Who’s Afraid of the IRS? When Business Fights Back Against Government Overreach and Wins

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Today we welcome first time guest blogger G. Brint Ryan, Chairman and CEO of Ryan, LLC . This is the tax advisory firm in which Gerry Ridgely, Jr., is a Principal and Executive Vice President and Vice Chairman Emerging Businesses.  Mr. Ridgely was the plaintiff in Ridgely v. Lew, which invalidated the regulations under 31 C.F.R. sec. 10.27 restricting contingency fees.   

Looking back over 2014 there are no more important cases involving federal tax procedure to come out this year than the ones decided in Loving v. IRS, invalidating regulations under 31 C.F.R. secs. 10.3 to 10.6 as to return preparer regulation and Ridgely v. Lew.  Because of their importance, we have blogged both cases extensively and expect to continue to blog on the issues raised by these cases for quite some time.  See, e.g., Initial Reactions to the Government’s Loss in Loving (Feb. 11, 2014); DC District Court Following Loving Takes Down Part of Circular 230 Contingent Fee Rules (July 18).  We have been fortunate to have outstanding guest bloggers from the perspective of a leading academic with Steve Johnson’s outstanding post that he wrote almost immediately after the decision in Ridgely v. Lew and from top practitioners Michael Desmond and Chris Rizek.  Following the Loving decision, we were fortunate to have Dan Alban, counsel for plaintiffs, blog on his perspectives on that case.  Today, we are glad to have Brint Ryan provide inside perspectives on the Ridgely case as we close out the year. 

We wish you a happy new year from Procedurally Taxing and many happy returns in 2015.  Keith 

2014 wasn’t the best year for the IRS, which came under fire for wasteful spending, missing e-mails, and allegedly targeting conservative groups.  While most of the attention is focused on the partisan nature of these claims, the business community is also waging critical battles against the IRS—and more importantly, winning.  Business leaders are crying foul in an ongoing mission to overturn burdensome business regulatory overreach designed to create an unfair IRS advantage.


The most recent blow to IRS business regulatory overreach came through a favorable ruling this past July, which invalidates restrictions prohibiting attorneys, certified public accountants (CPAs), and other practitioners from entering into performance-based fee arrangements for services before the IRS (known as Circular 230 provisions).  In the consulting industry, many clients prefer “performance-based” pay arrangements to an hourly rate.  Any rule prohibiting performance-based fees would not only hinder companies from taking advantage of state incentive programs, for example, but also alienate smaller firms who might be interested in moving or expanding, but can’t afford to pay fees upfront.  Yet this is precisely what the IRS attempted to do.

Thankfully, the resulting court order from the United States District Court in Ridgely vs. Lew invalidates and permanently enjoins the IRS from enforcing the restrictions under the Circular 230 provisions.  This is a tremendous result in a long-fought battle to protect taxpayers and their representatives from the IRS’s efforts to limit their ability to pursue valid claims.  Without question, the Court reached the correct result.

Now, taxpayers—not the IRS—will have the right to determine the fee arrangement between themselves and their representatives.

While this case is not as high-profile as IRS official Lois Lerner’s efforts to cripple conservative non-profits, it will have a profound impact on a company’s ability to drive economic growth, job creation, and innovation.

A perfect example of how this ruling frees companies to invest, grow and thrive lies in the Research & Development (R&D) tax credit.  This program has wide bipartisan support and is backed by the Obama Administration.  Eighty percent of the R&D tax credit benefits directly support jobs in the United States, creating $2 of economic benefit for every $1 spent.

Yet even the Court in the Ridgely case stated that these tax incentives can be complex.  The IRS has thousands of employees and a seemingly unlimited budget.  On the other hand, companies don’t have the vast financial resources afforded the IRS through the hard-working US taxpayer.  The recently overturned Circular 230 regulations made life easier for the IRS but more difficult for businesses to hire professional services firms to navigate the stringent federal compliance requirements of programs like the R&D Tax Credit.

A level of fairness has been restored, and companies now have the ability to retain professional services on a performance-based agreement, mitigating the financial risk and unlocking their ability to take advantage of the many benefits these programs provide.  It’s a victory for innovation, job creation, and economic growth.

However, Big Government continues to fight for the ability to control and overregulate.  In August, the California Governor’s Office of Business and Economic Development (Go-Biz) exploited emergency rulemaking procedures by capriciously inserting a requirement to regulate the fee arrangements between taxpayers and their representatives when allocating the California Competes Tax Credit (“Tax Credit”)—essentially creating California’s version of Circular 230.  These fee provisions limit the availability of the Tax Credit by allowing GO-Biz to deny the Tax Credit to taxpayers.

Despite the fact that the California Legislature has recently and repeatedly demonstrated that it does not intend to impose limits on fee arrangements between taxpayers and their consultants, Go-Biz passed.  At a time when California is bleeding jobs, regulatory overreach by GO-Biz is impacting the ability of taxpayers to obtain representation to pursue their right to a tax credit for driving economic growth and job creation job.

Ryan is now leading the charge against Go-Biz, challenging the legality of the California rule restricting taxpayer contracts for professional services under the Tax Credit program.  We will continue to aggressively defend the rights of taxpayers against burdensome regulations that inhibit job growth and economic development.  A Government that so egregiously meddles in fair business practices cannot be tolerated.

As James Madison so famously said in 1788, “There are more instances of the abridgment of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations.”


  1. Kip Dellinger says

    Of course, the limitations imposed under the AICPA Code of Professional Conduct – likely adopted in Maryland – still applies to Mr Ridgely. And some states have their own restrictions – California, for example, where a CPA was recently disciplined for preparing an amended return for a contingent fee.

    • Jay Santos says

      Completely agree with Kip. Once again, CPAs are at a disadvantage when compared to Tax attorneys and even EAs.

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