Loving versus IRS

[Koss]

Loving v. Internal Revenue Service

February 11, 2014

The United States Court of Appeals for the D.C. Circuit today issued its opinion on the Loving, et al case (regarding registration, fees and testing for tax return preparers), upholding the decision of the District Court. It is Case No. 13-5061. The decision is 19 pages long in PDF format and is too long to attach here. But it is an interesting and precisely written decision, and anyone interested is encouraged to read it. It should be available on the court's web site within a day or two.

The decision is very well written. It exhaustively addresses all of the arguments advanced by the IRS, and it is not difficult to understand. Here's a link, courtesy of the Wall Street Journal:

http://online.wsj.com/public/resources/documents/irsruling.pdf

BMK

[Bees Knees]

The fact of the matter is the IRS does have statutory authority to regulate unlicensed preparers under specific situations:

1) IRS has statutory authority to require unlicensed preparers to obtain PITNs [IRC §6109(a)(4)]. In September of 2013, an administrative judge ruled that a CPA could have his PTIN taken away for violating Circular 230 ethics rules (IR-2013-76). The CPA was already disbarred from practice for violating those rules. Thus, taking the PTIN away from the person as an "unlicensed preparer" was clearly within the IRS's statutory authority to regulate PTIN holders.

2) IRS has statutory authority to issue regulations concerning the requirement that unlicensed preparers furnish copies of tax returns to clients [IRC §6107(c)].

3) IRS has statutory authority to issue regulations concerning disclosure rules that require unlicensed preparers to keep tax client info confidential [IRC §6103(c) and IRC §7216(b)(3)].

4) IRS has statutory authority to issue regulations concerning the penalties imposed on unlicensed preparers who screw up a client's tax return by understating the client's tax liability [IRC §6696(c)].

5) IRS has statutory authority to issue regulations and bring proceedings involving unlicensed preparers who promote abusive tax shelters, aid taxpayers in understating their tax liabilities, or submit frivolous tax submissions [IRC §6703(a)].

[JohnH]

This isn't the only incidence of the IRS trying to bluff their way into getting a desired outcome by writing vague and misleading rules.

Two other situations come to mind immediately, since I see so much misinformation about them on this and other forusm:

1) Tax preparer confusion over whether a payment to an Independent Contractor is deductible when a 1099 is required but not issued. (it is deductible)

2) Tax preparer confusion over whether an extension of time to file is valid when the taxpayer does not pay the balance. (It is completely valid)

[DaveO]

Registration isn't the whole answer

So far this week I have seen two different prior returns prepared by attorneys, not picking on attorneys just making the point that registration isn't a cure all.
On one the attorney had taken tuition, books and lunch money for the taxpayers children enrolled in a parochial school as dependent care.
In the course of the interview the other client told me that their previous preparer told them they were allowed an automatic $11,000 deduction for charity. They offered me the receipts for the "extra".
Not to mention the TurboTax prepared return where the entire mortgage interest and property taxes was deducted on the “C”, “8829” and the “A”. When I asked about it they replied, “The program kept asking me the same question so I kept answering it the same.”

[Gary2]

Knowing the avaricious nature of government to regulate and collect revenue in the process, the most probable response from Congress would be to simply pass another law which clearly outlines requirements for preparers. The only thing the Supreme Court could do at that point would be to declare the law unconstitutional (and that won't happen).

I have been vocal on this forum that regulation would ultimately prove to be a Trojan Horse, first welcomed by those of us who want unscrupulous preparers OUT of business, but then turning into an administrative and capricious nightmare. Those who wish to prepare returns with no formal testing and regulation can enjoy this decision, however temporary.

I don't disagree with your argument about the Trojan Horse, but I don't find it strong enough to outweigh the benefits of regulation. Bureaucracy is a necessary evil in a large complex society, and while we should strive to minimize it, we can't treat it as a universal veto against any regulation.

[Gary2]

Tangent alert:

Turned prospect away when he told me he has an Ins Agency and I asked him if he tracked his bus related miles relating to date, locations and purpose for each trip. He replied his previous preparer retired who was neither a EA, CPA or RTRP and told him just give me a verbal number of total miles. Ask him again did you track those total miles by date, location and purpose of each trip? He replied no, his previous preparer didn't require it. I told him you the taxpayer are ultimately responsible for your tax return and you sign your tax return under the penalty of perjury. I emailed him my tax organizer several weeks ago and he has not called nor emailed me. I have a hunch that he located a tax preparer who accepted his verbal miles w/o any written evidence.

Do you believe it would have been improper to enter the numbers while answering "No" to the questions on whether or not there's evidence to support it?

If so, is it ever proper to prepare a return that answers those questions "No"? (I'm not trying to pick on you, I'm just wondering how people interpret the presence of those questions on the form.)

Couple yrs ago a new client comes in with a Schedule E (residential rental). I could not proceed due to the incorrect depreciation for the rental in the previous tax year. I told him he needs to amend his 2010 tax return with the correct depreciation. So he brought me his amended 2010 which was still had incorrect depreciation. I told him he needs to go back and have her "Amend her Amend" and we both laughed. Actually she just needed to correct the amended return. Well he brought back the 2nd attempt to amend and it was still incorrect. I ended up doing it myself. This preparer had somewhat of a full time job the rest of the year and she was not a EA, CPA or RTRP. The TurboTax commercial comes to mind when the plumber says hi to the homeowner and he looks at the plumber and the plumber replies, I did your taxes last year. Actually I wish the society of CPA's, EA's and RTRP's would launch similar ads.

I'll assume you correctly concluded that a 3115 wasn't necessary. But this opens another procedural question: Are you prohibited from preparing a correct current year return, with the proper depreciation calculation, just because a prior year had the wrong value? What if you happened to find it on a year that was closed, but all intervening years were correct? Or is it just an issue because, if it's ever audited, the paper trail would be thoroughly confusing?

I don't think I've ever seen a CP2000 or other computer generated letter to the effect "Your depreciation deduction this year is inconsistent with last year's, and you didn't file a 4562 to show any changes."

[ATSMAN]

I've thought that the IRS dropped the ball in their argument. Unlicensed preparers do have limited representation rights; they can rep taxpayers for whom they prepared the return. So yes, preparing taxes for money does allow one to practice before the IRS.

Not the same animal as an EA or CPA.

Unlicensed tax preparers can NOT settle with the IRS on behalf of the taxpayer whose return they prepared. When you into an audit with your client all you can say is what you did and where you got the info. You can not make any representation (unless you had first hand knowledge) on behalf of your client. All you can do is answer their questions.

The IRS gave it best shot but the opposing side had the law and facts on their side.

The only solution to this problem is a change in law!

[AZ-Tax]

Turned Prospect Away due to other Prepare didnt ask this

Turned prospect away when he told me he has an Ins Agency and I asked him if he tracked his bus related miles relating to date, locations and purpose for each trip. He replied his previous preparer retired who was neither a EA, CPA or RTRP and told him just give me a verbal number of total miles. Ask him again did you track those total miles by date, location and purpose of each trip? He replied no, his previous preparer didn't require it. I told him you the taxpayer are ultimately responsible for your tax return and you sign your tax return under the penalty of perjury. I emailed him my tax organizer several weeks ago and he has not called nor emailed me. I have a hunch that he located a tax preparer who accepted his verbal miles w/o any written evidence.

Couple yrs ago a new client comes in with a Schedule E (residential rental). I could not proceed due to the incorrect depreciation for the rental in the previous tax year. I told him he needs to amend his 2010 tax return with the correct depreciation. So he brought me his amended 2010 which was still had incorrect depreciation. I told him he needs to go back and have her "Amend her Amend" and we both laughed. Actually she just needed to correct the amended return. Well he brought back the 2nd attempt to amend and it was still incorrect. I ended up doing it myself. This preparer had somewhat of a full time job the rest of the year and she was not a EA, CPA or RTRP. The TurboTax commercial comes to mind when the plumber says hi to the homeowner and he looks at the plumber and the plumber replies, I did your taxes last year. Actually I wish the society of CPA's, EA's and RTRP's would launch similar ads.

Insurance Agent, Reg Reps, Mortgage brokers, Realtors etc. need to take and pass a competency exam and are subject to CE. Its about time our profession does the same but in NO way do I ever want to see the structure of FINRA where as all Registered Reps have to contract with a Broker Dealer.

[ttbtaxes]

I can never remember a time that I've talked with the IRS about a client, either in person or by phone, that a Power of Attorney wasn't required by them first. What limited representative activities have you undertaken without a Power of Attorney?

[joanmcq]

I've thought that the IRS dropped the ball in their argument. Unlicensed preparers do have limited representation rights; they can rep taxpayers for whom they prepared the return. So yes, preparing taxes for money does allow one to practice before the IRS.

[ttbtaxes]

The thing that irks me the most is that preparation of a return is not representation before the IRS. The idea was to regulate those who represent themselves in matters before the IRS. An audit is certainly representation but preparation is not.

If you argue for the IRS's position that preparation IS representation then answer this question. Why doesn't the IRS reject every paid-preparer tax return submitted to the IRS without a Form 2848?

[ttbtaxes]

Barbers have to be licensed with the STATE they're in. They are not regulated by any Federal branch of government.

There are too many bad people in the restaurant industry. Do you also advocate having every one in the kitchen of a restaurant, from salad maker to burger flipper, regulated and registered with the FDA?

[wildbilll]

Too many bad people

are doing tax returns, even barbers have to be licensed, why not people doing tax returns for pay? Ihave been an EA for almost 30 years and I have shown a few the door because I did not believe their story. Some left because I ask too many questions.

[ttbtaxes]

I am against regulation particularly the manner in which the IRS has proceeded.

If the IRS can regulate you to get in to the tax preparation field, they sure as heck can regulate you and force you out.

I applaud the decision.

[taxxcpa]

Taxxcpa-Could you please rephrase that gobbly-gook double talk into clear English so it makes sense?

Nope. If it confuses you, then just skip it.