Loving v. IRS: The IRS's Achilles' Heel for Regulated Tax Advice?

Abstract

In an attempt to regulate the multi-billion dollar tax preparer industry — which employs hundreds of thousands of employees — the Internal Revenue Service (Service) began developing rules pertaining specifically to non-professional tax return preparers, previously unregulated by the Service. However, the Service’s attempt to expand its regulatory reach over non-professional tax return preparers was short-lived. It resulted in a severely damaging decision in Loving v. IRS, in which the court concluded that the Service had only limited statutory authority to regulate non-professional tax preparers. While the Service focused its attention on additional ways to rein in tax return preparers, tax professionals took notice of the Loving I and II decisions as they might apply in a broader context, and an important question arose: to what extent can the Service regulate those tax professionals, such as lawyers and certified public accountants (CPAs), if the tax professional only provides tax advice or mere tax preparation services but does not “represent” taxpayers before the Service? Not more than six months later this question was partially answered in another landmark decision in Ridgely v. Lew in which Loving II was applied not only to non-professional tax preparers, but to tax professionals as well, further crippling the ability of the Service to regulate tax professionals and the tax preparation industry. Following Ridgely, the Service is left with one final beacon of hope to regulate tax professionals, 31 U.S.C. § 330(d), which the Service believes empowers it with the ability to regulate written tax advice provided by all tax practitioners. However, if the statutory analysis used in Ridgely and Loving is applied to 31 U.S.C. § 330(d), a reasonable interpretation might limit the Service’s ability to regulate written tax advice only to those situations in which a tax practitioner is practicing as a representative before the Service.

Keywords: tax, IRS, law, accountants, lawyers, professionals, regulation, Ridgely, Loving, Code, legal, advice, taxation