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Tax Notes

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Tax Notes



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On March 3 the Supreme Court unanimously decided Direct Marketing Association v. Brohl, a case arising under the Tax Injunction Act {TIA). The focus of this article is not on Brohl on its own terms but on the implications of Brohl· for the Loving line of cases and for future cases that may arise out of Loving. I believe Brohl reveals that the Supreme Court would likely uphold the approach taken in Loving were a case of this kind to reach the Court. For that reason, the government was wise not to seek Supreme Court review of Loving. Unless it can persuade Congress to amend the relevant statute, the government may need to use different arguments in post-Loving cases.

There can be few tax professionals who have not heard of Loving and Ridgely. These cases invalidated portions of Circular 230 that had gone beyond the regulatory authority conferred on Treasury by the enabling act: 31 U.S.C. section 330. Loving invalidated portions of Circular 230 imposing mandatory testing and continuing education conditions on previously largely unregulated tax return preparers. Ridgely invalidated a portion of Circular 230 that prohibited contingent fees for preparing ordinary tax refund claims.

Loving was decided by the federal district court for the District of Columbia, unanimously affirmed by a three-judge panel of the D.C. Circuit. The government chose not to seek further judicial review: It chose not to seek en banc consideration by the D.C. Circuit, and it chose not to seek certiorari review by the Supreme Court. Ridgely was decided by the same federal district court, largely on the strength of Loving. Again, the government chose not to seek further judicial review.

Two sets of questions arise from that history: (1) What would have happened had the government sought and obtained further judicial review? Would it likely have won or lost? and (2) Is the first question driven by anything more than mere intellectual curiosity? Are Loving and Ridgely now closed books, or do they have significance in other contexts?


© 2015 Steve R. Johnson


First published in Tax Notes.

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