners, so given that we’re actually litigating against the IRS, and not the five individuals who used to be IRS commissioners, the brief is focused on responding to the IRS’s arguments.”
A footnote in the tax preparers’ brief also responds to the brief filed last month by the National Consumer Law Center and the National Community Tax Coalition in support of the IRS, according to Alban. He noted that a forthcoming amicus brief in support of the tax preparers’ side will be filed next week by the Tax Foundation and several independent tax preparers. Oral arguments in the case won’t begin until after all the briefs have been filed. The IRS will be able to file a reply brief by May 31, according to Alban, and the court will probably then announce the scheduling for the oral argument sometime after May 31. "I don’t know exactly when they will announce it, but we do expect the oral argument to occur sometime in the fall,” he said.