The Treasury and IRS have recently suffered some major losses regarding their attempts to regulate tax practitioners.  Earlier this year, in Loving v. IRS, the D.C. Circuit invalidated the entire regulatory regime regarding paid tax return preparers.  And over the summer, in Ridgley v. Lew, the D.C. District Court invalidated some regulatory restrictions on the use of contingency fee arrangements in connection with refund claims.

At a recent ABA meeting, Karen Hawkins, the Director of the IRS Office of Professional Responsibility, offered some candid remarks about the agency’s response to these cases.  Although IRS officials usually respond to major court losses by offering vague promises to carefully study a decision or to meticulously examine how best to implement it, Ms. Hawkins did not shield her views about the loss.  She brazenly announced that she would “always be looking for the narrowest interpretation of the case and the broadest interpretation of my jurisdiction.”  Also, although the Ridgely opinion contained various statements that might cast doubt on other aspects of her office’s efforts to regulate tax practitioners, she dismissed those statements as “all very colorful,” emphasizing that they were “not law.”  She also essentially conceded the opinion was correct, acknowledging that anyone who had read Loving would understand why appealing Ridgely to the D.C. Circuit would be pointless, although maybe she is more optimistic about her chances in other circuits.

At first, I was taken aback by Ms. Hawkins’ candid statements.  Although they fall short of expressing contempt of the judiciary, her statements nonetheless strike an aggressive tone and an unwillingness to examine the issues in an even-handed way. Could you imagine a taxpayer openly announcing that it would give a judicial opinion the “narrowest interpretation” possible so as to secure itself the “broadest” ability to minimize its tax obligations?

But on further reflection, maybe we should welcome this sort of transparency.  I suppose it can’t hurt for a regulated party to know how an agency really feels about a case.  I would much prefer that an agency admit its closed mind rather than pretend to entertain public comments, knowing all the while that it will ignore them.  And litigators who wish to present challenges to agency action may be best off if an agency official’s deaf ear is a matter of public record.

I suspect that Ms. Hawkins’ statements are fairly unusual, although I invite my co-bloggers to inform me about other agency officials’ reactions to court losses.  The unusual nature of Ms. Hawkins’ statements might ultimately stem from the unusual nature of Ms. Hawkins herself.  Those familiar with the IRS Office of Professional Responsibility must stand in awe of Ms. Hawkins’ efforts to tirelessly serve the public and the tax system, regardless of whether one agrees with her views of one doctrinal issue or another.  I doubt that any of Ms. Hawkins’ successors will be able to fill her giant shoes, and maybe quintessential public servants can get away with saying things that others can’t.

– Andy S. Grewal