united states court of appeals for the eleventh … · ii allen buckley ga. bar no. 092675 law...
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i
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 14-10424-A
____________
ALLEN BUCKLEY and
ALLEN BUCKLEY LLC
Plaintiffs-Appellants,
v.
UNITED STATES OF AMERICA
Defendant-Appellee
___________
On Appeal from the United States District Court
for the Northern District of Georgia
Atlanta Division
____________
OPENING BRIEF OF
PLAINTIFFS-APPELLANTS ALLEN BUCKLEY AND
ALLEN BUCKLEY LLC
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Allen Buckley
Ga. Bar No. 092675
Law Office of Allen Buckley LLC
Suite 100-C
2802 Paces Ferry Road
Atlanta, Georgia 30339
(770) 319-0110
Counsel for Plaintiffs-Appellants Allen Buckley and
Allen Buckley LLC
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IN THE
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
ALLEN BUCKLEY and )
ALLEN BUCKLEY LLC )
)
)
Plaintiffs-Appellants, )
) Appeal No. 14-10424-A
)
v. )
)
UNITED STATES OF AMERICA )
)
Defendant-Appellee )
CERTIFICATE OF INTERESTED PERSONS AND CORPORATE
DISCLOSURE STATEMENT
Pursuant to Fed. R. App. P. 26.1 and 11th Cir. R. 26.1-1, the following listed
attorneys, persons, associations of persons, firms, partnerships or corporations may
have an interest in the outcome of this appeal:
Buckley, Allen- Plaintiff-Appellant and counsel for Plaintiffs-Appellants
Anne Oliver - counsel for Defendant-Appellee
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Claire H. Taylor - counsel for Defendant-Appellee
Koelbl, Thomas F. - counsel for Defendant-Appellee
Patrick J. Urda – counsel to Defendant-Appellee
Robert L. Vining, Jr. - United States District Judge
Yates, Sally Quillian - United States Attorney, of counsel to Defendant-
Appellee
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STATEMENT REGARDING ORAL ARGUMENT
Plaintiffs-Appellants Allen Buckley and Allen Buckley LLC respectfully
submit that, particularly given a recent decision of the U.S. Court of Appeals for
the District of Columbia explained in the following brief, the issues presented in
this case are of a degree of national importance and complexity that they warrant
oral argument.
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TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS AND CORPORATE
DISCLOSURE STATEMENT ............................................................................. iii
STATEMENT REGARDING ORAL ARGUMENT ........................................... v
TABLE OF CONTENTS ...................................................................................... vi
TABLE OF CITATIONS .................................................................................... xiii
STATEMENT OF JURISDICTION ....................................................................xv
STATEMENT OF THE ISSUE .......................................................................... xvi
STATEMENT OF THE CASE ............................................................................... 1
1. COURSE OF PROCEEDING AND DISPOSITION
BELOW..…………………………………………………………………………..1
2. STATEMENT OF THE
FACTS….………………………………………………………………………….2
SUMMARY OF THE
ARGUMENT..…………………………………………………………………...17
ARGUMENT AND CITATIONS OF AUTHORITY ........................................17
1.THE FIRST ISSUE…..……………………………………………………… 17
Congress's Scheme v. Treasury's Scheme…………………………………25
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vii
The Brannen Case………………………………………………………… 32
2.THE SECOND ISSUE ...…………………………………………………….39
Pandora's Box………………………………………………………………….. 46
What is Most Important…………………………………………………………47
CONCLUSION .......................................................................................................48
CERTIFICATE OF COMPLIANCE ..................................................................50
CERTIFICATE OF SERVICE ............................................................................51
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viii
TABLE OF CITATIONS
Cases
Alaskan Artic Gas Pipeline Co. v. U.S., 831 F.2d 1043 (D.C. Cir. 1987)……….20
Betancur v. State of Florida Department of Health, 296 Fed. Appx. 761, 763
(2008), cert. den’d 555 U.S. 1213 (2009)………………………………………...35
Brannen v. U.S., 682 F.3d 1316 (11th Cir. 2012), cert. den’d __U.S.__, 133 S. Ct.
587 (2012)…………………………………………………………21, 31, 32, 35-39
Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984)…………………………….28
Commonwealth Edison Co. v. U.S. Nuclear Regulatory Commission, 830 F.2d 610
(7th
Cir. 1987) …………………………………………………………………….20
Cottage Saving Ass’n v. Comm’r, 499 U.S. 554, 561 (1994)
Demarest v. Manspeaker, 498 U.S. 184 (1991) ………. ……………………..…..18
Electronic Industries Ass’n, Consumer Electronics Group v. F.C.C., 554 F. 2d
1109, 1114-1116 (C.A.D.C. 1976)……………………………………………40, 43
Food & Drug Admin. v. Brown & Williamson Tobacco, 529 U.S. 120 (2000)
………………. …………………………………………………………...18, 22, 29
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Cases (continued)
Federal Power Commission v. New England Power Company,
415 U.S. 345 (1974) ………………………………… …………………………..20
Hubbard v. U.S., 514 U.S. 695 (1995)……………………………………………37
Loving v. Internal Revenue Service, 2013 U.S. Dist. LEXIS 7980, aff’d D.C. Cir.
No. 13-5061 (2014)………………………………...13, 16, 28-31, 35, 38-41, 45, 48
Lying v. Payne, 476 U.S. 926 (1986)……………………………..18, 33, 36, 40, 42
MCI Telecommunications Corp. v. American Telephone, Telegraph Co.,
512 U.S. 218 (1994) ……………………………………………………...18, 26, 31
Mississippi Power & Light Co. v. U.S. Nuclear Regulatory Commission,
601 F. 2d 223 (5th
Cir. 1979) ……………………………………………………..20
Morgan v. U.S., 309 F.2d 234 (D.C. Cir. 1962)………………………………37, 38
Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Co.,
463 U.S. 29 (1983)……………………………………………………………18, 32
National Cable Television Association, Inc. v. U.S. 415 U.S. 336 (1974) ……... 20
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Cases (continued)
National Ass’n of Broadcasters. F.C.C., 554 F. 2d 1118 (C.A.D.C. 1976)……….40
Oceanair of Florida, Inc. v. U.S. Department of Transportation, 876 F.2d 1560
(11th
Cir. 1989)……………………………………………………………………20
Old Mission Portland Cement Co. v. Helvering, 293 U.S. 289 (1934)…………...47
Roberts v. Sea-Land Services, Inc., __ U.S.___, 132 S. Ct. 1350 (2012)………..29
Seafarers Int’l Union of North American v. U.S. Coast Guard,
81 F. 3d 179 (D.C. Cir. 1996) ………………………………………………...40-42
Thorne v. Maggio, 765 F.2d 1270 (5th Cir. 1985)……………………………….. 18
U.S. v. Bramblett, 348 U.S. 503 (1955)………………………………………37, 38
U.S. v. Cartwright, 411 U.S. 546 (1973)………………………………………….46
U.S. v. Vogel Fertilizer Co., 455 U.S. 16 (1982)…………………………………46
Wright v. Everson, 543 F.3d 649, 656 (11th Cir. 2008)………………………16, 46
Yosemite Park and Curry Company v. U.S., 686 F.2d 925, 931 (Ct. Cl. 1982) …43
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Statutes
5 U.S.C. §500 …………………………………………………………….. 5, 16, 28
5 U.S.C. §§702 ………………………………………………………………….. 15
5 U.S.C. § 706 …………………………………………………………………....15
26 U.S.C.§ 6103(k)(5)………………………………………………………...23, 24
26 U.S.C. §6107 ……………………………………………………………….…. 7
26 U.S.C. §6109(a)(4) ………………..7-9, 12, 15, 18, 19, 21-27. 31-34, 36, 38-42
26 U.S.C. §6109(c) …………………………………………………………..14, 41
26 U.S.C. §6694 ...…………………………………………………………..……11
26 U.S.C. §6695 ………………………………………………………….11, 25, 31
26 U.S.C. §7001(a)…..………………………………………………………. 22, 24
26 U.S.C. §7203 …………………………………………………………..….11, 34
26 U.S.C. §7206………………………………………………………………..…11
26 U.S.C. §7216 ...……………………………………………………………..…11
26 U.S.C. §7407…………………………………………………..11, 24, 25, 31, 33
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Statutes (continued)
28 U.S.C. §1291 ………………………………………………………………….15
28 U.S.C. §1331………………………………………………………………..…15
31 U.S.C. §330 ……………………….3, 5, 7, 12, 15, 16, 26, 27, 29, 30, 38, 39, 51
31 U.S.C. §9701………………………………………………………………19, 40
42 U.S.C. §2133 ……………………………………………………….…….….. 22
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Other Authorities and Publications
IRS Publication 4832 ………………………………………..3-8, 10, 15, 16, 26, 27
INTERNAL REVENUE SERVICE Fiscal Year 2009 Budget Request and Interim
Performance Results of IRS’s 2008 Tax Filing Season...……………………...4, 13
Written Testimony of David R. Williams, Director, Return Preparer Office,
Internal Revenue Service House Ways & Means Subcommittee on Oversight
Hearing on Return Preparer Program, July 28, 2011………………………......4, 13
26 C.F.R. § 1.6107-1(a)(2)…………………………………………………………7
26 CFR §301.6109-(a)(ii).………………………………………………………...44
26 CFR §301.6109-2(d) …………………………………………………………..26
26 C.F.R. §1.6109-2(e)…………………………………………………………….8
User Fees Relating to Enrollment and Preparer Identification Numbers, 75 Fed.
Reg., No. 141………………………………………………………………9, 10, 13
User Fees Relating to Enrollment and Preparer Identification Numbers, 75 Fed.
Reg., No. 189…………………………………………………………………10, 13
IRS Newsletter Issue Number IR-2011-47…………………………………..11, 36
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Other Authorities and Publications (continued)
Regulations Governing Practice Before the Internal Revenue Service; Final Rule;
Fed. Reg. Vol. 176, No. 107…………………………………………………..14, 15
IRS Notice 2011-80…………………………………………………………...14, 17
GAO Federal User Fees, A Design Guide, GAO-08-386SP, May 2008……...14, 20
West’s Tax Law Dictionary (Robert Sellers Smith, 2009 ed.)……………………27
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STATEMENT OF JURISDICTION
The U.S. District Court had subject matter jurisdiction pursuant to 28 U.S.C.
§1331, 5 U.S.C. §§702 and 706. This Court has jurisdiction over this direct appeal
from the final judgment of the District Court pursuant to 28 U.S.C. § 1291. An
appeal from the District Court’s grant of motion for summary judgment on
December 4, 2013 was timely filed on January 31, 2014. This appeal is from a
final judgment that disposes of all parties’ claims.
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STATEMENT OF THE ISSUES
I. WHETHER THE DISTRICT COURT ERRED BY RULING THAT A
‘SPECIAL BENEFIT’ WAS GRANTED TO APPELLANTS IN THE FORM OF
THE RIGHT TO PREPARE TAX RETURNS BY THE U.S. TREASURY
DEPARTMENT WHEN IT ISSUED AN IDENTIFICATION NUMBER TO
ALLEN BUCKLEY THAT DOES NOT CHANGE, THUS PERMITTING
ANNUAL USER FEES TO BE CHARGED.
II. WHETHER THE FEES BEING CHARGED ARE EXCESSIVE, WHEN THE
ALLEGED BASIS FOR THE FEES IS TO PAY FOR ACTIVITES BEYOND
THE STATUTORY AUTHORITY WITH RESPECT TO WHICH THE FEES
WERE PROMULGATGED.
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Page 1 of 49
STATEMENT OF THE CASE
1. Course of Proceedings and Disposition Below
On January 24, 2013, in the United States District Court for the Eastern
District of Tennessee, Chattanooga Division, Plaintiffs-Appellants Allen Buckley
and Allen Buckley LLC filed suit asserting that the United States Treasury
Department ("Treasury") had no authority to charge a fee and annual renewal fees
of tax return preparers for a Preparer Tax Identification Numbers ("PTIN"). In the
alternative, it was argued that, if lawful, the fees are excessive. (Doc. 2)1 On
April 5, 2013, the Defendant filed a motion to dismiss for Improper Venue. In the
alternative to dismissal, the Defendant requested that the case be transferred to the
Northern District of Georgia. After briefing, on May 21, 2013, the U.S. District
Court for the Eastern District of Tennessee transferred the case to the U.S. District
Court for the Northern District of Georgia. Thereafter, Defendant filed an answer
to the complaint. (Doc. 3) Although Plaintiff attempted to conduct discovery, the
Defendant objected and the U.S. District Court for the Northern District of Georgia
granted Defendant’s request to defer discovery. Thus, no discovery was taken.
Both sides filed motions for summary judgment. On December 4, 2013, the U.S.
District Court ruled in favor of the Defendant as to all matters. (Doc. 1)
1 There is only one volume in the record of this case. Therefore, all references to
the record herein are to Volume 1.
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Page 2 of 49
2. Statement of the Facts
The pertinent facts are lengthy. They follow.
Allen Buckley is a Georgia attorney and licensed Certified Public
Accountant (CPA). As an attorney and CPA, Mr. Buckley has passed the Georgia
Bar examination and the Georgia CPA examination. For decades, he has also
annually taken continuing legal education (CLE) courses necessary for him to be
able to practice law and continuing professional education (CPE) courses
necessary for him to retain his CPA license. He is required to pay annual fees to
the State Bar of Georgia and bi-annual fees to the Georgia Secretary of State to
maintain his rights to practice law and accounting.
In 2010, Allen Buckley paid the U.S. Treasury $64.25 to acquire a Preparer
Tax Identification Number (“PTIN”). The PTIN was acquired because Mr.
Buckley prepares some income tax returns for compensation, and a regulation
issued by the U.S. Treasury Department (“Treasury”) in 2010 required that paid
tax return preparers acquire, pay for, annually renew and annually pay to renew, a
PTIN in order to prepare tax returns for compensation. In 2011, Allen Buckley
LLC, a Georgia limited liability company wholly-owned by Allen Buckley, paid
the U.S. Treasury $63 as a PTIN renewal fee.
Applicable Statutory Authorities. There are two federal statutes the
meanings of which are pertinent to the regulations in issue in this case. They are
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Page 3 of 49
31 U.S.C. §330 and 26 U.S.C. § 6109(a)(4). Hereafter, 26 U.S.C. is referred to as
“Code,” meaning the Internal Revenue Code. In pertinent part, 31 U.S.C. §330
provides:
Subject to section 500 of title 5, the Secretary of the Treasury may – (1)
regulate the practice of representatives of persons before Treasury; and
(b) before admitting a representative to practice, require the
representative demonstrate . . . (D) competency to advise and assist
persons in presenting their cases . . .
Code § 6109(a)(4) is provided and discussed infra.
Publication 4832. In 2009, the Internal Revenue Service (IRS) undertook a
study of the tax return preparation industry. The study culminated with the release
of IRS Publication 4832 in January of 2010, titled “Return Preparer Review.”
Publication 4832 is purely an IRS product.
Publication 4832 recommended substantial regulation of the tax return
preparation industry in a manner never before attempted, including testing to
determine competency to prepare returns for people who are not CPAs, attorneys
or enrolled agents and annual continuing education for such persons, along with
fees for testing and annual education. Additionally, Publication 4832
recommended that tax return preparers be required to obtain a PTIN from Treasury
for a fee, and be further required to renew PTINs for a fee every three years.2
2 See IRS Publication 4832, p. 33. A copy of Publication 4832 is attached as
Exhibit A to Plaintiffs’ Brief in Support of Plaintiffs’ Motion for Summary Judgment (hereafter, “Plaintiffs’ Brief”), Doc. 4. In this regard, Publication 4832 may have taken its conclusions from GAO’s March 2008 Report to the
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Page 4 of 49
Substantively, a licensing and registration regime was recommended. After 1976
but prior to 2011, tax return preparers could use their Social Security number
(SSN) to identify themselves on prepared returns or use a PTIN acquired from the
IRS at no cost.
Importantly, the first sentence of IRS Publication 4832 (following the
Executive Summary on page 1) provides: "Currently, any person may prepare a
federal tax return for any other person for a fee."3 (Emphasis supplied.) The
statement is consistent with all previous IRS statements and positions on the
subject.4 On July 28, 2011, David R. Williams, Director of the Return Preparer
Office of the Internal Revenue Service (IRS) said before the House Ways & Means
Subcommittee: “ . . .[A]ny person can prepare a federal tax return for any other
person for a fee.”5
Subcommittee on Oversight, Committee on Ways and Means, House of Representatives titled INTERNAL REVENUE SERVICE Fiscal Year 2009 Budget Request and Interim Performance Results of IRS’s 2008 Tax Filing Season. On p. 3, this report provides: “Because of the lack of a single identification number, IRS has limited ability to identify paid preparers. This complicates tax law enforcement and limits IRS’s ability to conduct research on how paid tax return preparers affect taxpayer compliance. According to IRS officials, requiring a single identification number could improve the situation but IRS has not analyzed the usefulness or cost of options to do so.” 3 The same is said on page 8.
4The IRS had never previously taken the position that it could regulate tax return
preparers under “Circular 230,” the publication relating to representatives of taxpayers before the IRS. See, e.g., Internal Revenue Service, IRS Publication 947, Practice Before the IRS and Power of Attorney at 2 (Rev. April 2009), available at http://www.irs.gov/pub/irs-utl/publication_947_practice_before_the_irs_and_poas_rev_4_09.pdf. (“Just preparing a tax return . . . is not practice before the IRS. These acts can be performed by anyone.”) 5 See Written Testimony of David R. Williams, Director, Return Preparer Office,
Internal Revenue Service House Ways & Means Subcommittee on Oversight
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Page 5 of 49
IRS Publication 4832 specifically noted failed legislative attempts to
regulate the tax return preparation industry, including S. 1219 (110th Cong.), the
Taxpayer Protection and Assistance Act of 2007. If enacted, this bill would have
amended 31 U.S.C. §330 to permit Treasury and the IRS to regulate tax return
preparers and require testing of many preparers and charging of fees largely in a
manner contemplated by Publication 4832.6
Other failed legislative attempts that would have done the same as the
Taxpayer Protection and Assistance Act of 2007 are The Taxpayer Protection and
Assistance Act of 2005, S. 832, 109th Cong., § 4(a) (2005), The Taxpayer Bill of
Rights Act of 2008, H.R. 5716, 110th Cong. § 4(a) (2008) and The Taxpayer Bill of
Rights Act of 2010, H.R. 5047, 111th Cong., § 202(a) (2010). The Taxpayer Bill
of Rights Act of 2010 was considered and rejected by a Democratic Congress in
2010. As discussed below, although these bills were rejected by Congress,
Treasury implemented the changes through regulations in issue.
Hearing on Return Preparer Program, July 28, 2011, p.2. A copy of this transcript is attached as Exhibit B to Plaintiffs’ Brief, Doc. 4. 6 Specifically, Section 4 of the Taxpayer Protection and Assistance Act of 2007
would have amended paragraph (a)(1) of 31 U.S.C. § 330 by inserting "(including compensated preparers of Federal tax returns, documents, and other submissions)" after "representatives," in the following sentence: “Subject to section 500 of title 5, the Secretary of the Treasury may – (1) regulate the practice of representatives of persons before Treasury; and (b) before admitting a representative to practice, require the representative demonstrate . . . (D) competency to advise and assist persons in presenting their cases . . .” Section 4 would also have permitted charging of fees. The Taxpayer Protection and Assistance Act of 2007 described the proposed change as an amendment to existing law. In contrast, Section 3 of this Act referred to a change relating to enrolled agents as a "clarification."
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Page 6 of 49
The primary objective of Publication 4832’s recommendations was to help
the IRS crack down on tax return preparers who file incorrect or fraudulent tax
returns. On pages 6, Publication 4832 provides: “The findings and
recommendations of this review, which are outlined in this report, are intended to
better leverage the tax return preparer community with the twin goals of increasing
taxpayer compliance and ensuring uniform and high ethical standards of conduct
for tax return preparers.” Publication 4832 states that the reason for changing the
preparer identification system (discussed below) was to aid the IRS. On page 33,
Publication 4832 provides:
The use of more than one number by any signing tax return preparer,
however, makes it more difficult for the IRS to collect accurate tax
return preparer data and to identify an individual tax return preparer.
The IRS, therefore, intends to require all individuals who prepare returns
for compensation and are required to sign those returns to register and
obtain a preparer tax identification number.
In his testimony before Congress, David R. Williams of the IRS thoroughly
described how the proposed system was designed to help the IRS. (See page 5 of
Exhibit B of Plaintiffs’ Brief, Doc.4). Finally, contrary to what the IRS had said
consistently for decades, page 33 of Publication 4832 provides: “The IRS believes
that increased oversight of paid tax return preparers does not require additional
legislation.”
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Regulatory Implementation of Publication 4832. Shortly after the issuance
of Publication 4832, Treasury acted to implement the IRS's recommendations.
Treasury did so by using Code §6109(a)(4) and 31 U.S.C. §330.
Enacted in 1976 as part of the Tax Reform Act of 1976, Code § 6109(a)(4)
provides in pertinent part: "Any return or claim for refund prepared by a tax return
preparer shall bear such identifying number for securing the proper identification
of such preparer, his employer, or both, as may be prescribed." It is important to
note that this section is purely an identification requirement that Treasury may
utilize. It has no other purpose and no authority is granted to Treasury to do
anything except require an identification number be placed on prepared returns.
Code §6109(c) authorizes Treasury to acquire such information as may be
necessary to assign an identifying number to any person. Since 1976, Treasury has
required identification numbers to be placed on returns.
Early in 2009, Treasury issued a regulation that permitted return preparers to
omit their SSN or PTIN from the copy of the tax return supplied to the taxpayer.7
This regulation continues to apply. Thus, the prior system protected return
preparers from identity theft.
Under Code § 6109(d), for purposes of § 6109(a)(4), except as otherwise
provided by regulations, an individual's SSN is his identifying number. Since each
7See Treas. Reg. § 1.6107-1(a)(2), as amended by T.D. 9436, December 15, 2008
(corrected January 28, 2009). (Under Code § 6107, a return preparer must supply a copy of the completed return to the taxpayer.)
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Page 8 of 49
individual has his own unique SSN, there is no substantive need for an alternative
identification system to identify tax return preparers. Treasury could have
simplified the system by requiring everyone to use his SSN as his identifying
number. An individual’s PTIN is sourced from his SSN. Practically, all that is
needed to identify a person under federal law is a name and a SSN. There may be
many a John Smith, but every John Smith has a unique SSN.
On March 26, 2010, Treasury issued proposed regulations under Code §
6109(a)(4) to implement the PTIN part of Publication 4832’s recommendations.
According to the preamble: “The principal objective of the proposed regulations is
to enable the IRS to more accurately identify tax return preparers and the tax
returns and refund claims associated with each tax return preparer.”8 Although,
once issued, a PTIN does not change, the proposed regulations provided that IRS
could designate an expiration date for a PTIN.9 The final regulations adopted this
expiration rule.10
Thus, a PTIN must now be renewed every year, with annual
renewal fees.
8Furnishing Identifying Number of Tax Return Preparer, 75 Fed. Reg., No. 58,
14542 (March 26, 2010). The Preamble also states that tax-compliance checks are intended to establish whether a return preparer has timely filed required personal and business tax returns and has paid taxes that are due or made acceptable arrangements for payment. This licensing-type action is inconsistent with the limited purpose of Code § 6109(a)(4). 9 Id. at 14544 (Prop. Reg. §1.6109-2(e)). See Doc. 3, Answer, ¶4, p. 2, regarding a
PTIN not changing. 10
Treas. Reg. §1.6109-2(e); Fed. Reg. Vol. 75, No. 189, p. 60315 (Sept. 30, 2010).
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Page 9 of 49
Comments with respect to the proposed regulations questioned the legality
of charging fees. Treasury responded to the comments by stating in the preamble
to the proposed regulations that it had the power to charge:
Individuals who obtain a PTIN receive the ability to prepare all or
substantially all of a tax return or claim for refund. The ability to
prepare all or substantially all of a tax return or claim for refund is a
special benefit.
No legal authority was cited for this quid pro quo conclusion that conflicts with
prior IRS statements that anyone can prepare tax returns.11
The significance of a
“special benefit” is discussed below.
On July 23, 2010, proposed regulations were issued under 26 CFR Part 300
to specify PTIN issuance and renewal fees. Without specification of costs to be
covered, a $50 fee and annual renewal fees of $50 were proposed.12
On September 30, 2010, the regulations providing for fees for issuance and
renewal of a PTIN were finalized. The final regulations followed the proposed
regulations, and called for a PTIN issuance fee of $50 and annual renewal fees of
$50. Again, no breakdown of the costs was provided. The preamble to the final
regulations provided:
11
Id. at 43112. 12
User Fees Relating to Enrollment and Preparer Identification Numbers, 75 Fed. Reg., No. 141, 43110-43111 (July 23, 2010). On page 43111, the Preamble states that tax compliance and suitability checks, which had not previously been performed, would be performed with respect to applicants. Again, these licensing-type activities are inconsistent with the limited purpose of Code § 6109(a)(4) (i.e., securing identification).
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Page 10 of 49
A PTIN confers a special benefit because without a PTIN, a tax return
preparer could not receive compensation for preparing all or
substantially all of a federal tax return or claim for refund.
Again, no legal authority was cited for this bizarre claim.13
As noted above, the first sentence of IRS Publication 4832, that follows the
Executive Summary on page 1, provides: "Currently, any person may prepare a
federal tax return for any other person for a fee." This statement contradicts the
quotes of the proposed and final regulations supplied in the preceding paragraphs,
unless the IRS can take away someone's right to make a living by preparing tax
returns simply by requiring a PTIN be supplied on prepared returns. As discussed
below, no law was enacted at any time that would have permitted Treasury to
take away a person’s right to prepare tax returns for compensation without
going to Court and proving certain wrongs had been done repeatedly.
Regarding reasoning, the preamble to the proposed fee regulations provided:
PTINs will now be used to collect and track data on tax return preparers.
This data will provide important benefits to the IRS, such as allowing the
IRS to track the number of persons who prepare returns, track the
number of returns each person prepares, and, when instances of
misconduct are detected, locate and review returns prepared by a specific
tax return preparer."14
Thus, the PTIN system was designed to help the IRS.
13
User Fees Relating to Enrollment and Preparer Identification Numbers, 75 Fed. Reg., No. 189, 60317, 60318 (September 30, 2010) (to be codified at 26 CFR Part 300). 14
User Fees Relating to Enrollment and Preparer Identification Numbers, 75 Fed. Reg., No. 141, 43113 (July 23, 2010).
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Page 11 of 49
In IRS Newsletter Issue Number IR-2011-47, the IRS announced it was
taking steps to prevent certain preparers from preparing returns by refusing to issue
PTINs to them. Accordingly, the PTIN system has been used as a licensing
mechanism by the IRS.
The Code includes numerous penalties applicable to tax return preparers.
Under Code § 6695(c), failure to include a PTIN (or other identifying number) on a
prepared return is subject to a monetary penalty of $50 per return, not to exceed
$25,000 per year. Other penalties potentially apply for taking a position without
substantial authority for the position (§6694), for doing or failing to do any one of
several things enumerated in Code §6695 and for disclosing taxpayer information
(§6713). Under Code §§7203, 7206 and 7216, return preparers are potentially
subject to criminal penalties, including imprisonment.
Under Code § 7407, Treasury may file a lawsuit to enjoin a tax return
preparer to do certain things, including placing an identification number on
prepared tax returns. When certain (bad) conduct is engaged in continuously or
repeatedly, including penalization for failure to include one’s PTIN on prepared
returns, Treasury can request the court to issue an injunction that prevents an
individual from being able to prepare returns.
As a practical matter, no service provider derives advantage by placing an
identification number on a product he will create for his client that will be sent to
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the IRS, when the product is a tax return and there is a host of penalties potentially
applicable to the preparer with respect to the product if it is not prepared in a way
acceptable to the IRS. Preparers identify themselves because they are required to
do so and substantial penalties potentially apply to failures to do so.
The IRS has profited from the new PTIN system. According to Carol A.
Campbell, Director of the Return Preparation Office of the IRS, through 2012, the
IRS had received more than $105,000,000 in PTIN fees, while incurring about
$54,000,000 in costs, on the return preparer program.15
Treasury sells the PTIN
database to vendors, thus causing returns preparers to receive emails solicitations.16
On June 3, 2011, for the first time (i.e., after Treasury issued the PTIN
regulations requiring $50 annual fees), Treasury estimated revenue from the user
fees charged for PTINs and specified the costs and things to be done for the fees.
It did so in the preamble to amendments to the “Circular 230” regulations issued
under 31 U.S.C § 330; not Code § 6109(a)(4). The main thrust of these regulations
15
See Declarations of Carol A. Campbell, attached hereto as Exhibits C and D of Plaintiffs’ Brief, Doc._4. Ms. Campbell said, in her declaration of January 23, 2013 (Exhibit C, ¶7), that the ongoing activities in implementing the PTIN application for return preparers include, among others, reviewing the application, conducting tax compliance and suitability checks, running a call center, providing communications and customer support. Given that all that is needed to identify a person in the U.S. is name and SSN, most of these activities are unwarranted. In her February 25, 2013 declaration, Ms. Campbell reported a tremendous overlap between the PTIN system and the IRS’s (recently struck down-see infra) testing and continuing education system. She also said the costs covered preparer assistance, complaint processing, compliance and enforcement oversight and a multitude of other actions unrelated to identification. See Exhibit D of Plaintiffs’ Brief, ¶¶7, 12. 16
See Tennessee Society of CPAs article titled “Several PTIN Sites Go Live; Be Wary of Providing Profile Information,” attached as Exhibit F to Plaintiffs’ Brief, Doc. 4.
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was to expand the regulatory scope of Circular 230 to cover tax return preparation,
so that Treasury could determine who could prepare tax returns for compensation.
Generally, these regulations require tax return preparers who are not attorneys,
CPAs or enrolled agents to take and pass an IRS test, take IRS-approved annual
education courses, acquire a PTIN and pay fees for the test, the education
(annually) and the PTIN (annually). As explained infra, they also state that only
persons with a PTIN, including attorneys, CPAs and enrolled agents, can prepare
tax returns for compensation. Recently, this expansion was ruled to be an
unlawful, ultra vires action, and a permanent injunction was issued to prevent
implementation with respect to testing and continuing education requirements
applicable to individuals who are not CPAs, attorneys or enrolled agents.17
The preamble to the Circular 230 regulations provided that anticipated
annual costs to preparers and revenues to the Defendant from an anticipated
800,000 to 1,200,000 PTINs were $51 million to $77 million.18
Importantly, the
anticipated expenses payable to vendors "to administer the PTIN application and
renewal process" was $11 million to $17 million. On a per preparer basis, the
vendor charge was set at $14.25 for PTIN issuance and annual renewal. Later, the
17
See Loving v. Internal Revenue Service, 2013 U.S. Dist. LEXIS 7980, aff’d D.C. Cir. No. 13-5061 (2014). A copy of the Loving opinion of the U.S. Court of Appeals for the D.C. Circuit is attached hereto as Exhibit A. 18
Regulations Governing Practice Before the Internal Revenue Service; Final Rule; Fed. Reg. Vol. 176, No. 107, 32295-32296, (June 3, 2011) (to be codified at 31 CFR 10).
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vendor renewal charge was reduced to $13 per preparer. Thus, the actual cost to
issue a PTIN is $14.25.
$59,427,633 of remaining costs was listed as relating to: (1) costs of
administering registration cards or certificates for each registered tax preparer; (2)
costs associated with prescribing forms, instructions, or other guidance with
respect to registered tax preparers; and (3) tax compliance and suitability checks.
These actions were “part and parcel” of the expansion of Treasury’s power over
the return preparation industry.19
While a payment acknowledgement letter with a 2 x 3 inch cut-out area with
the PTIN and other information on page 2 was provided in 2012, registration cards
or certificates have not been issued to return preparers who have paid the PTIN
fees.20
The PTIN is applied for either online or by filling out and mailing a short
form (W-12). There is no statutory authority for the IRS to be running "suitability
checks" in connection with PTIN issuance or renewal or denying anyone a PTIN
based on his personal tax compliance record.21
Suitability checks have not been
performed.22
As noted, there is a host of penalties applicable to return preparers.
19
For example, the suitability check (including prior tax compliance record) was part of the IRS’s means of determining whether someone was fit to prepare returns. See USCA Case #13-5061, Document #1428076, pp. 13-14, 28, a copy of which is attached as Exhibit G to Plaintiffs’ Brief, Doc. 4. 20
See Declaration of Allen Buckley, attached as Exhibit H to Plaintiffs’ Brief, Doc. 4. 21
In IRS Notice 2011-80, the IRS decided Code §6109(c) granted it the power to fingerprint people to help identify them. It designated these procedures as part of its suitability check. According to the Treasury Inspector General for Tax
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As noted, Treasury used 31 U.S.C. §330 and Code §6109(a)(4) to implement
its plan. The amended Circular 230 regulations (issued under 31 U.S.C. §330 as
part of implementation of the recommendations of IRS Publication 4832) provide
in answer to the question “Am I affected by this regulation?”:
If you are an attorney or certified public accountant, then the
amendments to §§10.3, 10.4, 10.5, 10.7 and 10.9 of Circular 230 (rules
regarding registered tax return preparers) do not apply to you. If you are
not an attorney or certified public accountant and you prepare, or assist
in preparing, all or substantially all of a tax return or claim for refund for
compensation, then you may be affected by this regulation.23
Section 10.5(d) relates to compliance and suitability checks. The tax compliance
check is an inquiry whether the applicant has filed all returns due and paid all taxes
he owes. The suitability check is an inquiry into whether an applicant has engaged
in conduct that would justify suspension or disbarment from being able to
Administration, validation and suitability checks include: (1) verification that the applicants are at least 21 years of age and not using the identity of a deceased person, (2) verification that applicants are either U.S. citizens or legal aliens with authorization to work in the U.S.; (3) questions on the application regarding felony convictions (a background check is also performed); (4) questions regarding tax compliance (an automated tax compliance check is performed on an ongoing basis to ensure all required tax returns are filed and paid and to identify fraud and preparer penalties); and (5) verification of Not-For-Profit status. See It Will Take Years to Implement the Return Preparer Program and to Realize Its Impact, September 30, 2010, Ref. No. 2010-40-127. There is no statutory basis for an age 21 requirement applicable to return preparation, and none of this information is needed to issue a PTIN. A copy of Form W-12 is attached to the Plaintiffs’ Brief (Doc. 4) as Exhibit I thereto. 22
See attached Exhibits J and K, both of which can be found on the IRS website at www.irs.gov/Tax-Professionals/Frequently-Asked-Questions:-Fingerprinting-Requirements, and www.irs.gov/Tax-Professionals/IRS-Statement:-Selection-of-Vendors-for-Return-Preparer-Testing-and-Fingerprinting-Programs. 23
Regulations Governing Practice Before the Internal Revenue Service; Final
Rule; Fed. Reg. Vol. 176, No. 107, p. 32287, (June 3, 2011) (to be codified at 31
CFR 10).
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represent taxpayers before the IRS. Thus, although attorneys and CPAs were not
supposed to be impacted by the regulation, they are required to pay for part of the
costs. However, as noted, certificates have not been issued and suitability checks
have not been performed.
31 U.S.C. §330 is, by its terms, subject to 5 U.S.C. §500. Under subsections
(b) and (c) of 5 U.S.C. §500, attorneys and CPAs have the right to represent their
clients before the IRS. Wright v. Everson, 543 F.3d 649, 656 (11th Cir. 2008).
Thus, Treasury could not utilize 31 U.S.C. §330 to potentially prevent attorneys
and CPAs from representing their clients in tax controversy matters. And, 31
U.S.C. §330 relates to representing persons before Treasury, not tax preparation.
See Loving v. Internal Revenue Service, U.S. Dist. LEXIS 7980 (2013), aff’d D.C.
Cir. No. 13-5061 (2014), (Exhibit A hereto), discussed infra.
Finally, in conjunction with the regulations issued to implement IRS
Publication 4832, in 2011, the IRS issued IRS Notice 2011-6. This document
exempts employees of many large tax return preparation firms other than CPA
firms (e.g. H&R Block) from the testing and continuing education requirements
that were set forth in the Circular 230 regulations, provided the PTIN fees are paid
with respect to these employees and the work of these employees is supervised by
a person who is a CPA, attorney or an enrolled agent. Noteworthy in regard to the
new regulations and this guidance is a Washington Examiner article by Timothy P.
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Carney of January 15, 2010, noting that the (recently – December 2007) former
CEO of H&R Block (Mark Ernst) had been hired by the Obama Administration as
deputy commissioner of the Internal Revenue Service, and that Mr. Ernst acted as a
“co-leader” of the new regulations project.24
SUMMARY OF THE ARGUMENT
With respect to the first issue, a special benefit must be provided in order for
user fees to be charged, and the special benefit must be the benefit specified in the
regulation authorizing the fee (or in the preamble thereto). The alleged special
benefit here, granting of the right to prepare tax returns for compensation, is bogus
because American citizens have the right to prepare tax returns for compensation.
With respect to the second issue (that is argued in the alternative), fees in excess of
the initial cost to issue a PTIN ($14.25) are excessive and thus cannot be charged
because the statutory authority in issue only permits Treasury to issue
identification numbers and the services alleged to be performed for the fees are not
necessary to issue an identification number that does not change.
THE ARGUMENT
1. The First Issue. The first issue is whether the following provision (Code 24
See http://washingtonexaminer.com/timothy-p.-carney-revolving-door-spins-at-
obamas-irs/article/33018. A copy of the article is attached hereto as Exhibit B. It
should also be noted that, in IRS Notice 2011-80, the IRS announced that certain
tax return preparers would be subjected to fingerprinting. Fees would be charged
for fingerprinting. The IRS has not (yet) implemented such a requirement.
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§6109(a)(4)) provides that Treasury has the power to decide who can prepare tax
returns for compensation (i.e. a licensing power): “Any return or claim for refund
prepared by a tax return preparer shall bear such identifying number for securing
proper identification of such preparer, his employer, or both, as may be
prescribed.” Relying on precedent from this Court, the District Court ruled that
this provision so provides. Appellants disagree.
Pertinent Existing Law: First Issue. Absent a constitutional law enacted by
Congress or a state or local government prohibiting someone from doing
something, an American citizen can do as he or she wishes. Thorne v. Maggio,
765 F.2d 1270, 1274 (5th Cir. 1985)(“Whatever is not forbidden on our blessed
shores is permitted.”) Under Article I of the U.S. Constitution, only Congress can
enact federal laws and only Congress can tax. Federal statutes must be interpreted
by giving words their ordinary meanings, with words, phrases and sentences
examined in context. Food & Drug Admin. v.Brown & Williamson Tobacco, 529
U.S. 120 (2000); MCI Telecommunications Corp. v. American Telephone,
Telegraph Co., 512 U.S. 218 (1994); Demarest v. Manspeaker, 498 U.S. 184
(1991). The reason given by the agency for its actions is what must be analyzed to
determine whether regulatory action is lawful. Motor Vehicle Manufacturers
Association v. State Farm Mutual Automobile Co., 463 U.S. 29, 50 (1983).
If each of the sentences of the preceding paragraph is correct with respect to
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U.S. law, then Appellants should win this appeal because the above-quoted
provision of §6109(a)(4) does not grant Treasury the power to decide who can
prepare tax returns for compensation, and fees are being charged annually for
activities that have nothing to do with issuance of an identification number that
does not change. As explained below, this is so because Congress never granted
Treasury the power to decide who can prepare tax returns for compensation, and
the “special benefit” allegedly granted by Treasury in exchange for the user fees in
issue is the right to prepare tax returns for compensation.25
Why the District Court Erred With Respect to the First Issue. The user fee
statute, 31 U.S.C. §9701, is in issue because the fees in issue were charged
pursuant to it. In pertinent part, 31 U.S.C. § 9701 provides: “The head of each
agency . . . may prescribe regulations establishing the charge for a service or thing
of value provided by the agency.” Regulations prescribed are subject to policies
prescribed by the President that must be as uniform as possible, and the charges
must be fair and based on (A) the cost to the government; (B) the value of the
service or thing of value to the recipient; (C) public policy or interest served; and
(D) other relevant facts.
25
As will be noted infra, the legislative history of §6109(a)(4) shows that this
provision was not meant to do anything more than serve as the optional
identification requirement described in the Code.
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In addition to the foregoing statutory requirements, the U.S. Supreme Court
ruled in National Cable Television Association, Inc. v. U.S., 415 U.S. 336 (1974)
and Federal Power Commission v. New England Power Company, 415 U.S. 345
(1974) that in order for a user fee to be charged under the user fee statute, the payer
must receive a “special benefit” and fees must be paid voluntarily. A special
benefit is akin to consideration in the contract context — receiving something of
value to which one is not entitled.
Case law holds that a special benefit exists, and thus user fees can be charged
by federal agencies, for things like federal land use by ranchers, right-of-ways
granted to utility companies, and the costs involved in issuing a license. See
Alaskan Artic Gas Pipeline Co. v. U.S., 831 F.2d 1043 (D.C. Cir. 1987); GAO
Federal User Fees, A Design Guide, GAO-08-386SP, May 2008, p. 12. ”In
general, a user fee is related to some voluntary transaction or request for
government goods or services above and beyond what is normally available to the
public, such as a request that a public agency permit an applicant to practice law or
medicine or construct a house or run a broadcast station. Id., p. 4.26
26
See also Commonwealth Edison Co. v. U.S. Nuclear Regulatory Commission,
830 F.2d 610 (7th Cir. 1987)(nuclear facilities operating licenses); Mississippi
Power & Light Co. v. NRC, 601 F.2d 223 (5th Cir. 1979) (nuclear facilities
operating licenses); Oceanair of Florida, Inc. v. U.S. Department of Transportation,
876 F.2d 1560 (11th Cir. 1989)(airline regulation). Numerous other such cases
exist.
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Importantly, other than Brannen v. U.S., 682 F.3d 1316 (11th Cir. 2012),
cert. den’d __U.S.__, 133 S. Ct. 587 (2012), Appellants have found no case that
permits such fees to apply in a situation where a regulatory requirement with an
expiration date and a penalty enforcement scheme exists, and fees are charged
annually to comply with the requirement. At the District Court, Defendant (now
Appellee) cited no such case. Brannen is discussed infra.
The special benefit allegedly granted in this case, as specified in the
regulations in issue without citing any authority therefor, is the right to prepare tax
returns. Thus, substantively, a licensing power is alleged to exist. The statute
upon which this alleged grant of the right to work preparing tax returns is Code
§6109(a)(4). No other authority is, or has been, cited for granting this power.
Again, in pertinent part, this section provides: “Any return or claim for refund
prepared by a tax return preparer shall bear such identifying number for securing
proper identification of such preparer, his employer, or both, as may be
prescribed.” This statute does not confer licensing power. It only grants Treasury
the power to require an identification number be placed on prepared returns.
Without licensing power, Treasury cannot charge to issue or renew a PTIN
that does not change. As thoroughly explained below, the legislative history is
consistent with the statutory language — §6109(a)(4) is only a requirement
designed to help the IRS identify tax return preparers.
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Congress knows how to grant licensing power to agencies. With respect to
nuclear power, in order to build and operate a nuclear power plant, a company
must be licensed and must receive a permit. 42 U.S.C. §2133 provides: “. . . The
Commission is authorized to issues licenses to persons . . .” In the tax area, Code
§7001(a) provides: “LICENSE.— All persons undertaking as a matter of business
or for profit the collection of foreign payments of interest or dividends by means of
coupons, checks, or bills of exchange shall obtain a license from the Secretary and
shall be subject to such regulations enabling the Government to obtain the
information required under Subtitle A (relating to income taxes) as the Secretary
shall prescribe.” Congress would not have granted such an important power in
such a cryptic manner. Cf. Food and Drug Admin. v. Brown & Williamson
Tobacco Corp., 529 U.S. 120 (2000).
While Code §6109(a)(4) does not grant a licensing power or anything akin
to a licensing power, it is a requirement that people must satisfy if Treasury
requires an identification number be placed on returns.27
Treasury does not grant
anything when it issues a PTIN, and thus there is no “special benefit.” Rather, it is
fulfilling its part of a requirement that it placed on people who have a right to earn
27
One can imagine how language that Treasury claims exists would read. If the
alleged power existed, presumably the statute would read along the lines of Code
§7001(a) and provide: “In order to prepare tax returns, a tax return preparer must
acquire a license from the Secretary.”
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a living by preparing tax returns for compensation.
Legislative History. Code §6109(a)(4) was enacted by the Tax Reform Act
of 1976 (“TRA ’76”). The legislative history of TRA’ 76 explains that the sole
reason for enactment of §6109(a)(4) was to help the IRS locate unscrupulous
preparers. The following provisions of the legislative history of § 6109(a)(4) state
that this law was enacted solely to help the IRS identify return preparers:
General reasons for change
. . . The rapid growth of the business of professional and commercial
preparation of tax returns has led to a number of problems for the
Internal Revenue Service. . . . Under present law, it is difficult for the
IRS to detect any individual case of improper preparation because the
tax preparer may not sign the return. Thus, the IRS has no way of
knowing whether the return was prepared by the taxpayer or by a
preparer who may be engaging in abusive practices involving a
number of returns.
Explanation of Provisions
. . . The bill also requires that any income tax return preparer retain
a copy of all returns . . . This provision, plus the requirement that the
preparer place his identification number on the return itself, is to enable
the IRS to identify all returns prepared by a specific individual in cases
where the IRS has discovered some returns improperly prepared by that
individual.28
Code § 6103(k)(5), also added to the Code by TRA ‘76, permits sharing of
tax return preparer ID and penalty information by the IRS with state and local
agencies in charge of “ . . . licensing, registration, or regulation of tax return
28
(Emphasis supplied.) (H.R. Rep. No. 94-658, at 274-282 (1975), reprinted in U.S.C.C.A.N. 2897, 3170-3173. See also S. Rep. No. 94-938-PART I at 349-356 (1976), reprinted in U.S.C.C.A.N. 3439, at 3778-3784.
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preparers,” to be used “ . . . only for purposes of the licensing, registration or
regulation of tax return preparers.” The previously-described licensing provisions
of Code §7001(a) were amended in a minor way by TRA ’76.29
A review of the
legislative history of TRA ‘76 relating to §§6109(a)(4), 6103(k)(5) and 7407
shows the Congress understood that it was creating disclosure requirements and
related penalties under Code §6109(a)(4), while distinguishing licensing powers
§under §6103(k)(5) and injunctive power under §7407 (in respective order,
below):
To aid the Internal Revenue Service in detecting incorrect returns
prepared by tax return preparers, and to deter preparers from engaging in
improper conduct, your committee’s bill includes a number of provisions
requiring tax return preparers to disclose information and subjecting
them to penalties for improper conduct. . . . Finally, the bill permits the
IRS to give State or local governing bodies charged with licensing,
registering or regulating income tax preparers information contained on
the annual information reports submitted to the Internal Revenue Service
which identifies tax return preparers or which indicates any penalties
which may have been assessed. . . . . Power to seek injunctions.—The
bill grants the Secretary the power to seek an injunction in any district
court of the United States prohibiting an income tax preparer from
engaging in specific practice or from acting as an income tax preparer. . .
.30
Given a choice, preparers would prefer not to fulfill the PTIN identification
29
TRA ’76, P.L. 94-455, §1906(b)(13)(A) (substituting “Secretary” for “Secretary
or his delegate,” effective February 1, 1977).
30H.R. Rept. No. 94-658, at 275, 278 and 281 (1975), reprinted in U.S.C.C.A.N.
2897, 3171, 3174, 3177.
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(ID) requirement. They do so because they have to in order to comply with the
legal requirement and avoid the penalties that potentially apply under Code §6695.
Congress’s Scheme v. Treasury’s Scheme. There are two different
regulatory schemes that have been created with respect to tax return preparers:
Congress’s scheme and Treasury’s scheme.
Congress’s Scheme. Congress’s scheme was created by Congress, and
signed into law by a U.S. president. Congress’s Scheme involves many potential
penalties for preparers who fail to act in a manner specified by Congress. Code
§7407 provides the ultimate backbone of Congress’s scheme. Under Code §7407
(like §6109(a)(4), enacted as part of TRA ’76), Treasury may file a legal action to
enjoin certain conduct. Under §7407(b)(1)(A), a return preparer who fails to
include his PTIN on prepared returns can be required by court order to include his
PTIN. Also, if the court finds that a return preparer has continually or repeatedly
failed to include his PTIN on prepared returns and determines that an injunction is
insufficient to prevent the continued failure, the court may enjoin the person from
acting as a tax return preparer. Penalties coupled with §7407 enforcement is
Congress’s sole method of enforcing many of the Code’s requirements, including
the PTIN requirement. Under Congress’s scheme, the only way a person can be
prevented from preparing tax returns for compensation is if the IRS takes the
person to court and the court rules that the person cannot prepare returns.
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Thus, a PTIN does not grant return preparation authority, and Treasury’s
broadening of its powers beyond those granted by Congress is unlawful. MCI
Telecommunications Corp. v. American Telephone, 512 U.S. 218 (1994).
Treasury’s Scheme. Treasury’s scheme is outlined above. It was created
based on Treasury’s twisted interpretation of two statutes that had been in
existence for many years—statutes that were never meant to grant licensing powers
to anyone. Treasury’s scheme is based on IRS Publication 4832, which
summarizes the IRS’s beliefs on how the tax return preparation industry should be
regulated. Congress had no involvement whatsoever in Treasury’s scheme.
It is apparent that Treasury decided to create a licensing scheme without
statutory authority to do so. 31 U.S.C. §330 was meant to serve as the licensing
mechanism, and Code §6109(a)(4) was meant to provide the license. The license
would justify annual fees. In order to generate significant recurring revenues, the
regulations issued under Code §6109(a)(4) provide for annual expiration of the
PTIN. And, the applicable regulations issued under Code §6109(a)(4) make clear
that the licensing fee was premised on the licensing scheme under Circular 230. In
this regard, 26 CFR §301.6109-2(d) provides the following regarding PTINs and
fees:
Beginning after December 31, 2010, all tax return preparers must have a
preparer identification number or other prescribed identifying number
that was applied for and received at the time and in the manner,
including the payment of a user fee, as may be prescribed by the Internal
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Revenue Service in forms, instructions, or other appropriate guidance.
Except as provided in paragraph (h) of this section, beginning after
December 31, 2010, to obtain a preparer tax identification number or
other prescribed identifying number, a tax return preparer must be an
attorney, enrolled agent, or registered tax return preparer authorized to
practice before the Internal Revenue Service under 31 U.S.C. 330 and
the regulations thereunder.
The problems with Treasury’s scheme are: (a) 31 U.S.C. §330 does not cover
tax return preparation (and the IRS had so admitted on many occasions over many
years); (b) Code §6109(a)(4) is merely a requirement; and (c) Congress didn’t
authorize it. These problems were disregarded, and regulations were issued
beginning in 2010 to implement Publication 4832’s recommendations.
The licensing (i.e., 31 U.S.C. §330) portion of Treasury’s scheme was struck
down in Loving v. Internal Revenue Service, 2013 U.S. Dist. LEXIS 7980, aff’d
D.C. Cir. No. 13-5061 (2014). There can be no license without licensing authority.
In the tax world, there are a few different types of work. They include
compliance, collections, controversy and planning. According to West’s Tax Law
Dictionary (Robert Sellers Smith, 2009 ed., p. 1054), tax compliance work is
“response of the taxpayer to the tax laws, including filing appropriate tax returns
and paying the taxes due in a timely manner.” West’s defines tax controversy work
as a “distinguishable dispute with respect to a tax matter, usually between a
taxpayer and a taxing authority, such as the I.R.S. . . . “At its most expansive
reasonable interpretation, 31 U.S.C. §330 applies to tax controversy work, but not
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to tax compliance work. Under 5 U.S.C. §500, attorneys and CPAs have the right
to represent persons before the IRS in tax controversy matters. Enrolled agents
(EAs) acquire that right by taking an IRS test, meeting other IRS requirements and
paying fees to the IRS. Loving ruled consistently with this line of reasoning.
In Loving, three tax return preparers who were not CPAs, attorneys or
enrolled agents attacked the licensing scheme that required them to take the IRS’s
test, pay related fees and, if the test was passed, take IRS-approved annual CPE
courses and pay related fees. The District Court for the D.C. Circuit ruled in favor
of the plaintiffs, striking down the entire scheme. The IRS appealed. On appeal,
the U.S. Court of Appeals for the D.C. Circuit affirmed the ruling of the District
Court. A copy of the opinion of the Court of Appeals for D.C. Circuit is attached
as Exhibit A.
Conclusions from the D.C. Court of Appeals decision in Loving pertinent to
the present case are:
In determining whether a statute is ambiguous and in ultimately
determining whether the agency’s interpretation is permissible or
instead is foreclosed by the statute, a court must employ all the tools of
statutory interpretation, including “text, structure, purpose and
legislative history[,].” (citing including Chevron U.S.A. Inc. v. NRDC,
467 U.S. 837 (1984); see page 5 of Exhibit A);
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“It is a fundamental canon of statutory construction that the words of a
statute must be read in their context and with a view to their place in
the overall statutory scheme[,]” (citing Roberts v. Sea-Land Services,
Inc., __ U.S.___, 132 S. Ct. 1350, 1357 (2012); see page 13 of Exhibit
A);
Over the years, Congress has enacted a number of targeted provisions
specific to tax-return preparers, covering precise conduct ranging from
a tax-return preparer’s failing to sign returns to knowingly understating
a taxpayer’s liability. . . . Each of those statutory proscriptions comes
with corresponding civil penalties. . . . Under the IRS’s view, however,
all of Congress’s statutory amendments would be unnecessary. The
IRS, by virtue of its heretofore undiscovered carte blanche grant of
authority from Section 330, would already have had free rein to impose
an array of penalties on any tax-return preparer . . . (see page 14 of
Exhibit A);
The Supreme Court has stated that courts should not lightly presume
congressional intent to implicitly delegate decisions of major economic
or political significance to agencies[,](citing Brown & Williamson, 529
U.S. at 160 (2000); see page 15 of Exhibit A).
Prior to the D.C. Circuit’s February 2014 ruling in Loving, incoming IRS
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Commissioner John Koskinen had suggested that a voluntary testing system should
be considered of return preparers who are not CPAs, attorneys or EAs if the IRS
lost the Loving case on appeal. Following the loss, Commissioner Koskinen
discussed what he might have in mind in the first answer of “Answers from the
New Commissioner,” as reported by Roger Russell in Tax Pro Today’s enewsletter
of February 20, 2014. Noteworthy is Commissioner Koskinen’s position that what
would be required would be less rigorous than what is required of an EA, and that
it would not be at a level necessary for them to be able to practice before the IRS.
A copy of this enewsletter is attached as Exhibit C.
Part of Treasury’s plan that was implemented in the new Circular 230 (31
U.S.C. §330) regulations was to convert an ordinary requirement, that a return
preparer obtain a PTIN, into the license. Accordingly, the June 2011 Circular 230
regulations provided in § 10.831
:
Any individual who for compensation prepares or assists with the
preparation of all or substantially all of a tax return or claim for refund
must have a preparer tax identification number. Except as otherwise
prescribed in forms, instructions, or other appropriate guidance, an
individual must be an attorney, certified public accountant, enrolled
agent or registered tax return preparer to obtain a preparer tax
identification number.
Thus, the new regime prohibited anyone from being able to prepare tax returns,
and used the PTIN as the licensing device. By voiding the entire concept of a
31
31 CFR Part 10 (June 3, 2011).
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registered tax return preparer, Loving left the PTIN regulation as the simple
requirement it was meant to be. Even if Treasury’s scheme is better than
Congress’s scheme, it cannot be applied. MCI Telecommunications Corp. v.
American Telephone, 512 U.S. 218, (last sentence of opinion) (1994). However,
Brannen ruled that Treasury has a licensing power based on Code §6109(a)(4) in
itself—beyond even Treasury’s expectations.
The only benefit of obtaining a PTIN is potential avoidance of penalties.
Based on Appellants’ scouring of the user fee cases, the user fee statute has never
been applied to a requirement with a penalty enforcement scheme. Relief from
potential applicability of penalties under 26 U.S.C. §6695 or possible injunctive
action under 26 U.S.C. § 7407 cannot form part or all of a "special benefit."
Otherwise, it would mean a legal requirement with a penalty scheme could produce
a special benefit when an identical legal requirement without a penalty scheme,
that otherwise did not produce a special benefit, could not produce a special
benefit. Since Congress chose to enforce the legal requirement with a penalty
scheme, being able to add a fee in addition would override the specific
enforcement mechanism designed by Congress. Even if Treasury’s system is
better, it cannot apply because it is not Congress’s system. MCI
Telecommunications Corp. v. American Telephone, 512 U.S. 218 (last sentence of
opinion)(1994). Furthermore, it is illogical that a requirement without a penalty
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could not be subject to the user fee statute when an identical requirement with a
penalty scheme could be, since the provision without a penalty scheme would have
no teeth for enforcement, while the requirement with the penalty scheme would
essentially permit the government to get people "coming and going." Finally,
while the identification system changed, the penalty scheme has not changed.
Treasury should not be permitted to place itself in a better position to charge fees
by adding a new regulatory requirement designed solely to help itself.
Again, the reason given by the agency for its actions is what must be
analyzed to determine whether regulatory action is lawful. Motor Vehicle
Manufacturers Association v. State Farm Mutual Automobile Co., 463 U.S. 29, 50
(1983). The reason given was the right to prepare returns was being granted.
The Brannen Case. It issuing its opinion in this case, the District Court
relied on Brannen. In pertinent part, Brannen substantively ruled that Code
§6109(a)(4) grants Treasury licensing powers. For all of the above reasons, the
Brannen case was incorrectly decided.32
Brannen read Code §6109(a)(4) as doing two things: First, it permits
Treasury to prescribe by regulation the particular identifying number required as
32
Also, on the first page of the Brannen decision, the Court stated that the
appellants in Brannen challenged the PTIN requirement. An examination of the
record from the Brannen case shows no such challenge was made.
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may be prescribed. Second, it requires that any return prepared bear such number.
Appellants believe these conclusions are correct. However, Brannen thereafter
concludes that an individual cannot prepare returns for others for compensation
without having such a number. Thus, according to Brannen, the privilege of
preparing returns is granted, supplying the ‘special benefit’ needed to charge
annual fees.
The problem with the Brannen conclusion is that Congress never meant for
Code §6109(a)(4) to serves as a licensing mechanism, or to provide for a means to
extract annual fees from people in order to prepare tax returns for compensation.
People can prepare returns for others for compensation because Congress has never
taken away that right or given any agency the power to take away that right. Yes,
an individual could potentially be penalized by the IRS for failing to include a
PTIN on a prepared return. But, no reported case has ruled that a requirement with
a penalty provision gives rise to a special benefit. Rather, a special benefit is
something of value to which one is not entitled such as a license.
A license grants someone the power to do something. Without the license, a
person breaks the law by doing the thing that the law requires a license in order to
do. Here, absent a court action under Code §7407 as discussed supra, anyone can
prepare returns because Congress never prohibited anyone from being able to
prepare returns or created a law that would permit an agency to prohibit anyone
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from preparing returns. Yes, if someone repeatedly did not include a PTIN on
returns, the IRS could repeatedly penalize him, and later (if penalization did not
induce compliance) take him to court and attempt to prevent him from being able
to prepare tax returns. But, the fact remains that §6109(a)(4) is only a requirement.
It is not, and was never intended by Congress to be, a licensing mechanism.
Treasury unlawfully converted it into a licensing mechanism so it could extract
annual fees.
Throughout the U.S. Code, there are many requirements that must be
satisfied, but the requirements don’t give agencies the power to prevent people
from doing things. They simply place burdens on people. Similar to Code
§6109(a)(4), there are many registration requirements in the Code that do not
produce licensing powers. For example, under Code § 6036, a receiver in an
insolvency proceeding must give notice of his qualifications in a manner specified
by regulations.33
Potential criminal penalties exist under Code §7203 for failure to
comply. Regulations issued under §6306 require action to be taken by a receiver.
However, no person is prohibited from serving as a receiver due to Code §6036.
Under Code § 6057, through regulations issued by Treasury, an administrator of a 33
The pertinent statutory language provides: “Every receiver, trustee in a case
under Title 11 of the United States Code, assignee for benefit of creditors, or other
fiduciary, and every executor (as defined in section 2203), shall give notice of his
qualification as to the Secretary in such manner and at such time as may be
required by regulations of the Secretary.”
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pension plan must annually file a registration statement with Treasury.34
Penalties
exist under Code §§ 6652(d) and 6690 for failure to comply. However, these
provisions do not authorize Treasury to decide who can maintain a pension plan.
Under the Brannen rationale, annual fees could be required to fulfill these
requirements if Treasury created regulations so requiring.
An analogy can be made to speed laws for vehicles. State and federal laws
set minimum and maximum speed requirements for certain roads. If someone fails
to maintain a minimum speed, he can potentially be ticketed for doing so. If an
individual received many tickets, he could potentially lose his license to drive if he
was taken to court and the court revoked his license. However, an individual
cannot potentially lose his driver’s license simply by driving too slow or too fast.
Here, as in Loving, liberty is at stake. And, in Betancur v. State of Florida
Department of Health, 296 Fed. Appx. 761, 763 (2008), cert. den’d 555 U.S. 1213
(2009), the U.S. Court of Appeals for the Eleventh Circuit noted: “States retain the
police power to regulate professions, such as the practice of medicine.” As
previously noted, Congress recognized that states (not the federal government) has
licensing power over tax return preparers in Code § 6103(k). It is disconcerting
34
The pertinent statutory language provides: “Within such period after the end of
a plan year as the Secretary may by regulations prescribe, the plan administrator . .
. of each plan to which the vesting standards . . . applies for such plan year shall
file a registration statement with the Secretary.”
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that Brannen held that a simple identification requirement designed to help the IRS
grants licensing power to Treasury.
Because anyone can prepare tax returns, anyone can acquire a PTIN.35
Preparers don’t want to fulfill this requirement because there is nothing in it for
them. They do so because they are required to do so and to avoid the possibility of
penalization. In this regard, the requirement is similar to the individual health care
mandate under “Obamacare.”36
In any event, there is no justification for annual
recurring fees because licensing powers were never granted by Congress.
As noted in the District Court’s opinion, Brannen only dealt with the initial
fee. For reasons set forth below, even if a fee could be charged for initial issuance
of a PTIN, the only fee that can be charged is the $14.25 fee paid to an outside
vendor to issue a PTIN. Thereafter, no other fees can lawfully be charged.
However, the District Court carried the Brannen decision further and concluded
that it could apply to renewal fees. It did so by relying on Brannen’s conclusion,
that was originally found in the preamble to the 2010 Code §6109(a)(4) regulations
(without citing any authority so providing) that the right to prepare tax returns was
35
However, as noted, the IRS has treated a PTIN as a license, and refused to grant
PTINs to certain persons. See IRS Newsletter Issue Number IR-2011-47,
described supra. Presumably, IRS could not penalize someone who it refused a
PTIN for failing to include such nonexistent PTIN on prepared tax returns.
36 Imagine if participation in Obamacare was conditioned upon receipt of an
identification number, and annual fees were charged to renew the number.
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being granted in exchange for the fees.
There are exceptions to stare decisis. And, courts make mistakes. Probably
the most important exception is for “intervening developments in the law.”
In Hubbard v. U.S., 514 U.S. 695 (1995), the U.S. Supreme Court overruled
its prior decision in U.S. v. Bramblett, 348 U.S. 503 (1955) because lower courts
had properly questioned it and created a reasonable exception, and there were no
significant reliance interests at stake in adhering to Bramblett. The statute in issue
was criminal in nature, and the question was whether the federal courts are an
agency or department of the government. Bramblett held that the federal courts are
a department of the federal government.
The first case to challenge Bramblett was Morgan v. U.S., 309 F.2d 234
(D.C. Cir. 1962). Thereafter, many courts followed Morgan, and ruled that
Bramblett didn’t apply to courts’ judicial functions. In determining that the lower
courts had acted appropriately by refusing to follow Bramblett, the Supreme Court
said: “Although the judicial function exception has not been adopted by this
Court, our review of Bramblett supports the conclusion that the cases endorsing the
exception almost certainly reflect the intent of Congress.” Hubbard at 713. In
other words, the Supreme Court recognized it had erred and corrected itself.
Here, no other court has considered Brannen’s rationale, and there clearly
are no reliance interests at stake by failing to adhere to Brannen. Regarding
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rationale, Morgan was the first case that began the string of lower court cases that
created the exception to Bramblett. Justice came from a lower court and the U.S.
Supreme Court accepted it. While it would be easy for the Court to follow
Brannen, justice requires otherwise. Furthermore, Loving is an intervening
development that eliminated Treasury’s ability to determine who can prepare
returns. The main point of Loving is that Treasury’s grant of power to itself to
decide who can prepare tax returns was unlawful. If 31 U.S.C. §330 does not grant
licensing power, then, a fortiori, § 6109(a)(4) does not do so. Thus, a PTIN cannot
grant power to prepare returns. If justice is the overriding objective, the erroneous
conclusion reached in Brannen won’t be applied.37
Loving struck down the intended licensing component of Treasury’s scheme
by holding that 31 U.S.C. §330 does not grant Treasury licensing powers. By
basing its decision in Brannen solely on Code §6109(a)(4), this Court did not
invoke the licensing scheme Treasury apparently intended to apply: 31 U.S.C.
37
At the Eleventh Circuit Court of Appeals, the undersigned provided most of the
oral argument in the Brannen case. At oral argument, the undersigned and co-
counsel (former Assistant U.S. Attorney) Jerry Froelich, Jr. argued the case with
Judge Anderson. Combined, the other two judges said relatively little. Judge
Anderson argued that §6109(a)(4) granted licensing power. The undersigned
contested the conclusion, to no avail. Few questions were asked of the
Government’s attorney, who used approximately half of his allotted 15 minutes to
speak. (Every other attorney who spoke that morning used his fully-allotted 15
minutes.) Judge Anderson issued the opinion.
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§330. In doing so, it avoided a potential problem if Loving was decided against the
IRS (as it was). However, Code §6109(a)(4) does not confer licensing powers. In
substance, an agency is charging an occupation tax.
Even if (contrary to Loving) licensing power exists under 31 U.S.C. §330, it
would only permit costs to be charged to issue licenses. Under 5 U.S.C. §500,
attorneys and CPAs are exempt from any potential licensing under 31 U.S.C. §330.
The only legitimate cost is the $14.25 initial cost to issue the PTIN. Because there
is no special benefit, not even this amount can lawfully be charged.
2. The Second Issue. The second issue is, assuming user fees can be
charged with respect to issuance of a PTIN and renewal of a PTIN, whether fees
can be charged in excess of those fees incurred to issue an identification number
that does not change. This issue was not considered in Brannen.
The District Court accepted Defendant’s argument that Treasury has not yet
completed implementation of its regulatory scheme, and thus future costs may be
incurred that justify fees charged in excess of costs incurred to date. The District
Court erred by failing to recognize that the things outlined by Treasury to be done
to justify the fees cannot lawfully be done now or in the future under applicable
statutory authorities. In other words, they are ultra vires actions.
Pertinent Existing Law: Second Issue. Because regulations may only be
issued to regulate activity authorized by Congress, user fees under 31 U.S.C.
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§9701 can be charged only with respect to services necessary to fulfill statutorily-
authorized activities. Seafarers Int’l Union of North America v. U.S. Coast Guard,
81 F.3d 179 (D.C. Cir. 1996); FDA v. Williamson Tobacco Corp., 529 U.S. 120,
161 (2000); Lying v. Payne, 476 U.S. 926, 937 (1986).
As noted, the justification for the fees in issue was not supplied in the Code
§6109(a)(4) regulations (issued in 2010) that provide for the fees. Rather, it was
provided in the preamble to the 2011 amended Circular 230 regulations that were
struck down in Loving. Case law requires that the cost basis for each fee must be
provided, along with (inter alia): (a) a public explanation of the specific expenses
included in the cost basis for the particular fee; and (b) exclusion of expenses
incurred to serve an independent public function. See National Ass’n of
Broadcasters. F.C.C., 554 F. 2d 1118, 1133 (C.A.D.C. 1976); Electronic Industries
Ass’n, Consumer Electronics Group v. F.C.C., 554 F. 2d 1109, 1114-1116
(C.A.D.C. 1976). Specific expenses to be incurred were not listed in either the
Code §6109(a)(4) regulations or the Circular 230 regulations. Rather, only a
listing of the activities to be undertaken was supplied. Treasury chose the $50 fee
in 2010 and produced the justification in 2011.
The Electronic Industries Ass’n, Consumer Electronics Group case involved
fees charged for franchise rights. Thus, a special benefit existed. The FCC
specified direct and indirect costs, multiplied the costs by a percent of the bureau’s
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activities devoted to application processing or tariff filing and added a portion of
other costs. The Court found the procedures deficient, and remanded the case for
recalculation of the fees. Here, there was no such detailed numerical analysis.
Rather, Treasury merely included figures in the preamble to the Circular 230
regulations. Thus, the present case for deficiency is stronger.
If the defects outlined in the two preceding paragraphs are not be terminal,
the fact remains that Code §6109(a)(4) only relates to issuing an identification
number. Code §6109(c) provides that Treasury “is authorized to require such
information as may be necessary to assign an identification number to any person.”
The only information necessary to identify a person in the U.S. is name and Social
Security number. Perhaps an address can be required as well, but the licensing-
type activities set forth in the Circular 230 regulations struck down in Loving are
beyond this scope.
Fees can only be charged for statutorily-justified activities. Seafarers Int'l
Union of North America v. U.S. Coast Guard, 81 F.3d 179 (D.C. Cir. 1996).
Seafarers involved a case where a federal agency had licensing power, and at issue
was what could be charged in connection with license issuance. (Here, there is no
licensing power, but Seafarers is significant with respect to what could be charged
for a PTIN if a special benefit was granted.) On page 185, Seafarers provides:
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Therefore, a reviewing court, in deciding whether an agency may extract
a fee in connection with a particular licensing scheme, need not pause to
weigh the relative public and private interests underlying the scheme, but
can instead turn to the relevant statute to determine the substantive
requirements underlying the license. Then, the proper inquiry is whether
the actual licensing procedures adopted by the agency are sufficiently
related to statutory criteria to justify assessing a fee.
On page 186, Seafarers provides:
Government counsel asserted that the agency should be permitted to
charge a fee for any procedures, such as inspection of boats, so long as
those procedures are conducted as part of the requirements for obtaining
a license. The Government's contention is absurd, for the Supreme
Court in NCTA and NEPCO made it clear that an agency cannot load
expenses in the guise of collecting licensing fees. . . . In other words, a
user fee for license applicants is only permissible if the procedures in
question are related to the qualifications set forth in the licensing
statute. . . . Moreover, it should be clear that an agency is not free to add
extra licensing procedures and then charge a user fee merely because
the agency has general authority to regulate in a particular area.
(Emphasis supplied.) Here, if a fee could be charged (which it cannot because
there is no special benefit in this case), the only legitimate fee would be the $14.25
initial administrative issuance fee because the applicable statute (§6109(a)(4)) was
enacted solely to help the IRS better identify return preparers.
On page 185, Seafarers also provides: "In short, the measure of fees is the
cost to the government of providing the service, not the intrinsic value of the
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service to the recipient."38
If costs could be charged here, PTIN initial issuance
costs are all that could be charged.
In Electronic Industries Ass’n, Consumer Electronics Group v. F.C.C., 554
F. 2d 1109, 1115 (C.A.D.C. 1976), the Court of Appeals for the D.C. Circuit said
the FCC could only charge franchise issuance fees for expenses “necessary to
service the applicant or grantee.” The Court specified:
A hypothetical example will illustrate our meaning. If the Commission,
in granting an equipment type approval under 47 U.S.C. § 302a (1970)
47 C.F.R. § 2.803 (1975), is required to incur expenses for testing or
inspection, such expenses can be charged in full to the applicant. These
activities have undisputed private benefit although they may also create
incidental public benefits as well. But if the agency were to engage in
further activity to determine whether a piece of equipment which has
already been found to have no potential for creating ‘harmful
interference’ under section 302a meets standards for consumer safety it
would be doing so to satisfy some independent public interest, and the
charge for these additional expenses could not be included in the fees
imposed on equipment owners.
The three things listed in the preamble to the Circular 230 regulations as
justifying the fees — (1) costs of administering registration cards or certificates for
38
See Yosemite Park and Curry Company v. U.S., 686 F.2d 925, 931 (Ct. Cl.
1982) (“The cost standard laid down by the Supreme Court refers to those direct
and indirect costs to the government . . .”). There may be instances where cost
analysis might be inappropriate, such as when the federal government incurs no
costs (e.g., cattle grazing on federal land). Such is not the case here. See also
Electronic Industries Ass’n, Consumer Electronics Group v. F.C.C., 554 F. 2d
1109, 1118 (C.A.D.C. 1976) (fees assessed cannot exceed cost of service rendered
and expenses incurred to serve an independent public interest cannot be included).
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each registered tax preparer; (2) costs associated with prescribing forms,
instructions, or other guidance with respect to registered tax preparers; and (3) tax
compliance and suitability checks— are unnecessary to issue an identification
number. Of the three activities, the first (registration cards or certificates) is
unnecessary and has not been done. When the undersigned initially received his
PTIN, he received only a short letter, specifying the PTIN. Upon renewal in 2011,
he received an email acknowledging the filing. Nothing other than one short letter
is needed. In this regard, 26 CFR §301.6109-1(a)(ii) provides the following
regarding uses of identification numbers: “Uses.—Social Security numbers, IRS
individual taxpayer identification numbers, and IRS adoption taxpayer
identification numbers are used to identify persons.”
Concerning costs of prescribing forms and instructions, etc., there are
hundreds or perhaps thousands of forms and related instructions on the IRS
website. The undersigned has prepared tax returns for approximately 30 years. In
the experience of the undersigned, the IRS has never charged for forms or
instructions relating thereto. Guidance to tax return preparers and taxpayers has
always been made available at no charge. In recent years, guidance and
information (including all forms and instructions) is listed on www.irs.gov. The
costs of issuing IRS forms (including the two-page Form W-12) and instructions is
an ordinary cost of the IRS’s role as tax system administrator. Again, tax return
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preparers would prefer not to fulfill the PTIN requirement.
Suitability checks and tax compliance checks would be lawful if a PTIN was
a license. It’s not a license. It’s an identifying number. As noted supra, attorneys
and CPAs were not supposed to be subject to suitability or tax compliance checks,
yet they are being charged for such future activities relating to others. After
Loving, there is no legal basis for performing suitability checks or tax compliance
checks in relation to the ability to prepare tax returns because no one is unsuitable
to prepare returns. If a tax return preparer owes the IRS taxes, the IRS can pursue
the preparer just like it can pursue any individual who owes taxes. Congress did
not create a system whereby tax return preparers are treated any differently than
other individuals in terms of tax investigation. The penalty and potential injunctive
relief system created by Congress to regulate tax return preparers was outlined
above, and Congress created no special means for Treasury to determine whether
return preparers are delinquent on their tax liabilities.
What could Treasury do if a CPA completed his Form W-12 by stating that
he was delinquent on his personal taxes and he had been convicted of a felony?
Under current law, it could pursue him for his unpaid taxes. However, it could do
nothing with respect to his ability to prepare tax returns. The PTIN requirement of
Code §6109 does not permit Treasury to ask these questions, because they not
pertinent with respect to an identification number that does not change. Even if
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Treasury could ask such questions under other authority, it cannot charge people
for costs of doing so.39
So, even if Treasury has only partially undertaken implementation of the
new PTIN system, the only potentially lawful fee is the initial charge of $14.25 to
issue the PTIN. Even for that activity, fees cannot be charged because no special
benefit is provided. All renewal fees are unlawful.
The fee is a revenue-raiser tied to a requirement with an annual expiration
and renewal feature and a penalty enforcement scheme—it’s an occupation tax.
Pandora’s Box. From all that has been provided, hopefully it is apparent
that, without statutory authority to do so, Treasury created a licensing scheme with
respect to the tax return preparation industry (with the IRS deciding who gets a
license). In the vernacular, what was done stinks. It is not the way our American
system of government is supposed to work.
In May of 2008, the GAO issued “Federal User Fees A Design Guide,”
39
The only other authority that might permit Treasury to ask these questions is
Code §7805(a). Under §7805(a), Treasury generally may prescribe all needful
rules and regulations for enforcement of the internal revenue laws. However, this
authority does not permit Treasury to do anything that would justify charging fees
of anyone. The U.S. Supreme Court has held twice, in U.S. v. Cartwright, 411
U.S. 546 (1973) and U.S. v. Vogel Fertilizer Co., 455 U.S. 16 (1982), that
regulations issued under this provision must be based on a specific grant of
authority from Congress. No such grant exists with respect to the information in
issue.
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(GAO-08-386SP). This document noted in the “Why GAO Did This Study”
section on page 1:
The federal government will need to make the most of its resources to
meet the emerging challenges of the 21st century. As new priorities
emerge, policymakers have demonstrated interest in user fees as a means
of financing new and existing services.
Perhaps expansion of user fees is appropriate in areas where fees can lawfully be
charged but have not been charged. The matter at hand is not one of those areas.40
It is very important to note the potential implications of ruling for the
Appellee. Agencies will copy what was done by Treasury, and add expiration
dates to requirements subject to penalty schemes, thereby justifying renewal fees.
Agencies will be able to charge taxes, as was done here. While the annual fee is
not large, absent something stopping Treasury, it will only increase over time and
it will never go away.
What Is Most Important. Without Congressional authorization, Treasury
created a licensing scheme whereby it can decide who can prepare returns and
40
The U.S. Supreme Court has ruled on numerous occasions that treasury
regulations that have continued without substantial change over a long period of
time are deemed to have received congressional approval and have the effect of
law. Cottage Saving Ass’n v. Comm’r, 499 U.S. 554, 561 (1994); Old Mission
Portland Cement Co. v. Helvering, 293 U.S. 289, 293-4 (1934). In Portland
Cement, the Supreme Court ruled that a regulation issued in 1921 could become
“law” with respect to the years 1923-1926 that were under audit. The PTIN
regulations will have been in effect since 2010. Gridlock has existed in Congress
since 2010. Certainly, the Founding Fathers never anticipated such a result.
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annually extract money from tax return preparers. This case is that simple.
Loving struck down the backbone of the licensing scheme; here lies the remainder.
The federal government is broke. Congress must solve the problem through
tax and spending changes. The fees in issue will not come close to eliminating the
deficit. In any event, justice cannot take a back seat to deficit reduction. If it does,
our system is finished. Only Congress can make law.
Between signing statements, executive orders, selective enforcement of laws
and regulations extending beyond statutorily-granted authority, the Constitution
has been trampled on by the Executive Branch of the federal government in recent
years. If Appellants lose this case, all Americans will lose because their freedom
and property has been and will be taken without approval of Congress, while the
Executive Branch of the federal government will become ever more brazen to
expand its already excessive powers. The Court has the power to uphold the
Constitution and supply justice. For the sake of our country, Appellants ask it to
please do so.
CONCLUSION
U.S. citizens and lawful residents have always had the right to prepare tax
returns for others for compensation. Treasury created regulations without statutory
authority to do so in order to expand its power and raise revenue. Without
statutory authority, it took away the right to prepare tax returns, and returned it in
Case: 14-10424 Date Filed: 03/05/2014 Page: 64 of 67
Page 49 of 49
exchange for annual fees. Treasury’s new system, which was rejected by Congress
many times, includes an unlawful occupation tax in the form of annual PTIN user
fees that add an unconstitutional burden to tax return preparers.
The special benefit necessary to charge user fees under the user fee statute is
lacking in this case. Even if it somehow exists, the fees being charged are in
excessive of the statutorily-authorized activity of issuing an identification number.
For all of the above reasons, Appellants request the Court reverse the
District Court's summary judgment order in favor of the Defendant, refund
Appellant the PTIN fees in issue and his costs, and issue an injunction ordering
Treasury to stop charging annual PTIN fees.
Dated: March 5, 2014
Respectfully submitted,
/s/Allen Buckley
Georgia Bar No. 092675
Law Office of Allen Buckley LLC
Suite 100-C
2802 Paces Ferry Road
Atlanta, GA 30339
(770) 319-0110
Fax: (404) 881-8040
Fax: (770) 319-0110
COUNSEL FOR PLAINTIFFS-APPELLANTS
Case: 14-10424 Date Filed: 03/05/2014 Page: 65 of 67
Page 50 of 49
CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 32(a)(7)(C), the undersigned certifies that the
foregoing Appellants' Opening Brief complies with the applicable type-volume
limitations of Fed. R. App. P. 32(a)(7)(B). This certificate was prepared in
reliance on word count of the word-processing system (Microsoft Word) used in
this brief. More specifically:
1. Exclusive of portions exempt by Fed. R. App. R. P. 32(a)(7)(B)(iii), this
brief contains 13,124 words.
2. This brief has been prepared in proportionally-spaced typeface using
Microsoft Word in Times New Roman, 14-point font.
Dated: March 5, 2014
s/Allen Buckley
Ga. Bar No. 092675
Case: 14-10424 Date Filed: 03/05/2014 Page: 66 of 67
Page 51 of 49
CERTIFICATE OF SERVICE
This is to certify that on March 5, 2014, I caused a copy of the foregoing
Opening Brief of Plaintiffs-Appellants Allen Buckley and Allen Buckley LLC to
be deposited in the United States mail, First Class postage pre-paid, in an envelope
addressed to the following persons:
Anne Oliver Sally Quillian Yates
U.S. Department of Justice-Tax United States Attorney
Tax Division Richard B. Russell Buil-
Ben Franklin Station ding and U.S. Courthouse
P.O. Box 227 75 Spring Street, SW, Suite 600
Washington, D.C. 20044 Atlanta, GA 30303-3309
Counsel for Defendant-Appellee Counsel for Defendant-Appellee
Claire H. Taylor Thomas F. Koelbl
U.S. Department of Justice-Tax U.S. Department of Justice
Tax Division Tax Division
BEN FRANKLIN STATION P.O. Box 14198
P.O. Box 227 Washington, D.C. 20044-0000
Washington, D.C. 20044 Counsel for Defendant-Appellee
Counsel for Defendant-Appellee
Patrick Urda
U.S. Department of Justice-Tax Division
Appellate Section
P.O. Box 502
Washington, D.C. 20044
Counsel for Defendant-Appellee
s/Allen Buckley
Allen Buckley
Ga. Bar No. 092675
Case: 14-10424 Date Filed: 03/05/2014 Page: 67 of 67
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 24, 2013 Decided February 11, 2014
No. 13-5061
SABINA LOVING, ET AL.,
APPELLEES
v.
INTERNAL REVENUE SERVICE, ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 1:12-cv-00385)
Gilbert S. Rothenberg, Attorney, U.S. Department of
Justice, argued the cause for appellants. With him on the
briefs were Tamara W. Ashford, Principal Deputy Assistant
Attorney General, Richard Farber and Patrick J. Urda,
Attorneys.
David W. Foster was on the brief for amici curiae Former
Commissioners of Internal Revenue in support of appellants.
Charles Harak was on the brief for amici curiae National
Consumer Law Center, et al. in support of appellants.
Case: 14-10424 Date Filed: 03/05/2014 Page: 1 of 19
2
Dan Alban argued the cause for appellees. With him on
the brief were William H. Mellor, Scott G. Bullock, and Ari S.
Bargil.
Patrick J. Smith was on the brief for amici curiae Ronda
Gordon, et al. in support of appellees.
Before: KAVANAUGH, Circuit Judge, and WILLIAMS and
SENTELLE, Senior Circuit Judges.
Opinion for the Court filed by Circuit Judge
KAVANAUGH.
KAVANAUGH, Circuit Judge: The federal income tax
code is massive and complicated. So it is not surprising that
many taxpayers hire someone else to help prepare their tax
returns.
In 2011, responding to concern about the performance of
some paid tax-return preparers, the IRS issued new
regulations. Among other things, the new regulations require
that paid tax-return preparers pass an initial certification
exam, pay annual fees, and complete at least 15 hours of
continuing education courses each year. The IRS estimates
that the new regulations will apply to between 600,000 and
700,000 tax-return preparers.
As statutory authority for the new regulations, the IRS
has relied on 31 U.S.C. § 330. Originally enacted in 1884,
that statute authorizes the IRS to “regulate the practice of
representatives of persons before the Department of the
Treasury.” 31 U.S.C. § 330(a)(1). In the first 125 years after
the statute’s enactment, the Executive Branch never
interpreted the statute to authorize regulation of tax-return
Case: 14-10424 Date Filed: 03/05/2014 Page: 2 of 19
3
preparers. But in 2011, the IRS decided that the statute in fact
did authorize regulation of tax-return preparers.
In this case, three independent tax-return preparers
contend that the IRS’s new regulations exceed the agency’s
authority under the statute. The precise question is whether
the IRS’s statutory authority to “regulate the practice of
representatives of persons before the Department of the
Treasury” encompasses authority to regulate tax-return
preparers. The District Court ruled against the IRS, relying
on the text, history, structure, and context of the statute. We
agree 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. We
therefore affirm the judgment of the District Court.
I
Originally passed by Congress and signed by President
Chester A. Arthur in 1884, Section 330 of Title 31 authorizes
the Secretary of the Treasury – and by extension, the IRS, a
subordinate agency within the Treasury Department – to
“regulate the practice of representatives of persons before the
Department of the Treasury.” 31 U.S.C. § 330(a)(1). Before
admitting a person to practice as a representative, the IRS
may require the applicant to demonstrate “good character,”
“good reputation,” “necessary qualifications to enable the
representative to provide to persons valuable service,” and
“competency to advise and assist persons in presenting their
cases.” Id. § 330(a)(2). The statute also empowers the IRS to
discipline any representative who is “incompetent,”
“disreputable,” “violates regulations prescribed under”
Section 330, or who “with intent to defraud, willfully and
knowingly misleads or threatens the person being represented
or a prospective person to be represented.” Id. § 330(b).
Case: 14-10424 Date Filed: 03/05/2014 Page: 3 of 19
4
Such representatives may be fined, or suspended or disbarred
from practice. Id.
In longstanding regulations implementing Section 330,
the IRS has maintained standards of competence for
attorneys, accountants, and other tax professionals appearing
in adversarial proceedings before the agency. Covered
individuals who fail to comply with those requirements may
be censured, suspended from practice, disbarred from
practice, or monetarily sanctioned.
In 2011, after an IRS review found problems in the tax-
preparation industry, the IRS issued a new rule regulating tax-
return preparers, a group that had not previously been
regulated pursuant to Section 330. See Regulations
Governing Practice Before the Internal Revenue Service, 76
Fed. Reg. 32,286 (June 3, 2011). (The rule was technically
issued by the Department of the Treasury, of which the IRS is
a part.) A tax-return preparer is a person who “prepares for
compensation, or who employs one or more persons to
prepare for compensation, all or a substantial portion of any
return of tax or any claim for refund of tax under the Internal
Revenue Code.” 26 C.F.R. § 301.7701-15(a). The new 2011
regulations require tax-return preparers to register with the
IRS by paying a fee and passing a qualifying exam. 31 C.F.R.
§§ 10.3(f)(2), 10.4(c), 10.5(b). Each year after the initial
registration, a tax-return preparer must pay an additional fee
and complete at least 15 hours of continuing education
classes. Id. § 10.6(d)(6), 10.6(e).
Plaintiffs in this case are three independent tax-return
preparers who would be subject to the new requirements.
They filed suit seeking declaratory and injunctive relief to
prevent enforcement of the new regulations. On cross
motions for summary judgment, the District Court ruled in
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5
favor of the plaintiffs, concluding that “together the statutory
text and context unambiguously foreclose the IRS’s
interpretation of 31 U.S.C. § 330.” Loving v. IRS, 917 F.
Supp. 2d 67, 79 (D.D.C. 2013). The District Court
permanently enjoined the tax-return preparer regulations.
The IRS moved in the District Court for a stay of the District
Court’s decision and asked to keep the regulations in place
pending appeal. The District Court denied the stay motion.
The IRS filed a timely notice of appeal disputing the
District Court’s construction of Section 330. The IRS also
filed a stay motion in this Court to keep the regulations in
place pending appeal. That motion was denied. Loving v.
IRS, No. 13-5061, 2013 WL 1703893 (D.C. Cir. Mar. 27,
2013).
Our review of the District Court’s statutory interpretation
is de novo. See, e.g., Judicial Watch, Inc. v. FBI, 522 F.3d
364, 367 (D.C. Cir. 2008).
II
The question in this case is whether the IRS’s authority to
“regulate the practice of representatives of persons before the
Department of the Treasury” encompasses authority to
regulate tax-return preparers. 31 U.S.C. § 330(a)(1). The IRS
says it does. Under Chevron, we must accept an agency’s
authoritative interpretation of an ambiguous statutory
provision if the agency’s interpretation is reasonable. See
Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984). In
determining whether a statute is ambiguous and in ultimately
determining whether the agency’s interpretation is permissible
or instead is foreclosed by the statute, we must employ all the
tools of statutory interpretation, including “text, structure,
purpose, and legislative history.” Pharmaceutical Research
& Manufacturers of America v. Thompson, 251 F.3d 219, 224
Case: 14-10424 Date Filed: 03/05/2014 Page: 5 of 19
6
(D.C. Cir. 2001); see also Chevron, 467 U.S. at 843 n.9. “No
matter how it is framed, the question a court faces when
confronted with an agency’s interpretation of a statute it
administers is always, simply, whether the agency has stayed
within the bounds of its statutory authority.” City of
Arlington v. FCC, 133 S. Ct. 1863, 1868 (2013).
In our view, at least six considerations foreclose the
IRS’s interpretation of the statute.
First is the meaning of the key statutory term
“representatives.” In its opening brief, the IRS simply asserts
that there “can be no serious dispute that paid tax-return
preparers are ‘representatives of persons.’” IRS Br. 31 n.11.
Beyond that ipse dixit, however, the IRS never explains how a
tax-return preparer “represents” a taxpayer. And for good
reason: The term “representative” is traditionally and
commonly defined as an agent with authority to bind others, a
description that does not fit tax-return preparers. See, e.g.,
OXFORD ENGLISH DICTIONARY 660 (2d ed. 1989) ([4] “One
who represents another as agent, delegate, substitute,
successor, or heir”); BLACK’S LAW DICTIONARY 1416 (9th ed.
2009) ([1] “One who stands for or acts on behalf of
another . . . . See agent”); BALLENTINE’S LAW DICTIONARY
1096 (3d ed. 1969) (“An agent, an officer of a corporation or
association, a trustee, executor, or administrator of an estate,
or any other person empowered to act for another.”); 45
U.S.C. § 151 (“The term ‘representative’ means any person or
persons, labor union, organization, or corporation designated
either by a carrier or group of carriers or by its or their
employees, to act for it or them.”); U.C.C. § 1-201(b)(33)
(“‘Representative’ means a person empowered to act for
another, including an agent, an officer of a corporation or
association, and a trustee, executor, or administrator of an
estate.”).
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7
Put simply, tax-return preparers are not agents. They do
not possess legal authority to act on the taxpayer’s behalf.
They cannot legally bind the taxpayer by acting on the
taxpayer’s behalf. The IRS cites no law suggesting that tax-
return preparers have legal authority to act on behalf of
taxpayers. Indeed, a tax-return preparer who tried to act on
the taxpayer’s behalf would run into trouble with the IRS:
Under the IRS regulation found at 26 C.F.R. § 601.504(a),
“representation” of a taxpayer before the IRS requires
formally obtaining the taxpayer’s power of attorney,
something tax-return preparers do not typically obtain when
preparing returns. Moreover, because a tax-return preparer is
not a representative, the taxpayer ordinarily must still sign and
submit the return in his or her own name even when the
taxpayer uses the services of a tax-return preparer.
Other IRS directives buttress the understanding that tax-
return preparers are not representatives. For example, the IRS
permits taxpayers to select any person as a “Third Party
Designee” who may talk to the IRS about questions that arise
during the processing of the taxpayer’s return. See Third
Party Authorization, Levels of Authority, IRS Publication
4019 (Oct. 2012). But as the instructions for the standard tax
return form make clear, that third-party designee status is not
the same as representative status or power of attorney: “You
are not authorizing the designee to receive any refund check,
bind you to anything (including any additional tax liability),
or otherwise represent you before the IRS. If you want to
expand the designee’s authorization, see Pub. 947 [Practice
Before the IRS and Power of Attorney].” 1040 Instructions
2012 at 77.
Of course, the meaning an agency attaches to a term in its
regulations is not always the same as the meaning Congress
intends to give that term when Congress includes it in
Case: 14-10424 Date Filed: 03/05/2014 Page: 7 of 19
8
statutes. But an agency’s use of a term can be valuable
information not only about ordinary usage but also about any
specialized meaning that people in the field attach to that
term. That is particularly true when, as here, the term is one
that the agency uses in a number of contexts. Cf. FAA v.
Cooper, 132 S. Ct. 1441, 1449 (2012) (“when Congress
employs a term of art, it presumably knows and adopts the
cluster of ideas that were attached to each borrowed word in
the body of learning from which it was taken”) (internal
quotation marks omitted).
The tax-return preparer certainly assists the taxpayer, but
the tax-return preparer does not represent the taxpayer. 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. In short, the statute’s
use of the term “representative” excludes tax-return preparers.
Second is the meaning of the phrase “practice . . . before
the Department of the Treasury.” The IRS has long regulated
service professionals such as attorneys and accountants who
appear as representatives of taxpayers in adversarial tax
proceedings before the IRS. Under its new regulations,
however, the IRS expanded its definition of “practice” to
cover tax-return preparers. According to the IRS, the
“practice” of tax-return preparers consists of “preparing and
signing tax returns and claims for refund, and other
documents for submission to the Internal Revenue Service.”
31 C.F.R. § 10.3(f)(2).
To be sure, “preparing and signing tax returns” could be
considered a “practice” of sorts, particularly if the tax-return
preparer is providing advice or making judgment calls about a
taxpayer’s liability. But Section 330 does not regulate the act
of “practice” in the abstract. The statute instead addresses
Case: 14-10424 Date Filed: 03/05/2014 Page: 8 of 19
9
“practice . . . before the Department of the Treasury.”
Although the exact scope of “practice before” a court or
agency varies depending on the context, to “practice before” a
court or agency ordinarily refers to practice during an
investigation, adversarial hearing, or other adjudicative
proceeding. See, e.g., 35 U.S.C. § 32 (discussing “practice
before the Patent and Trademark Office”); 26 U.S.C. § 7452
(practice before the tax court); 15 U.S.C. § 78d-3
(“Appearance and practice before” the SEC).
That is quite different from the process of filing a tax
return. As the Supreme Court has explained, “[t]he Federal
tax system is basically one of self-assessment, whereby each
taxpayer computes the tax due and then files the appropriate
form of return along with the requisite payment.” United
States v. Galletti, 541 U.S. 114, 122 (2004) (internal quotation
marks omitted). Even when the IRS disagrees with a
taxpayer’s determination of the taxes due, the tax-return
preparer is not invited to present any arguments or advocacy
in support of the taxpayer’s position. Instead, the IRS
conducts its own ex parte, non-adversarial assessment of the
taxpayer’s liability. See 26 C.F.R. § 601.104(c); 26 U.S.C.
§ 6201-6204. Not until a return is selected for an audit, or the
taxpayer appeals the IRS’s proposed liability adjustments,
does a taxpayer designate a representative to act on his or her
behalf. See 26 U.S.C. § 7521 (procedures for “taxpayer
interviews” during audits); 26 C.F.R. § 601.103(c),
601.106(c) (representation of taxpayers at appeals
“conferences”). All of this underscores that tax-return
preparers do not practice before the IRS when they simply
assist in the preparation of someone else’s tax return.
The meaning of “practice . . . before the Department” in
Section 330(a)(1) is further illustrated by the next subsection
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10
of the statute, Section 330(a)(2), which provides that the
Secretary may:
before admitting a representative to practice, require
that the representative demonstrate –
(A) good character;
(B) good reputation;
(C) necessary qualifications to enable the
representative to provide to persons valuable
service; and
(D) competency to advise and assist persons in
presenting their cases.
31 U.S.C. § 330(a)(2) (emphases added). With respect to the
last clause of Section 330(a)(2)(D) – the reference to
“presenting their cases” – the District Court succinctly and
cogently explained: “Filing a tax return would never, in
normal usage, be described as ‘presenting a case.’ At the time
of filing, the taxpayer has no dispute with the IRS; there is no
‘case’ to present. This definition makes sense only in
connection with those who assist taxpayers in the examination
and appeals stages of the process.” Loving v. IRS, 917 F.
Supp. 2d 67, 74 (D.D.C. 2013).
In trying to sidestep the import of the Section
330(a)(2)(D) language, the IRS does not contend that
preparing a tax return constitutes “presenting” a “case.”
(Some outside commentators take that view, but the IRS does
not.) Rather, the IRS says that “presenting their cases” is
irrelevant because the listed criteria in Section 330(a)(2)
should be read disjunctively as if they were connected by an
“or” instead of an “and.” See IRS Br. 37-38, Reply Br. 10-12.
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11
According to the IRS, not all of the criteria in Section
330(a)(2) apply to all persons regulated under that Section.
That is not a persuasive argument. Most obviously, the
statute uses the conjunctive “and” – not the disjunctive “or” –
when listing the various requirements, a strong indication that
Congress did not intend the requirements as alternatives.
The IRS’s insistence that the criteria in Section 330(a)(2)
must be read as alternatives is further undermined by
reference to the language of Section 330’s predecessor statute.
The provisions now codified as Section 330(a)(2)(A)-(D)
originally authorized the Secretary of the Treasury to require
that representatives were “of good character and in good
repute, possessed of the necessary qualifications to enable
them to render such claimants valuable service, and otherwise
competent to advise and assist such claimants in the
presentation of their cases.” Act of July 7, 1884, ch. 334, sec.
3, 23 Stat. 258, 258-59 (emphasis added). The use of the
word “otherwise” clearly indicates that, as originally
formulated, the language now contained in Section
330(a)(2)(A)-(C) is to be read in conjunction with, and in
terms of, the presentation of cases. That original language
matters, particularly because Congress, when it adopted the
current streamlined language in 1982, stated that it intended to
do so “without substantive change.” See Pub. L. No. 97-258,
96 Stat. 877, 877 (1982).
To be sure, by their plain terms, the four requirements in
Section 330(a)(2) are somewhat overlapping, as the IRS
notes. But that is not a reason for changing “and” to “or.”
After all, some overlap is common in laws of this kind that set
forth qualifications to obtain a government benefit or license.
And more broadly, lawmakers, like Shakespeare characters,
sometimes employ overlap or redundancy so as to remove any
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12
doubt and make doubly sure. See Abbe R. Gluck & Lisa
Schultz Bressman, Statutory Interpretation from the Inside –
an Empirical Study of Congressional Drafting, Delegation,
and the Canons: Part I, 65 STAN. L. REV. 901, 934-35 (2013).
Interpreting Section 330(a)(2) to have some modest overlap is
far more reasonable than interpreting the statute, as the IRS
does, to mean “or” when it says “and.”
It is true, as the IRS points out, that the IRS’s authority
under Section 330(a)(2)(D) to require competence in
“presenting their cases” is discretionary; the statute provides
that the Secretary “may” do so. So we should not and do not
over-rely on this contextual point. We merely think that
Section 330(a)(2)(D) adds at least some color to the overall
statutory picture here: On balance, it suggests that Congress,
when it enacted Section 330(a)(2), envisioned that practice
before the agency would involve traditional adversarial
proceedings.
Third is the history of Section 330. The language now
codified as Section 330 was originally enacted in 1884 as part
of a War Department appropriation for “horses and other
property lost in the military service.” Act of July 7, 1884, ch.
334, sec. 3, 23 Stat. 258. It stated:
[T]he Secretary of the Treasury may prescribe rules
and regulations governing the recognition of agents,
attorneys, or other persons representing claimants
before his Department, and may require of such
persons, agents and attorneys, before being recognized
as representatives of claimants, that they shall show
that they are of good character and in good repute,
possessed of the necessary qualifications to enable
them to render such claimants valuable service, and
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13
otherwise competent to advise and assist such
claimants in the presentation of their cases.
Id. at 258-59 (emphases added).
That original language plainly would not encompass tax-
return preparers. Even after tax-return preparation became a
significant industry, moreover, Congress did not broaden the
language. On the contrary, when Congress re-codified the
statute in 1982, Congress simplified the phrase “agents,
attorneys, or other persons representing claimants,” to the
current “representatives of persons.” But importantly, as we
have noted, Congress made clear in the statute itself that it
intended no change to the statute’s scope: The title of the
amending legislation states that the 1982 Act was designed
“[t]o revise, codify, and enact” the amended provisions
“without substantive change.” See Pub. L. No. 97-258, 96
Stat. 877, 877 (1982) (emphasis added).
The fact that Congress used the words “agents,”
“attorneys,” “claimants,” “otherwise,” and “presentation of
their cases” in the original version of the statute, and that
Congress then expressly stated in the statute itself that it
intended no change in meaning when it streamlined the statute
in 1982, further indicates that the statute contemplates
representation in a contested proceeding, not simply
assistance in preparing a tax return.
Fourth is the broader statutory framework. “It is a
fundamental canon of statutory construction that the words of
a statute must be read in their context and with a view to their
place in the overall statutory scheme.” Roberts v. Sea-Land
Services, Inc., 132 S. Ct. 1350, 1357 (2012) (internal
quotation marks omitted). Yet accepting the IRS’s view of
Section 330(a)(1) would effectively gut Congress’s carefully
articulated existing system for regulating tax-return preparers.
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14
Over the years, Congress has enacted a number of
targeted provisions specific to tax-return preparers, covering
precise conduct ranging from a tax-return preparer’s failing to
sign returns to knowingly understating a taxpayer’s liability.
See, e.g., 26 U.S.C. §§ 6694, 6695, 6713. Each of those
statutory proscriptions comes with corresponding civil
penalties. Congress has continued to revise those statutes.
See, e.g., Pub. L. No. 112-41, § 501(a), 125 Stat. 428, 459
(2011) (amending 26 U.S.C. § 6695(g) to increase penalties).
Under the IRS’s view here, however, all of Congress’s
statutory amendments would have been unnecessary. The
IRS, by virtue of its heretofore undiscovered carte blanche
grant of authority from Section 330, would already have had
free rein to impose an array of penalties on any tax-return
preparer who “is incompetent,” “is disreputable,” “violates
regulations prescribed under” Section 330, or “with intent to
defraud, willfully and knowingly misleads or threatens the
person being represented or a prospective person to be
represented.” 31 U.S.C. § 330(b). And that would have
already covered all (or virtually all) of the conduct that
Congress later spent so much time specifically targeting in
individual statutes regulating tax-return preparers.
It is true that the views or understanding of later
Congresses – such as those Congresses that enacted the
targeted statutes regulating tax-return preparers – are not
dispositive and sometimes can be a hazardous basis for
interpreting the meaning of an earlier enacted statute such as
Section 330. See Central Bank of Denver, N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164, 185 (1994).
That said, as the Supreme Court has reasoned in similar
circumstances, we find at least some significance in the fact
that multiple Congresses have acted as if Section 330 did not
extend so broadly as to cover tax-return preparers. As the
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15
Supreme Court has stated, “the meaning of one statute may be
affected by other Acts, particularly where Congress has
spoken subsequently and more specifically to the topic at
hand.” FDA v. Brown & Williamson Tobacco Corp., 529
U.S. 120, 133 (2000). So it is here.
Fifth is the nature and scope of the authority being
claimed by the IRS. The Supreme Court has stated that courts
should not lightly presume congressional intent to implicitly
delegate decisions of major economic or political significance
to agencies. See Brown & Williamson, 529 U.S. at 160 (“we
are confident that Congress could not have intended to
delegate a decision of such economic and political
significance to an agency in so cryptic a fashion”).
If we were to accept the IRS’s interpretation of Section
330, the IRS would be empowered for the first time to
regulate hundreds of thousands of individuals in the multi-
billion dollar tax-preparation industry. Yet nothing in the
statute’s text or the legislative record contemplates that vast
expansion of the IRS’s authority. This is the kind of case,
therefore, where the Brown & Williamson principle carries
significant force. Here, as in Brown & Williamson, we are
confident that the enacting Congress did not intend to grow
such a large elephant in such a small mousehole. In short, the
Brown & Williamson principle strengthens the conclusion that
Section 330 does not encompass tax-return preparers.
Sixth is the IRS’s past approach to this statute. Until
2011, the IRS never interpreted the statute to give it authority
to regulate tax-return preparers. Nor did the IRS ever suggest
that it possessed this authority but simply chose, in its
discretion, not to exercise it. In 2005, moreover, the head of
the IRS’s Criminal Investigation Division testified to
Congress that “[t]ax return preparers are not deemed as
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16
individuals who represent individuals before the IRS.” Fraud
in Income Tax Return Preparation: Hearing Before the
Subcommittee on Oversight of the House Committee on Ways
and Means, 109th Congress (2005) (testimony of Nancy J.
Jardini). At the same hearing, the National Taxpayer
Advocate – the government official who acts as a kind of IRS
ombudsperson – stated to Congress that “the IRS currently
has no authority to license preparers or require basic
knowledge about how to prepare returns.” Id. (testimony of
Nina E. Olson). The IRS issued a guidance document in 2009
that likewise emphasized that “[j]ust preparing a tax return
[or] furnishing information at the request of the IRS . . . is not
practice before the IRS. These acts can be performed by
anyone.” Practice Before the IRS and Power of Attorney, IRS
Publication 947, at 2 (April 2009).
The IRS is surely free to change (or refine) its
interpretation of a statute it administers. See FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009). But the
interpretation, whether old or new, must be consistent with
the statute. And in the circumstances of this case, we find it
rather telling that the IRS had never before maintained that it
possessed this authority. Cf. Financial Planning Association
v. SEC, 482 F.3d 481, 490 (D.C. Cir. 2007) (“an additional
weakness” in SEC’s interpretation of statute was that it
“flouts six decades of consistent SEC understanding of its
authority under” statute). In light of the text, history,
structure, and context of the statute, it becomes apparent that
the IRS never before adopted its current interpretation for a
reason: It is incorrect.
* * *
In our judgment, the traditional tools of statutory
interpretation – including the statute’s text, history, structure,
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and context – foreclose and render unreasonable the IRS’s
interpretation of Section 330. Put in Chevron parlance, the
IRS’s interpretation fails at Chevron step 1 because it is
foreclosed by the statute. In any event, the IRS’s
interpretation would also fail at Chevron step 2 because it is
unreasonable in light of the statute’s text, history, structure,
and context. 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.”
Burrage v. United States, __ S. Ct. __ (2014) (internal
quotation marks and brackets omitted). The IRS may not
unilaterally expand its authority through such an expansive,
atextual, and ahistorical reading of Section 330. As the
Supreme Court has directed in words that are right on point
here, the “fox-in-the-henhouse syndrome is to be
avoided . . . by taking seriously, and applying rigorously, in
all cases, statutory limits on agencies’ authority.” City of
Arlington v. FCC, 133 S. Ct. 1863, 1874 (2013). We affirm
the judgment of the District Court.
So ordered.
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APPENDIX
§ 330. Practice before the Department
(a) Subject to section 500 of title 5, the Secretary of the
Treasury may —
(1) regulate the practice of representatives of
persons before the Department of the Treasury;
and
(2) before admitting a representative to practice,
require that the representative demonstrate —
(A) good character;
(B) good reputation;
(C) necessary qualifications to enable the
representative to provide to persons
valuable service; and
(D) competency to advise and assist
persons in presenting their cases.
(b) After notice and opportunity for a proceeding, the
Secretary may suspend or disbar from practice before
the Department, or censure, a representative who —
(1) is incompetent;
(2) is disreputable;
(3) violates regulations prescribed under this
section; or
(4) with intent to defraud, willfully and
knowingly misleads or threatens the person being
represented or a prospective person to be
represented.
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The Secretary may impose a monetary penalty on
any representative described in the preceding
sentence. If the representative was acting on behalf
of an employer or any firm or other entity in
connection with the conduct giving rise to such
penalty, the Secretary may impose a monetary
penalty on such employer, firm, or entity if it knew,
or reasonably should have known, of such conduct.
Such penalty shall not exceed the gross income
derived (or to be derived) from the conduct giving
rise to the penalty and may be in addition to, or in
lieu of, any suspension, disbarment, or censure of the
representative.
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