IRS looses round one on

[DaveO]

I think it's important to crack down on bad actors but wasn't sure the RTRP was going to help much. In my mind backing increased regulation of other non-EA preparers was little more than rent seeking on my part. I became an EA so I would enjoy the extra income that came with the ability to represent taxpayers.

I'm just waiting for the class action suits to begin for those who seek to recover their filing fees.

[Koss]

Permanent Injunction

Bees Knees wrote:

So this judge and what army is going to stop IRS from continuing to enforce their own rules?

IRS ignores federal district and appeals court decisions all the time. They are bound by the IRC, their own regs, and the Supreme Court. A federal district judge has no power to stop IRS from enforcing their own rules.

I'm pretty sure the IRS will appeal. As noted in another post in this thread, it is also possible that Congress will act quickly to grant the IRS the authority to implement the RTRP regulations. In fact, it's a pretty good bet that Congress will do something about this before the end of the calendar year.

Thus, the outcome may well be that the exam and continuing education requirements simply do not take effect until 2014.

In the meantime...

If the IRS appeals, it will be interesting to see whether the appeals court temporarily blocks the injunction. I think this may not happen. The district court's opinion turns heavily on the expense and burden of the exam and the CE requirements, and the reality that some will exit the business as a result of the new regs. There is a very strong argument that allowing the IRS to enforce the regs while the appeal is pending would cause irreparable harm, that could not be undone if the IRS later loses the appeal. On the flip side, because unenrolled tax pros have been preparing tax returns without the new regulations for decades, it will difficult for the IRS to argue that irreparable harm will occur if the regulations are blocked during the appeals process.

In the short term, it doesn't matter.

As others have observed, there are indeed some unenrolled tax pros who decided to get out of the business, and some of them may now change their mind. I won't speculate on whether they will retain their clients, or whether they can get up and running, and back in business quickly enough this year. If they really decided to quit, then they didn't buy tax software, and they may have given up a lease and closed their office. For those working from home, it might be a little easier to get back in the game.

HRB is going to continue to require CE for all of their tax pros, regardless of what the IRS is or is not doing. Of course, HRB cannot require their preparers to pass the RTRP exam if the IRS isn't permitted to offer it. But not much is going to change at HRB in the near future.

A lot of unlicensed tax pros are still in business this year, without having passed the exam, and without having completed the 15 hours of continuing education.

Under the rules that have been struck down, those with a provisional PTIN were not required to pass the exam until December 31, 2013.

The CE requirements were in effect for 2012. But a couple weeks ago, the IRS announced that any RTRP that did not complete 15 hours of CE during 2012 is still permitted to prepare returns during 2013, and that their PTIN is still considered valid (assuming they renewed it). The IRS said that they would have to "make up" the missing CE hours during 2013, i.e., if you only completed 10 hours during 2012, then you have to complete 20 hours during 2013.

My point is that for 2013, the IRS did not actually deny anyone the ability to obtain or renew a PTIN, regardless of whether they have or have not passed the exam, and regardless of whether they completed the CE. In fact, the IRS is still issuing new PTINs to people have never done a tax return professionally at any time, and who have no training or education at all. I know one such person. During the first week of January, she obtained a new provisional PTIN. Under the regs that have been declared invalid, she would have been required to take 15 hours during 2013, and pass the exam by 12/31/13. But nothing stops her from preparing returns right now, with no exam and no education.

The decision is extremely important. It is in fact a major blow to the IRS. Unless they prevail on appeal, or get Congress to change the law, the new regs are dead. But I'm not convinced that this is going to have a significant impact during the current filing season.

With all that being said...

On a purely theoretical level, I respectfully disagree with the comments made by Bees, cited at the top of this post. The IRS cannot simply ignore the court order. The appeals court may or may not block the court order while the appeal is pending. But if it isn't blocked by the appeals court, the RTRP regulatory scheme is effectively out of business until Congress fixes it.

Yes, the IRS routinely ignores rulings of the federal district court and the US Tax Court, and sometimes even an appeals court, particularly if there is a conflict between two different appellate districts. But those are tax cases that apply to individual taxpayers. This is a very different type of case.

In a tax court case, or in a tax case that is litigated in federal district court, the IRS is in fact bound by the court's decision with respect to the taxpayer who brought the case. The IRS may not have to give the taxpayer a refund while an appeal is pending. And they do not have to honor the decision with respect to other taxpayers with similar fact patterns. In this regard, Bees is absolutely correct.

But Loving et al. v. IRS et al. is not a case about tax law, and it's not a case that deals with a specific tax return or taxpayer. The court conclusively ruled that the IRS lacks the statutory authority to enforce the regs. The injunction is binding. If the appeals court does not stay the injunction, and the IRS attempts to enforce the regulations, the federal district court can hold the IRS in contempt.

Rulings in cases that involve the interpretation of the tax law are often limited in scope to one taxpayer, and they do not usually involve an injunction. That's what makes this case so different.

The IRS cannot simply thumb its nose at a permanent injunction.

At least in theory, if Congress fails to act, and the IRS continues to enforce the scheme, and also defies a contempt citation from the district court...

Well, I don't think it will get to that point.

But in theory, the district court could hold the Commissioner is criminal contempt, and throw him in jail until the IRS complies with the injunction. And it could order the US Marshals to physically shut down the operations of the IRS Return Preparer Office.

We're talking about fundamental checks and balances between the executive branch and the judicial branch. This isn't the kind of court order that the IRS can simply disregard. And I don't think they will.

BMK

[Bees Knees]

But in theory, the district court could hold the Commissioner is criminal contempt, and throw him in jail until the IRS complies with the injunction. And it could order the US Marshals to physically shut down the operations of the IRS Return Preparer Office.

I disagree. Like I said, this judge and what Army is going to throw the IRS Commissioner in jail???? A U.S. Marshal is under the jurisdiction of the U.S. Attorney General, a person who answers to the Executive Branch, not the judiciary. Besides, the IRS Commissioner has ATF on their side, and last time I checked, ATF has bigger tanks and more amo than any U.S. Marshal. Remember Waco?

[Bees Knees]

http://www.irs.gov/Tax-Professionals/Return-Preparer-Regulations-Overview

According to Koss, IRS is in contempt of Court. Has been for 3 days now. When will we see those U.S. Marshals shutting down IRS????

[BP.]

The district court's opinion turns heavily on the expense and burden of the exam and the CE requirements,

While the court's remedy (the permanent injunction, which was of course, part of the opinion) turned on those items, the judgment in the opinion was primarily based upon your previous observation:

IRS lacks the statutory authority

[Bucky]

Next should be the EIC Due Dilligence and fines

They should be challenged on forcing the tax preparer to do the policing of there failed EIC program. What next DNA testing for all dependents.

[New York Enrolled Agent]

http://www.irs.gov/Tax-Professionals...tions-Overview

According to Koss, IRS is in contempt of Court. Has been for 3 days now. When will we see those U.S. Marshals shutting down IRS????

Have you read the judge's order that was to be issued on the day of the decision? Are we certain the judge's order required immediate stoppage of the IRS program? If you have found the order, please post it so we all can read it.
Rule 4 of the Federal Rules of Appealate Procedure provide for a 60 day window to appeal a district court order when a government agency is involved. In addition Rule 8 permits a request for a stay of the order while the appeal is in process. I think it's fair to say that the majority of us feel the IRS will avail themselves of these options. Personally, I will be dumbfounded if the Service doesn't do so.

I hope your comments regarding ammo, tanks, Waco, etc. were tongue-in-cheek. Otherwise, you have not presented yourself in the best possible light. Fortunately (at least for the most part) we are a country that believes in lawful solutions to arguments.

[Koss]

IRS Complies with Court Order

Koss wrote:

The IRS cannot simply thumb its nose at a permanent injunction.

At least in theory, if Congress fails to act, and the IRS continues to enforce the scheme, and also defies a contempt citation from the district court...

Well, I don't think it will get to that point.

But in theory, the district court could hold the Commissioner is criminal contempt, and throw him in jail until the IRS complies with the injunction. And it could order the US Marshals to physically shut down the operations of the IRS Return Preparer Office.

Bees Knees wrote:

Like I said, this judge and what Army is going to throw the IRS Commissioner in jail???? A U.S. Marshal is under the jurisdiction of the U.S. Attorney General, a person who answers to the Executive Branch, not the judiciary. Besides, the IRS Commissioner has ATF on their side, and last time I checked, ATF has bigger tanks and more amo than any U.S. Marshal. Remember Waco?

Bees Knees also wrote:

According to Koss, IRS is in contempt of Court. Has been for 3 days now. When will we see those U.S. Marshals shutting down IRS????

New York Enrolled Agent wrote:

Have you read the judge's order that was to be issued on the day of the decision? Are we certain the judge's order required immediate stoppage of the IRS program? If you have found the order, please post it so we all can read it.

Here's a link to the injunction:

http://tinyurl.com/brma27

And for ease of reference, here's a link to the opinion:

http://tinyurl.com/erhy42

New York Enrolled Agent wrote:

I hope your comments regarding ammo, tanks, Waco, etc. were tongue-in-cheek. Otherwise, you have not presented yourself in the best possible light. Fortunately (at least for the most part) we are a country that believes in lawful solutions to arguments.

I think Bees was responding, facetiously, to my reference to the court's power to hold the IRS in contempt, and to order US marshals to shut down the IRS Return Preparer Office.

My comments were... well... let's say they were rather hyperbolic, and wildly imaginative. In that same post, I remarked that it is unlikely to ever reach that point.

Here are a couple of more rational observations:

The court order enjoins the IRS from enforcing "the new regulatory scheme for 'registered tax return preparers.'"

And that's really all it says. To determine what that means, you have to go back and read the opinion.

To borrow a favorite phrase from the US Tax Court, Judge Boasberg's injunction "is not a model of clarity."

As I noted in the other thread, the injunction does not appear to invalidate the basic requirement that all tax pros must use a PTIN. Nor does it invalidate the PTIN fees.

The most reasonable interpretation of the injunction is:

The IRS cannot require tax return preparers to pass an exam or take continuing education.

As of today, the IRS has not refused to issue a PTIN, nor refused to renew a PTIN, nor revoked a PTIN, on the grounds that the preparer has not passed an exam or complied with continuing education requirements. As I noted in an earlier post, those with a provisional PTIN did not have to pass the exam until the end of 2013. And the IRS recently announced--before the Loving decision--that those who had not completed the required CE during 2012 would still have a valid PTIN during 2013, and that they would still be permitted to prepare returns.

At this point in time, the IRS is in compliance with the injunction. No one has been denied a PTIN.

The IRS will be in violation of the injunction if they deny a PTIN to someone who has not passed the exam, or to someone who has not completed 15 hours of continuing education. This hasn't happened. And the IRS had no plans to actually do so until next year.

By then this will be resolved. There will probably be an appeal. And even if the appeal is still pending at the end of the year, the appeals court will either grant or deny a stay of the injunction. Or the appeal will be rendered moot if Congress changes the law.

BMK

[JohnH]

Is it possible that IRS read the tea leaves several weeks ago and sensed that this decision was going to go against them? And so to give themselves some breathing room, they changed the requirements to allow RTRP's to "self-certify" the CE requirement at the end of the year? That would allow them to finesse this decision without upsetting their main objective until they could get some sort of resolution through an appeal or through Congessional action.

We assumed the last-minute change to "self-certifying" was due to their inefficiency, but it may have been by design. Just a thought.

[Koss]

Self-Certification

Is it possible that IRS read the tea leaves several weeks ago and sensed that this decision was going to go against them? And so to give themselves some breathing room, they changed the requirements to allow RTRP's to "self-certify" the CE requirement at the end of the year? That would allow them to finesse this decision without upsetting their main objective until they could get some sort of resolution through an appeal or through Congessional action.

Naaah. It's certainly convenient. But the IRS was planning to allow self-certification way back in the summer, because the process for reporting CE credit was still in development, and they knew they couldn't handle it. Even if the whole regulatory scheme survives, there's a basic issue of due process. They can't just revoke your PTIN and put you out of business because you didn't do the CE. Yes, they can do that under the rules they developed, but there has to be a basic process for you to challenge it, and say, "Wait a minute! I did in fact complete the CE." And they knew they wouldn't have that process in place.

The decision during the first week in January is a little different. In early January, the IRS announced that even those preparers who were going on record as not having completed the required CE would still get a valid PTIN renewal. That decision might have been a "wait and see" kind of thing...

BMK

[Bees Knees]

Here's a link to the injunction:

http://tinyurl.com/brma27

Which says:

1. Plaintiffs’ Motion for Summary Judgment is GRANTED;
2. Defendants’ Motion for Summary Judgment is DENIED;
3. Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” created by 76 Fed. Reg. 32,286;
4. Defendants are permanently enjoined from enforcing such scheme; and
5. Judgment is ENTERED in favor of Plaintiffs.

They key word here is enforce. The Court says IRS cannot enforce the regulations. As Koss has pointed out already, it is one year away from when IRS was going to enforce these regulations with or without this Court decision. Nobody was going to be denied a PTIN until after 12/31/2013 anyway, so no need to speculate on whether or not a District Court Judge has the authority to shut down the IRS. That buys IRS one year to have the decision overruled, and I doubt IRS is going to pull any of their procedures or instructions in the meantime on the requirement to obtain CE and pass the RTRP exam.

[veritas]

I believe the ATF

I disagree. Like I said, this judge and what Army is going to throw the IRS Commissioner in jail???? A U.S. Marshal is under the jurisdiction of the U.S. Attorney General, a person who answers to the Executive Branch, not the judiciary. Besides, the IRS Commissioner has ATF on their side, and last time I checked, ATF has bigger tanks and more amo than any U.S. Marshal. Remember Waco?

Got whupped, then the FBI took over.

[Koss]

Acronyms

ATF = Alcohol, Tobacco & Firearms

FBI = Federal Bureau of Investigation

WACO = We Ain't Comin' Out

BMK