'Loving' Return Preparer Regulation
13 Pages Posted: 6 Aug 2013
Date Written: July 29, 2013
In 2011 the Department of Treasury issued regulations that, for the first time, empowered the IRS to regulate the practice of preparing tax returns. Naturally, many tax return preparers were not happy about being regulated by the Feds. In 2013 a federal district judge nuked the regulations, holding that Congress has not authorized Treasury to empower the IRS to regulate return preparers. The lead plaintiff was named Loving.
This article takes a critical look at whether the IRS can regulate return preparers. In so doing, it teaches three lessons.
First, it traces the legal history of the 1884 statute where Congress first authorized regulation of "the practice of representatives of persons before the Department of the Treasury." Note that 1884 was both after and before Congress had imposed a tax on income and so was created during a time where most federal revenue derived from "external" taxes (e.g. customs duties) and "internal" excise taxes.
Second, the article attacks the long-cherished belief that ours is a tax system of "self-assessment." The article teaches why this is untrue both as a matter of law and as a matter of fact. Further, the article explains why a belief in "self-assessment" may not be a benign platitude: it can lead to some fundamental misunderstandings of U.S. tax administration.
Third, the article closely examines and refutes the best arguments on why tax return preparers cannot currently be regulated under existing law. The article does not discuss whether regulation of tax return preparers is good policy -- it assumes such regulation is good policy and refers the interested reader to sources supporting that assumption. Instead, the article focuses on whether Treasury has sufficient statutory authority to bring all tax return preparers under its regulatory regime embodied in Circular 230.
Keywords: tax administration, Circular 230, tax returns, returns, preparer, tax return preparer regulation, income tax, 1884, Boasberg, Loving, Loving v. Commissioner
JEL Classification: B30, K23, K34, K40
Suggested Citation: Suggested Citation