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Rachel Partain Comments on 2 Cases to Watch in the Wake of Loving

August 27, 2014, Tax Notes Today

Tax Notes Today quoted Rachel L. Partain regarding Sexton v. Hawkins and Davis v. IRS, two recent cases brought by tax return preparers against the IRS. These cases may challenge the decisions made in Loving v. IRS and Ridgely v. Lew, which cut back on the agency's authority to regulate activities under Circular 230. For the complete article, please visit Tax Notes Today's website (subscription required).

Excerpt taken from the article "2 Cases to Watch in the Wake of Loving" by Jaime Arora for Tax Notes Today. 

Sexton v. Hawkins

In a complaint filed in May 2013 in the U.S. District Court for the District of Nevada, James C. Sexton challenged the authority of the IRS Office of Professional Responsibility to compel him to produce documents and other information for its investigation into his alleged violation of Circular 230.

Rachel Leigh Partain of Caplin & Drysdale said that Sexton is challenging the IRS on the same grounds as Loving did. However, while the courts in Loving and Ridgely both held that return preparation does not constitute practice before the IRS, the government's position is that an individual is subject to Circular 230 "the second the individual provides services beyond mere preparation," she said.

Davis v. IRS

In another case filed against the IRS in February in the Northern District of Ohio, the plaintiff took the opposite position and argued his case along similar lines to those of the government in Loving and Ridgely.

According to Partain, Davis is arguing that filing tax returns is practice before the IRS, essentially taking the government's position in Loving and Ridgely. Practitioners were eager to see what the government's response would be and whether the Justice Department would now adopt the opposite position, she said.

In its answer, the government admitted that Davis is permitted to practice before the IRS, that Davis has been permanently expelled from the e-file system, and that Davis has exhausted his administrative remedies.

However, the plaintiff did not frame his argument in the best manner to take on the issues in Loving, Partain said. Point 13 of the complaint states, "A person who is allowed to practice before the IRS may prepare and file tax returns." The IRS doesn't disagree with that, Partain said.

Partain said that it would have been more interesting to see a government response to a point worded like "preparing and filing tax returns is practice before the IRS." But the actual text did not force the government to address that in its response, she said.

Will The Go Forward?

Partain said that even if the cases go to trial, it is unclear whether either will ultimately address the issues implicated by the Loving and Ridgely decisions given the other issues present in the cases.


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