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ABA Tax Section Procedural Highlights and Cohen APA Teaser

Posted on May 12, 2014

Last week, Steve, Keith and I were at the ABA Tax Section Meeting in DC. We will have posts following up on the meetings. The biggest procedural news of the meeting was the announcement by Assistant Attorney General Kathryn Keneally that the Government will not appeal the D.C. Circuit’s Loving decision.  While big news, it was not surprising.  Does Congress have the appetite to regulate preparers?  Hard to say, though the IRS Chief Counsel said it is one of three main administrative proposals from the President’s Budget that the Commissioner is emphasizing that he would like to have Congress pass (the others being creation of a new math error type approach to reverse other errors in tax returns and accelerating the submission of some information return obligations so IRS has information at its disposal during filing season). Even without legislation, OPR Director Karen Hawkins stated that IRS will take a narrow interpretation of Loving insofar as it relates to its ability to regulate practitioners. As to the policy relating to regulating preparers, Director Hawkins announced that IRS will soon begin a voluntary testing and education plan that will provide some benefits to preparers who opt in to a regulatory regime.

In his speech at the meeting, the new commissioner came across as a very competent CEO.  Keith noted the following:

His speech seemed a little stiff in its delivery but he answered questions, or deflected questions, with ease.  The only question he received that interested me and that has some tax procedure implications came from the former chair of the ABA Tax Section, Dick Lipton, who wanted to know if the IRS would remove the requirement that attorneys and CPAs must take the VITA test in order to participate as VITA volunteers.  The exchange provided an interesting insight into the Commissioner on a question tangentially related to Loving and regulation of those participating in return preparation.  Based on the question, I gathered that initially attorneys and CPAs (and I assume enrolled agents) did not need to take the VITA training or tests in order to volunteer through the VITA program to assist taxpayers in filing returns.  At some point the IRS imposed the requirement on attorneys and CPAs that they must take the VITA training.  The Commissioner agreed that Dick had made a good point in raising the issue but expressed reluctance to give an answer until he could consult with his staff.  I liked this answer although I hope he ultimately agrees with Dick.

Keith moderated an excellent panel of academics on the challenge to the constitutionality of IRC 7443(f) and the President’s ability to remove Tax Court judges.  As we have discussed in prior posts (links to all here), this issue is pending in the Kuretski case before the DC Circuit where it was argued last fall.  While the constitutionality of this provision will not have a major impact on the tax world, the determination of whether it is constitutional provides the basis for an interesting discussion on where the Tax Court fits within the constitution spectrum of judicial bodies.  We will keep you posted on the outcome of this case which could end up in the Supreme Court.

There were many other interesting panels touching on issues ranging from civil penalties, international enforcement, and the panoply of procedural approaches IRS has to address EITC overclaims. On that last point, I spoke about Section 32(k) and due diligence (also topics of prior posts) on a panel with the National Taxpayer Advocate, who presented more data on the nature of EITC overclaims (more on this to come), CBPP EITC guru John Wancheck, and soon to be Duke Law Prof Sara Sternberg Greene who discussed her fascinating paper on the use of EITC (link to the paper here; it among other things relays the importance of the EITC to recipients). Another panel that I missed but have downloaded for listening was on one of the hot procedural topics of the day, the application of the APA to tax law.

On the APA issue (also a frequent topic on our site, including the two-part series by Professors Hoffer and Walker and posts I have written on the APA and pre-enforcement challenges to guidance relating to Obamacare and the Florida Bankers case), last week the DC Circuit Court of Appeals issued the latest case in the excise tax refund saga, IN RE: LONG-DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION-MDL 1798 often referred to as the Cohen series of cases (for one of the plaintiffs who challenged the IRS’s phone excise tax refund procedure). It involves an appeal of  the district court’s refusal to direct the Service on remand to issue a refund rule, as well as a fees issue. Though the earlier  excise refund procedure was held to be invalid under the APA, the DC Circuit  in the most recent case affirmed the district court and also declined to order the IRS to issue new refund procedures. The case generated a scathing dissent that brings into question fundamental questions of tax procedure and sharply distinguishes what may be legally permissible from what the IRS should be doing when it communicates with taxpayers.

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