It all started with a ping. Just before noon, I got the following tweet:
A flurry of tweets, Facebook messages and emails followed. It was, in the grand scheme of my day, kind of a big deal. I had been following the IRS' plans to regulate preparers more or less since then Commissioner Doug Shulman pushed the idea forward in 2009. I've followed the changes with interest - allow with my fellow tax colleagues - since that time wondering how this would all eventually shake out.
When the IRS finally announced how paid preparers would register and who might be exempt from testing and continuing education requirements, I listened as my colleagues howled in protest. It became a sort of "Mom likes you best" game with throw downs between various sides. As the nastiness bubbled inside the tax world, I don't think any of us believed that there wouldn't be a bigger fight in court. And, of course, there was. In March of 2012, Sabina Loving, together with two other plaintiffs filed a complaint against the IRS in federal court alleging that the IRS didn't have the authority to regulate preparers. To get a better sense of the issues involved, I interviewed lead attorney Dan Alban at the time and got his thoughts. I was particularly struck by Alban's assertion that the existing law was not intended to authorize the IRS to regulate tax preparers noted that "they cannot give that authority to themselves.”
It turns out that the federal court agreed with him. A few days ago, U.S. District Court Judge James E. Boasberg ruled in Loving that the IRS did not, in fact, have the right to regulate preparers under the current scheme. That ruling, essentially stopped the IRS, to quote Alban, "dead in its tracks" from pursuing regulating preparers this tax season. So I dialed up Alban again to get his thoughts.
In the piece, I asked Alban about an appeal which he acknowledged might be a possibility. I actually expected the IRS to file an appeal. I just didn't expect to be quoted in it. From that article.
I should clarify that technically, what the IRS filed today isn't an appeal. It's a Motion to Suspend Injunction Pending An Appeal. You can read it in its entirety here (downloads as a pdf). I'm on page 8 of the Memorandum In Support Of Motion (save your jokes about Page 6 for the Post).
Procedurally, appeals take awhile. And the IRS really, really wants the Court to set aside the injunction before tax season opens - in six days. So, this motion is intended to void that injunction "temporarily" while the IRS works something else up. To win this kind of motion, the IRS has to prove a few things (taken from their Motion): (1) they have a reasonable likelihood of prevailing on appeal; (2) they will suffer irreparable harm if the injunction is not suspended; (3) the Plaintiffs will not be harmed by the request; and (4) suspending the injunction will serve the public interest.
So basically, they have to say that they're pretty sure that they can win the appeal AND that in the meantime, neither the plaintiffs nor the public will be harmed. That's where I come in. I noted in my interview with Alban that "all of the Plaintiffs in the matter had already submitted their PTIN (preparer identification numbers) and had planned to continue preparing returns this season." The IRS felt that was pretty damning evidence that there would be no harm to plaintiffs. We'll see if the Court agrees.
As for the harm to the IRS? They claim they will suffer if the injunction goes forward since they've been putting this scheme together for years. The IRS notes, in its Motion, that "over 700,000 return preparers have registered with the Service, nearly 100,000 return preparers have registered to take the test, and the Service has received over $100 million in registration and competency testing user fees" though they've only spent half of that to get the program going. They expect to collect another $4 million this month alone. The amount of money that has been collected to date from preparers is clearly a real problem for the agency if the Court rules that the injunction sticks (though a voluntary designation might mitigate some of those concerns). I've already received queries - as the IRS indicated might happen in their Motion - from preparers asking whether I've heard if they might be able to get a refund. I'm going out on a limb and guessing the IRS won't be in a hurry to issue refunds, no matter what happens. Going forward, however, - at least for now - there's no need to register. Even if you wanted to, you can't: the PTIN system and testing registration are both offline.
For the record, I've exchanged messages with Alban since the Motion was filed. He's not worried. You can read the IJ response here (bonus points for the old school Star Wars reference).
I've also contacted IRS Attorney Geoffrey Klimas to see if he'd like to chat with me about the IRS' position. I'll let you know how that goes. I figure if they can quote me, I can quote them, right?
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