Appeals court rebuffs IRS in 'Loving' tax preparer litigation

Loving v. IRS, 2014 U.S. App. LEXIS 2512 (Sept. 24, 2013)

Three strikes and you're out? When the Internal Revenue Service (IRS) decided to regulate independent tax preparers in 2011, it claimed its authority to impose a licensing regimen came from a statute from 1884 and said it wanted to protect the public from bad apples in the tax preparation industry.

But three independent tax preparers, the Loving plaintiffs, vigorously attacked the proposed initiative and succeeded at every step in their legal challenge. First, the U.S. District Court (D.C.) enjoined the licensing scheme, finding that the IRS lacked the necessary statutory authority. Second, the U.S. Court of Appeals rejected the IRS's request to lift the injunction while its appeal was pending. Now, that very court agreed with the District Court that "the IRS’s statutory authority under Section 330 cannot be stretched so broadly as to encompass authority to regulate tax-return preparers."

The outcome of the suit disappointed not only the IRS. Big tax preparation services, also, expressed frustration.

With three rulings against it, what will the IRS do next in this matter? What can it do?

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