WASHINGTON (CN) - A federal judge ruled the IRS overstepped its authority by regulating fees paid to CPAs for the preparation of ordinary refund claims.
Gerald Ridgely Jr., a practicing CPA sued the IRS in 2012 over a 2007 regulation which the service said prevented "exploit[ation of] the audit selection process."
U.S. District Judge Christopher Cooper agreed with Ridgely's argument that the regulation irreparably injures him through a loss of clients and income, concluding that "the balance of hardships tips in Ridgely's favor, as the IRS's regulatory scheme is invalid and Ridgely has suffered financial loss."
According to Cooper's ruling, the regulation took aim at the "ordinary refund claim," a procedure that a taxpayer can use if they think they paid too much in taxes.
The refund claim can be filed after the filing of a tax return or during the course of the IRS' examination of the tax filing.
"As Ridgely's counsel made clear during the hearing on the parties' summary judgment motions, a CPA may assist a taxpayer in preparing and filing a refund claim and, in doing so, would not be legally representing the taxpayer until the IRS responds to the claim and the CPA submits a power-of-attorney form to the IRS," the judge writes. "Thus, what Ridgely challenges here is the IRS's proclaimed authority to regulate fee arrangements entered into by CPAs for preparing and filing Ordinary Refund Claims before the commencement of any adversarial proceedings with the IRS or any formal legal representation by the CPA."
The IRS argued that the fee restrictions arise out of concern for auditor independence, but the judge denied the service's notion that because CPAs sometimes practice before the IRS, the agency has authority to regulate their conduct without limit.
The judge granted Ridgely's request for an injunction enjoining the IRS from enforcing the fee restrictions.