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Trump’s Supreme Court Pick Wrote Majority Opinion in Loving v. IRS

As Politico tax reporter Bernie Becker pointed out today, federal appeals court judge Brett Kavanaugh, who President Trump nominated to replace the retiring Justice Anthony Kennedy on the U.S. Supreme Court, wrote the majority opinion in Loving v. IRS that the tax agency does not have the legal authority to regulate tax return preparers in the United States.

Trump announced Kavanaugh’s nomination during primetime TV last night, pissing off scores of fans of The Bachelorette, which was interrupted due to the SCOTUS reveal.

Kavanaugh has spent the past 12 years serving on the U.S. Court of Appeals for the District of Columbia Circuit, which in February 2014 upheld a lower court’s ruling the previous year against the IRS and in favor of independent tax practitioners Sabina Loving, John Gambino, and Elmer Kilian.

Responding to concerns about the performance of some paid tax practitioners, the IRS on Jan. 1, 2011, launched new regulations through its Registered Tax Return Preparer (RTRP) program. The agency required tax preparers to obtain a Preparer Tax Identification Number, pass a competency test, pay an annual application fee, and complete 15 hours of continuing education annually. Only certain tax return preparers, including CPAs, enrolled agents, and tax attorneys, were exempted from the new testing and education requirements.

But Loving, Gambino, and Kilian, who weren’t regulated by the IRS, spearheaded a challenge of the RTRP program, claiming the regulations would result in fee increases, a loss of business, and possibly shuttering their mom-and-pop tax-preparation operations.

The IRS had pointed to a statute enacted in 1884 under 31 U.S.C. § 330 that authorizes the agency to “regulate the practice of representatives of persons before the Department of the Treasury.”

But Kavanaugh ruled that:

In the first 125 years after the statute’s enactment, the Executive Branch never interpreted the statute to authorize regulation of tax-return preparers. But in 2011, the IRS decided that the statute in fact did authorize the regulation of tax-return preparers.

In this case, three independent tax-return preparers contend that the IRS’s new regulations exceed the agency’s authority under the statute. The precise question is whether the IRS’s statutory authority to “regulate the practice of representatives of persons before the Department of the Treasury” encompasses authority to regulate tax-return preparers. The District Court ruled against the IRS, relying on the text, history, structure, and context of the statute. We agree 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.

While a tax return preparer certainly assists the taxpayer, Kavanaugh wrote that preparers could not legally represent the taxpayer under the statute.

In light of the way the Code treats tax preparation, it would be quite wrong to say that a tax-return preparer “represents” the taxpayer in any meaningful legal sense. In short, the statute’s use of the term “representative” excludes tax-return preparers. …

If we were to accept the IRS’s interpretation of Section 330, the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry. Yet nothing in the statute’s text or the legislative record contemplates that vast expansion of the IRS’s authority.

The IRS decided not to take the case to the Supreme Court. Instead, it chose to create a voluntary tax-preparation credential, which the AICPA loves to hate.

Senate Majority Leader Mitch McConnell (R-KY) has already announced that he’ll hold a confirmation vote for Kavanaugh before this fall’s midterm elections.