Won't follow Precedent

[Snaggletooth]

I'll start this one where the other one left off - as we don't really know how the IRS will respond to the court decision.

Bees said that the IRS disobeys court decisions "all the time" - this to the apparent disbelief of some board members. What came to my mind
are several incidents where the IRS ignored the precedent set by a decision and continued to conduct itself in the same manner as if the decision had not been rendered.

There are numerous times where this has happened. The most prolific in my memory is when IRS set out on a mission to reclassify all independent contractors as employees, notwithstanding losses in the courts. Even after losing, the IRS would continue their reclassification, collect gazillions of dollars, knowing that the overwhelming victims would not go to the expense and misery of having to go to court when there was no certainly of winning. Pressure in high circles ultimately forced new guidelines.

The likelihood of this decision being overturned, or the likelihood of Congress bailing them out with legislation will increase the tendency of the IRS to not acquiesce to the court decision.

Make no mistake about it - this is just one of the tactics IRS has in their bag of dirty tricks. Conflict between agencies of government do not result in Armeggedon-type showdowns like Waco. The ultimate result is usually quite conciliatory, and the agencies end up actually tag-teaming the public. An injunction sounds quite powerful, until you stop and think about exactly what would happen if the IRS does not acquiesce. Absolutely nothing.

[JohnH]

This is one of the most fascinating discussions I've ever encountered on a tax forum. The opinions regarding the significance of this decision are all over the place. Everything from "it means nothing" to "it means everything", and both extremes coming from all of you whose opinions I've come to respect immensely. It's the same thing over on the Unofficial ATX forum - opinions on both extremes. The only thing generating more light & heat over there is the discussion about the difficulties ATX is having in getting a usable product out the door this year.

It's going to be interesting to see how both issues develop.

[Koss]

Observations

Snaggletooth wrote:

What came to my mind are several incidents where the IRS ignored the precedent set by a decision and continued to conduct itself in the same manner as if the decision had not been rendered.

There are numerous times where this has happened. The most prolific in my memory is when IRS set out on a mission to reclassify all independent contractors as employees, notwithstanding losses in the courts. Even after losing, the IRS would continue their reclassification, collect gazillions of dollars, knowing that the overwhelming victims would not go to the expense and misery of having to go to court when there was no certainly of winning. Pressure in high circles ultimately forced new guidelines.

It is certainly true that in some cases, the IRS does not recognize certain court decisions. The IRS openly acknowledges this.

The inside cover of Publication 17 says:

This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS.

When the IRS loses a case in the US Tax Court or the federal district court, they don't necessarily have to accept the decision as a binding precedent for other taxpayers. But they have to accept the decision for the taxpayer who brought the case, unless they choose to appeal.

Moreover, the cases which the IRS chooses not accept as precedent rarely, if ever, carry an injunction. The cases the IRS "ignores" are court decisions that involve rulings about the proper application of the tax law to events and transactions that occurred in the past, usually in connection with a tax return. These decisions do not necessarily control how the IRS applies the tax law going forward.

Loving et al. v. IRS et al. is different. The court issued an injunction that bars the IRS from taking certain actions prospectively. You won't find an injunction in a typical tax case.

If anyone can cite a case in which the IRS, or any other federal agency, such as the FDA or the SEC, has refused to comply with an injunction, without at least filing an appeal and asking for a stay of the injunction, I would be interested in reading about it.

The IRS is not going to simply do nothing.

JohnH wrote:

The opinions regarding the significance of this decision are all over the place. Everything from "it means nothing" to "it means everything", and both extremes coming from all of you whose opinions I've come to respect immensely.

It means nothing until January, 2014. See my comments over in the other thread:

http://forum.thetaxbook.com/showthread.php?21192-IRS-looses-round-one-on&p=146514#post146514

Koss wrote:

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

[Bees Knees]

When the IRS loses a case in the US Tax Court or the federal district court, they don't necessarily have to accept the decision as a binding precedent for other taxpayers. But they have to accept the decision for the taxpayer who brought the case, unless they choose to appeal.

An Appeals Court ruled just a few months ago that the Defense of Marriage Act is Unconstitutional. Yet IRS continues to this day to ignore that ruling. You think the Court only meant that it was Unconstitutional for the taxpayers involved in the case? Think again. Saying something is Unconstitutional means the law is Unconstitutional for everyone. Which proves my point…IRS doesn’t have to listen unless it is the U.S. Supreme Court making the decision.

Loving et al. v. IRS et al. is different. The court issued an injunction that bars the IRS from taking certain actions prospectively. You won't find an injunction in a typical tax case.

I fail to see how issuing and injunction carries any more weight in a decision than saying a law is Unconstitutional. How does issuing an injunction all of a sudden give a judge the ability to enforce a ruling, but saying something is Unconstitutional does not give a judge the ability to enforce a ruling?

[Koss]

Injunctive Relief

I fail to see how issuing and injunction carries any more weight in a decision than saying a law is Unconstitutional. How does issuing an injunction all of a sudden give a judge the ability to enforce a ruling, but saying something is Unconstitutional does not give a judge the ability to enforce a ruling?

We're getting into some very complex and technical issues of law here.

There is a difference. An injunction is a mechanism for enforcing a ruling or a decision.

The decision that DOMA is unconstitutional, to my knowledge, did not include an injunction. That doesn't mean the ruling is meaningless. But the ruling is a broad declaration, which was not aimed at any specific agency or action. In that type of case, the court cannot be expected to anticipate, and enumerate, in detail, how the ruling will apply to hundreds of different state and federal laws across the country. Those issues are left to the lower courts, and in some cases, to administrative agencies such as the IRS. IRS counsel still has to figure out how to apply the ruling.

And because the appellate ruling is only binding in that particular circuit, and especially since the US Supreme Court has agreed to review the case, agencies such as the IRS, and their counsel, may reasonably choose to wait and see what the final outcome is.

It is one thing for an agency to choose not to act immediately on a ruling. They may need time to evaluate and interpret it, or they may choose to appeal, or they may choose to follow a conflicting ruling from a different court.

Refusing to comply with an injunction is a much more direct form of disobedience to the Court, and is more likely to result in a finding of contempt.

An injunction is a specific directive from the court which requires a party to take certain action or refrain from taking certain action. It has prospective force and effect.

A ruling that a particular law is unconstitutional does not necessarily contain specific language requiring or prohibiting particular actions.

There's more to it than this. I'm just trying to capture the general flavor here.

BMK

[RitaB]

And then there's Maude...

This is one of the most fascinating discussions I've ever encountered on a tax forum. The opinions regarding the significance of this decision are all over the place. Everything from "it means nothing" to "it means everything"...

And then ya got me over here going, "What the crap does this even mean?"

And, more importantly, "Can I open ATX without blowing up my entire office?"

[New York Enrolled Agent]

An Appeals Court ruled just a few months ago that the Defense of Marriage Act is Unconstitutional. Yet IRS continues to this day to ignore that ruling. You think the Court only meant that it was Unconstitutional for the taxpayers involved in the case? Think again. Saying something is Unconstitutional means the law is Unconstitutional for everyone. Which proves my point…IRS doesn’t have to listen unless it is the U.S. Supreme Court making the decision.

Maybe not the best example - The 1st Circuit Court of Appeals actually stayed its finding anticipating an IRS request for a writ of certiorari to the Supreme Court. If the Court had not stayed its decision (in line with the district court decision) taxpayers in the 1st circuit would have been free to follow the ruling and same-sex couples would have been able to file joint returns, etc.. The IRS does follow the rulings from a CA in the circuit which issues the decision. The IRS may or may not follow the decision in the other circuits

[Bees Knees]

Maybe not the best example - The 1st Circuit Court of Appeals actually stayed its finding anticipating an IRS request for a writ of certiorari to the Supreme Court. If the Court had not stayed its decision (in line with the district court decision) taxpayers in the 1st circuit would have been free to follow the ruling and same-sex couples would have been able to file joint returns, etc.. The IRS does follow the rulings from a CA in the circuit which issues the decision. The IRS may or may not follow the decision in the other circuits

Not according to the IRS.

The following is from the Internal Revenue Manual, Part 4, Examining Process, Chapter 10. Examination of Returns, Section 7. Issue Resolution.

4.10.7.2.9.8 (01-01-2006)
Importance of Court Decisions
1. Decisions made at various levels of the court system are considered to be interpretations of tax laws and may be used by either examiners or taxpayers to support a position.
2. Certain court cases lend more weight to a position than others. A case decided by the U.S. Supreme Court becomes the law of the land and takes precedence over decisions of lower courts. The Internal Revenue Service must follow Supreme Court decisions. For examiners, Supreme Court decisions have the same weight as the Code.
3. Decisions made by lower courts, such as Tax Court, District Courts, or Claims Court, are binding on the Service only for the particular taxpayer and the years litigated. Adverse decisions of lower courts do not require the Service to alter its position for other taxpayers.

4.10.7.2.9.8.1 (01-01-2006)
Action on Decision
1. It is the policy of the Internal Revenue Service to announce at an early date whether it will follow the holdings of lower courts in certain cases. An Action on Decision (A.O.D.) is the document making such an announcement. An Action on Decision is issued at the discretion of the Service only on unappealed issues, decided adverse to the government. Generally, an Action on Decision is issued where guidance would be helpful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent.
2. An Action on Decision may be relied upon within the Service only as the conclusion, applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommendation of the Action on Decision to similar cases where the facts are different. Moreover, the recommendation in the Action on Decision may be superseded by new legislation, regulations, rulings, cases, or Actions on Decisions.
3. Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service expanded its acquiescence program to include other civil tax cases where guidance is determined to be helpful. Accordingly, the Service may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court deciding the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin.
4. The recommendation in every Action on Decision is summarized as acquiescence, acquiescence in result only, or nonacquiescence. Both "acquiescence " and "acquiescence in result only" mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. The following differences are noted:
A. "Acquiescence" indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions.
B. "Acquiescence in result only" indicates disagreement or concern with some or all of those reasons.
C. Nonacquiescence signifies that, although no further review was sought, the Service does not agree with the holding of the court and generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a nonacquiescence indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.

There’s no question these three tax preparers are no longer required to pass the RTRP exam or take CPE until a higher Court rules otherwise. But according to this manual, lower Courts cannot force IRS to obey their rulings. It does not give an exception for when a lower Court decides to issue an injunction against IRS enforcing a regulation.

Of course there are procedures IRS must follow in order for them to ignore this District Judge, and I suspect those procedures are taking place as we argue the issue. Bottom line is, it is premature to think all of us are somehow relieved of the requirement to pass the RTRP exam or take CPE. IRS is obviously going to fight this decision within whatever legal powers they have to disobey lower court decisions.

True, you can always say this District Court says I don’t need to pass a competency test. If IRS denies your PTIN, what are you going to do? Call the Judge and ask him to throw the Commissioner in jail for contempt of Court? No, your only solution would be to take IRS to court and hope another Judge agrees with what this District Judge said.

[Bees Knees]

IRS just came out with this statement on their website:

As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.

[JohnH]

And then this:


PTIN System Down
The IRS Preparer Tax Identification Number (PTIN) system is currently unavailable due to system maintenance. We apologize for any inconvenience.

Page Last Reviewed or Updated: 22-Jan-2013

[Burke]

And then ya got me over here going, "What the crap does this even mean?"

And, more importantly, "Can I open ATX without blowing up my entire office?"

Are you signing up for the free seminars? Have you tried to open it yet?

[geekgirldany]

Just got an email from NATP stating that the IRS has ceased the scheduling and administering of tests and PTIN is down.

[RitaB]

Uh

Are you signing up for the free seminars? Have you tried to open it yet?

Lemme check on the seminars and get back to you.

I opened it today, had not opened it in a month, it tried to update, then shut down. Awesome.

No fires, so, you know, it could be worse.