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RTRP Court Case Overview

Three paid tax return preparers (plaintiffs), filed a lawsuit (Loving et al., 2013-1 USTC ¶50,156) challenging the authority of the IRS to issue the new Circular 230 regulations authorizing the IRS to license paid tax return preparers who are not otherwise regulated by their respective professions.

The United States Court of Appeals for the District of Columbia Circuit issued their opinion on the Loving case and affirms the judgment of the District Court. Therefore, the IRS is enjoined from enforcing its licensing, testing and continuing education regime for tax preparers who are not otherwise regulated.

The court case questioned whether it is in the IRS's statutory authority to "regulate the practice of representatives of persons before the Department of the Treasury." The District Court ruled against the IRS, relying on the text, history, structure and context of the statute. The Appeals Court agrees with the District Court that the IRS's statutory authority under Section 330 cannot be stretched so broadly as to encompass authority to regulate tax return preparers.

The Appeals Court certifies that tax return preparers certainly assist the taxpayer, but they do not represent the taxpayer. In the decision, the Court stated, "In light of the way the Code treats tax preparation, it would be quite wrong to say that a tax-return preparer 'represents' the taxpayer in any meaningful legal sense."

The Court concluded, "It might be that allowing the IRS to regulate tax-return preparers more stringently would be wise as a policy matter. But that is a decision for Congress and the President to make if they wish by enacting new legislation. The 'role of this Court is to apply the statute as it is written – even if we think some other approach might accord with good policy.'"

What does this mean now? We'll have to wait to see if the IRS moves forward with the program, how it treats the RTRP designation or if they contact Congress. In February 2013, the District Court clarified the injunction to note that the IRS was not required to completely shut down the RTRP program. The IRS just couldn't require all tax professionals to partake in the program.

There is still no requirement for unenrolled preparers to obtain CPE or take an exam.

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