A federal court has ruled that the IRS exceeded its authority when it attempted, in Section 10.27 of Circular 230, to regulate the contingent fees charged for the preparation and filing of ordinary refund claims by a CPA who did not “represent” the taxpayer. (Ridgely v. Lew, D.D.C., 1:12-cv-00565, 2014 BL 196974, 7/16/14).
In the July 16 decision, Judge Christopher R. Cooper of the U.S. District Court for the District of Columbia said that the issue in the case was “the IRS's proclaimed authority to regulate fee arrangements entered into by CPAs for preparing and filing Ordinary Refund Claims before the commencement of any adversarial proceedings with the IRS or any formal legal representation by the CPA.” Cooper relied heavily on the reasoning set forth in the U.S. Court of Appeals for the District of Columbia's decision in Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), which found that the IRS lacked authority under 31 U.S.C. Section 330 to regulate tax return preparers because the statute unambiguously showed that the IRS's regulation authority didn't extend to tax preparers because their activities didn't constitute practicing before the IRS.
Cooper said that, “CPAs preparing and filing [Ordinary Refund Claims] before possessing any power of attorney possesses no legal authority to act on behalf of taxpayers. In Loving’s words, these individuals merely ‘assist‘ the taxpayer. Thus, Section 330’s use of the term ‘representative’ excludes refund claim preparers, just as it did tax-return preparers in Loving.”
The opinion also addressed the IRS contention that, “it has authority to regulate all actions of CPAs whoundefinedat some pointundefined‘practice’ before it, regardless of whether they’re acting in a representational or non-representational capacity.” The opinion specifically found that:
- “As Loving made clear, Section 330 only applies to individuals when they represent taxpayers”; and
- “Adhering to the IRS’s position would lead to absurd results. According to the IRS, it could broadly regulate the actions of CPAs no matter what they were doingundefinedeven if their conduct was nowhere close to “practicing” before IRSundefinedsimply because, say, the CPAs “practiced” before the IRS once a year. Meanwhile, the IRS would impose no contingent fee restrictions on the preparation and filing of Ordinary Refund Claims by non-CPAs and those who never “practice” before the IRS.
The text of the opinion is available here.
