D.C. Circuit Signals Doubts on IRS Tax Preparer Regulations
Andrew M. Grossman /
Hillside Studio Image Source/Newscom
In oral argument today, the D.C. federal appeals court appeared ready to throw cold water on the IRS’s claim to have the authority to regulate income tax return preparers under a 130-year-old statute. The case is just the latest to arise following President Obama’s push for the executive branch to take more and bolder actions without seeking congressional authorization.
The case concerns a 130-year-old statute enacted to regulate representatives of former soldiers filing lost-horse claims on the Treasury. It gives Treasury (and the IRS, which is a part of Treasury) authority to “regulate the practice of representatives of persons before the Department of the Treasury.”
The IRS relied on that authority to enact a new registration and training regime for tax preparers, abandoning its long-held position that the statute did not reach them because they are not “representatives” engaged in “practice” before the agency. As Elizabeth Slattery discussed here, the district court found this to be a tortured reading of the statute.
At oral argument before the federal appellate court, the IRS’s counsel maintained that its regulation was lawful because it was not “unambiguously foreclosed by the statute.” The panel of three judges, however, appeared to reject that standard, with Judge David Sentelle saying that the IRS’s formulation would give agencies “all the power in the world.” The proper standard, Judge Sentelle explained, was whether the IRS’s action was supported by the statute, using the ordinary tools of statutory construction.
On that point, Judge Stephen Williams faulted the IRS for simply ignoring the statute’s “ordinary language,” which he said (pointing to words like “representatives” and “before”) did not seem to reach persons who merely assist another in completing a government form. The IRS’s counsel conceded that he had been unable to locate any case or dictionary definition that supports the IRS’s broad interpretation of these terms to reach tax preparers.
Judge Brett Kavanaugh’s questioning honed in on an adjacent section of the statute that allows Treasury to require that those practicing before the agency have certain qualities, including “competence to advise and assist persons in presenting their cases”—which would seem to exclude tax preparers, who do not present any sort of case.
Dan Alban of the Institute for Justice argued on behalf of three independent tax preparers challenging the IRS’s authority to regulate their businesses. The IRS’s authority, he explained, was little different from a court’s authority to regulate the practice of the attorneys appearing before it—an authority that generally does not extend to all attorneys who may provide advice on bringing a case to the court or interpret its opinions.
If oral argument is any indication, the court will likely find that the statute simply does not give the IRS the authority to regulate the enormous class of preparers, and if the reasons for doing so were as strong as the agency claims, it should have sought authorization from Congress—just as the Constitution requires.