Tax Notes Today published former IRS Commissioner and current Miller & Chevalier member Larry Gibbs’ excellent article (subscription required) on the legal issues in Loving v IRS. It is based on his talk he gave at Villanova’s Shachoy symposium last month, and similar in substance to what he and four other former commissioners presented to the DC Circuit in an amicus brief. It will also appear in the Villanova Law Review.
A little context and brief summary follows.read more...
31 USC section 330(a)(1) gives the Treasury the authority “to regulate the practice of representatives of persons before the Department of Treasury.” Section 330(a)(2)(D) also gives the Treasury the authority to require the representatives to demonstrate “competency to advise and assist persons in presenting their cases.” In District Court, DOJ argued that IRS has authority to regulate the practice of representatives without regard as to whether preparers are presenting a case because the operative part of 31 USC 330 is 330(a)(1). That gives Treasury the authority “regulate the practice of representatives.”
The District Court disagreed, and read 31 USC 330(a)(1) in conjunction with 330(a)(2). On appeal, DOJ stuck to its guns and argued that 330(a)(1) authorizes regulation regardless as whether preparers are presenting cases.
Gibbs takes a different tactical approach. He accepts the District Court approach that power to regulate representatives requires a finding that preparing a tax return relates to presenting a case. After reviewing the statutory language, the legislative history, and the development of the tax system (including one where an increasing number of refund generating claims are part of the Code), Gibbs concludes that preparers do present a case:
A return preparer presents a taxpayer’s case each time the preparer makes specific decisions about how to reflect the taxpayer’s income, deductions, exemptions, and credits on the taxpayer’s return,or how to present tax benefits and the effects of tax planning transactions in the return, or when and how to make disclosures in tax returns to minimize or avoid penalties,or when and how to file amended tax returns to correct errors in previously filed returns.(citations omitted)
Gibbs does, however, also address the definition of representative. Gibbs analogizes a tax return preparer to an attorney drafting a will, with the preparer and attorney both unable to perfect the document without a client signature and neither in a principal agent relationship. In Gibbs’ view, both the attorney and preparer are representatives, as “the attorney is reasonably viewed as having represented the client in advising, assisting, and preparing the client’s will on the client’s behalf, and I submit that the preparer also may be reasonably viewed as having represented the taxpayer in advising, assisting, and preparing the taxpayer’s income tax return on the taxpayer’s behalf.”
Gibbs concludes by bringing the issue back to broader administrative law principles. Namely, to win, Gibbs notes, it is not necessary that his argument be correct, just that there is some ambiguity, in light of Chevron. (Recall that under Chevron, unless Congress has spoken to the precise issue presented, an agency’s regulation is valid if the regulation fills a statutory gap, or defines a term, in a reasonable fashion).
For more on the legal issues in the case (and a different conclusion), I recommend readers review Professor Steve Johnson’s article Loving and Legitimacy: IRS Regulation of Tax Return Preparation that will be published in the Villanova Law Review.
If you would like to see a presentation of many of the ideas that are in this article, check out the video stream from the Shachoy symposium. As we previously blogged, the Shachoy had a panel on Loving that included Professor Michelle Drumbl, Dan Alban from the Institute for Justice and Professor Steve Johnson. Gibbs’ talk at the Shachoy is the basis for the Tax Notes article. The Loving panel starts at around the 1 hour 45 minute mark; Gibbs’ talk begins at about 2 hours and 32 minutes in.
As we have previously blogged, oral argument in the DC Circuit was in September. The IRS testing and continuing education aspects of its regulation are in limbo pending a decision.