The impact of Loving and Ridgely on corporate tax practice: former OPR director reflects on her tenure at the IRS.

• Author: Levin-Epstein, Michael
• Position: Karen Hawkins, IRS Office of Professional Responsibility - Interview

Many TEI members are acquainted with the IRS's Office of Professional Responsibility (OPR) and Karen Hawkins, its director until just a few months ago. In the first day of her new life, Hawkins graciously agreed to talk to Tax Executive about her tenure at OPR and the impact of two significant court rulings--Loving and Ridgely--on corporate tax practitioners.

Tax Executive invited several experts in this area to join this discussion, including Linda Galler, professor of law at the Maurice A. Deane School of Law at Hofstra University; Mitch Frank, director of federal and state income tax at American Airlines Group; and Armando Gomez, tax partner at Skadden, Arps, Slate, Meagher & Flom LLP and the immediate past chair of the ABA Tax Section.

Galler provided the historical background for these two cases and the importance of Circular 230--a key regulatory document in the area of professional responsibility. Prior to 2011, Galler noted, there were essentially three groups that were covered by Circular 230--attorneys (including in-house corporate counsel), CPAs, and enrolled agents (referred to collectively in Circular 230 as practitioners).

In 2011, Treasury amended Circular 230 to create a new class of practitioners--registered tax return preparers--which includes persons who prepared and filed tax returns for compensation. Under the revisions to Circular 230, Galler said, these individuals were required to pass an examination, take continuing education courses annually, and, most notably, adhere to the provisions of Circular 230. The cost of implementing this new program was to be paid for by annual fees collected from all practitioners, including the new group as well as attorneys, CPAs, and enrolled agents who were now required to obtain and annually renew numbers referred to as PTINs (preparer tax identification numbers). It was this expansion of Circular 230 to registered tax return preparers that was explicitly rejected by the D.C. Circuit in Loving v. IRS, Galler explained.

Loving Deconstructed

"The court said that the statutory authority that the IRS has to regulate practice before the IRS is limited to representing a taxpayer in a case before the agency. The court, in my view, somewhat surprisingly held that preparing tax returns does not constitute presenting a case," Galler said. A tax return is not adversarial, the court reasoned; a tax return preparer merely assists the taxpayer in fulfilling the legal requirement to file a tax return, she explained. The Loving court therefore concluded that the IRS does not have the authority, in Circular 230, to regulate noncredentialed individuals who prepare tax returns for paying customers, because they do not engage in practice before the IRS.

The Ridgely case, Galler noted, addressed the parameters of Loving's limited definition of "practice before the IRS" in the context of attorneys, CPAs, and enrolled agents: If a tax practitioner is otherwise covered by Circular 230, does...