Tag Archives: Certiorari

Court of Appeals Rules that IRS Cannot Regulate Return Preparers

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The D.C. Circuit Court of Appeals has affirmed the ruling of the lower court and held that the IRS does not have the statutory authority to regulate tax return preparers.

In a unanimous and rather direct opinion, the Court of Appeals listed six reasons why the 130 year old statute, 31 U.S.C. § 330, relied upon by the IRS was insufficient to authorize regulation of non-accountant and non-attorney tax return preparers.

  1. Tax return preparers do not represent taxpayers, they assist them;
  2. Tax return preparers do not practice before the IRS;
  3. Tax return preparers are not representing taxpayers a contested proceeding;
  4. If valid, the authority of the underlying statute would make all other statutes regulating tax return preparers, e.g. the IRC, moot;
  5. The statute’s text and legislative history do not support the broad regulatory powers claimed by the IRS; and
  6. Finally, the IRS didn’t apply the century-old statute to regulate tax return preparers until 2011 and before that the agency’s statements about return preparer regulation were inconsistent with the current interpretation.

The court summarized its view: “the traditional tools of statutory interpretation – including the statute’s text, history, structure, and context – foreclose and render unreasonable the IRS’s interpretation of Section 330.” It also advised the IRS that if it wishes to regulate tax return preparers it should introduce and pass new legislation.

Despite the resounding defeat, the IRS may still petition the appellate court a for rehearing en banc, which would presumably include the three recently appointed members of the D.C. Circuit. The deadline for that motion is March 28.

If the IRS seeks a writ for certiorari with the U.S. Supreme Court, it must file a petition by May 12.

Read the entire opinion here:
Loving v. IRS, No. 13-5061 (D.C. Cir. Feb. 11, 2014)

Two Weeks Left to File 2009 FICA Refund Claims for Severance Payments

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url2The deadline for filing 2009 FICA refund claims based on U.S. v. Quality Stores, Inc. is fast approaching. Corporate taxpayers who experienced layoffs, reductions in force, and/or facility closures in 2009 or thereafter may file a protective refund claim for FICA taxes withheld from severance payments made to involuntarily terminated employees. Taxpayers have until April 15, 2013, to file a protective refund claim for all four quarters filed in 2009.

The refund claims are predicated on the Sixth Circuit Court of Appeals’ holding in U.S. v. Quality Stores, Inc., previously reported here, which held that certain severance payments are not subject to FICA withholding. The ruling specifically applies to taxpayers in Kentucky, Michigan, Ohio, and Tennessee (the states within the jurisdiction of the Sixth Circuit) but taxpayers across the country have been filing claims to protect their right to potential refunds.

The government is still considering whether to challenge the decision in the United States Supreme Court. The original deadline for filing a petition for writ of certiorari was April 4, 2013, but last week the Supreme Court granted the government’s request for a 30-day extension. Those waiting to see if government would seek the high court’s review before filing a protective claim will now have to make a decision without that knowledge. The government’s deadline for filing a petition is May 3, 2013.

U.S. Supreme Court to Hear Tax Penalty Case

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us-supreme-courtThe Supreme Court has granted the government’s petition for certiorari in United States v. Woods, No. 12-562. The high court will decide whether the IRC §6662 overstatement penalty applies to underpayments of tax that are “attributable to an overstatement of basis” when the basis has been disallowed because the transactions that established the basis lacked economic substance.

The Court also asked the parties to brief an additional issue related to the procedural history of the case. Specifically, the Court is interested in whether the district court had jurisdiction under IRC §6226 to consider the substantial valuation misstatement penalty. This question, which arises under the procedural guidelines that govern large partnerships in TEFRA, has been raised in many cases over the course of the last decade. The heart of the matter is what issues are appropriate for resolution in a partner-level proceeding and which should be resolved at the partnership level.

Read the court’s order here:
12-562 U.S. v. Woods

Petition for Writ of Certiorari Filed in Historic Boardwalk Hall Tax Credit Case

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us-supreme-courtThe taxpayers in Historic Boardwalk Hall are seeking review in the United States Supreme Court. As reported here last summer, the Third Circuit Court of Appeals reversed the Tax Court and denied the public/private partnership between the New Jersey Sports and Exposition Authority (“NJSEA”) and Pitney Bowes the benefit of historic rehabilitation tax credits because the two parties were not bona fide partners.

The petition faces an uphill battle to gain a hearing at the Supreme Court. There is no split in the Circuit Courts of Appeal on this issue and the high court seems reluctant to tackle tax matters without that prompt. The petition rightly argues that this is the first case “where the Internal Revenue Service has made a broad based challenge to the allocation of Congressionally-sanctioned federal historic rehabilitation tax credits by a partnership to a partner.” The public policy implications of the Third Circuit’s decision are broad and the impact has already been felt in the historic rehabilitation context and beyond. Many parties will be watching to see what happens with this petition.

Read the petition for writ of certiorari here:
Historic Boardwalk Hall Petition for Writ of Certiorari

Tax Question May Determine Supreme Court’s Position on Same-Sex Marriage

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Last week, the U.S. Supreme Court granted certiorari in two cases that may decide the constitutionality of same-sex marriage. One of the two cases, U.S. v. Windsor, came to the Court by way of the tax code. In Windsor the high court will consider whether the decedant’s same-sex spouse qualified for the unlimited marital deduction under IRC Section 2056(a). Whether, and how, the court ultimately rules remains to be seen but the tax code may once again be the basis for a far-reaching decision out of the Supreme Court.