FlLED
UNITED STATES DISTRICT COURT DEC 1 8 2017
FOR THE DISTRICT OF COLUMBIA '
Clerk, U.S. Distrlct and
Bankruptcy Courts
Adam Steele, et al.,
v. Case No. 1:14-cv-1523 (RCL)
United States of America,
Defendant.
VVVVVVVVVV
Memorandum Opinion
Before the Court is the government’s motion for a stay of this Court’s order enjoining the
lnternal Revenue Service (“IRS”) from charging fees to issue a preparer tax identification
number (“PTIN”). Upon consideration of the pleadings, the record, and the relevant law, the
Court will DENY the motion for a stay.
I. BACKGROUND
As explained in detail in this Court’s prior memorandum opinion, ECF No. 78, this case
concerns 2010-2011 regulations promulgated by the Treasury Department and the IRS regarding
tax return preparers. Plaintiffs challenged the government’s legal authority to require PTINs and
PTIN fees. On June l, 2017, this Court issued its opinion and order on the parties’ cross-motions
for summary judgement. ECF Nos. 78-79. The Court found that although the IRS had the legal
authority to require PTINs, it may not charge fees for issuing PTINs. The Court explained that
the IRS’s PTIN regulations were interrelated to the regulations concerning exam and education
requirements for tax preparers that were struck down in Loving v. I.R.S., 742 F.32d 1013 (D.C.
Cir. 2014). Charging fees for PTINs is the equivalent of imposing a regulatory licensing
scheme~_an authority that the Loving court established the IRS does not have. Lovz`ng, 742 F.3d
at 1015. Moreover, the Court found that obtaining a PTIN number is no longer a “service or
thing of value”-the standard required to impose a fee under the lndependent Offices
Appropriations Act of 1952 (“IOAA”)-because anyone can now obtain a PTlN thanks to
Loving. On July 10, 2017, the Court entered its final judgment in this matter, permanently
enjoining the IRS from charging PTIN fees, among other orders. ECF No. 82.
On July 24, 2017, pursuant to Federal Rule of Civil Procedure 62, the government moved
for a stay of the Court’s permanent injunction during the pendency of jan appeal. On September
6, 2017, the government field its notice of appeal to the D.C. Circuit.
II. LEGAL STANl)ARD
Under Federal Rule of Civil Procedure 62(c), "‘[w]hile` an appeal is pending from [a]
final judgment that grants an injunction, the court may suspend [or] modify [the] injunction
on terms that secure the opposing party's rights.” The D.C. Circuit has made clear that a
“court's decision to stay its final judgment pending appeal is an extraordinary remedy that
constitutes an ‘intrusion into the ordinary process of judicial review.”’ Friends of Capital
Crescent T rail v. Federal Transit Administration, 2017 WL 2781446 (D.D.C. 2017) (quoting
Nken v. Hola'er, 556 U.S. 418, 427 (2009).
In determining whether to grant a stay pending an appeal, the Court must consider the
following four factors: “(1) the likelihood that the party seeking the stay will prevail on the
merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a
stay; (3) the prospect that others will be harmed if the court grants the stay; and (4) the public
interest in granting the stay.” Cuomo v.- Nuclear Regulatory Com,m'n, 772 F.2d 972, 974 (D.C.
cir. 1985).
The D..C Circuit traditionally evaluated these four factors using a “sliding-scale” v
approach_meaning that a “strong showing on one factor could make up for a Weaker showing
on another.” Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011). Although the Supreme
Court in Winter v. Natural Res. Def Council, Inc., 555 U.S. 7 (2007), suggested that the four
factors should be treated independently, the D.C. Circuit has yet to hold that the sliding-scale
approach should no longer be used. Sherley, 644 F.3d at 392-93.
The government notes that in the context of a stay proceeding it can establish likelihood
of success on the merits_the first factor in the test_by raising “questions going to the merits so
serious, substantial, difiicult and doubtful, as to-make them a fair ground for litigation and thus
for more deliberative investigation.” Comm. on Jualiciary ofU.S. House of liepresen`tatives v.
A/Iiers, 542 F.3d 909, 911-12 (D.C. Cir. 2008) (internal quotations omitted). In other words, if
the other three factors weigh heavily in favor of a stay, a lesser showing on the first factor is
suiiicient to meet the government’s burden. Washingron Metropolitan Area Transit Commz`ssion
v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). The Court need not conclude
whether a sliding-scale test of this sort survives Winter, as the government fails to meet its
burden even under this lower standard.
III. ANALYSIS
A. Likelihooa' of Success on the Merits
The government argues that this case raises serious questions going to the merits for three
reasons:
(l) this Court’s decision conflicts with decisions from the Eleventh Circuit and Northern
District of Georgia; (2) the PTIN and RTRP [_the registered tax return preparer_]
regulations are sufficiently independent from each other to justify both the PTIN
requirement and user fee; and (3) the statute and regulations support a broader reading of
the IOAA than the Court adopted here.
ECF No. 86 at 6-7. According to the government, the fact that the “D.C. Circuit must resolve
these difficult and serious questions” means that it has “satisfied the likelihood-of-success
requirement.” Id. at 7. But the Court disagrees that those three issues present “serious,
substantial, difficult and doubtfill” questions for the Circuit to sort out.
The Court addressed all three issues extensively in its previous memorandum opinion.
As to the first issue, the Court wrote:
The Court acknowledges that courts in the Eleventh Circuit have found that the PTIN
fees are permissible under the IOAA. See Brannen, 682 F.3d at 1319; Brannen, 2011 WL
8245026, at *5-6; Buckley, 2013 WL 7121182, at *2. But, the Brannen decisions were
made prior to D.C. Circuit's Loving decision, i.e., prior to the finding that the IRS lacks
the authority to regulate tax return preparers and the striking down of the regulations
attempting to do so. In addition, the Court disagrees with the Buckley court's finding that ‘
` [the Loving district court decision] is entirely inapplicable because although the PTIN
scheme was authorized by a different statutory authority, it is, as explained above,
interrelated with the RTRP scheme.
ECF No. 78 at 19-20. Put another Way-~neither the Brannen nor Buckley courts had the benefit
of the D.C. Circuit’s opinion in Loving. To the extent that the courts in the Eleventh Circuit
believe that Loving would be inapplicable because it addresses a different set of regulations-
the exam and education related regulations_the Court thinks it is clear that approach is wrong
given the reasons articulated in its prior memorandum opinion.
This leads into the second “difiicult issue” that the government presents-whether the
PTIN and RTRP regulations struck down in Loving are “sufficiently independent from each
other.” ECF No. 86 at 6. Again, the Court does not believe this is a particularly difficult
question for the D.C. Circuit to address. As stated in the prior memorandum opinion, while the
regulations “were issued separately and at different times, they are clearly interrelated.” ECF
No. 78 at 15. The “RTRP regulations specifically mention the PTIN requirements” and “the
overarching objectives named in the PTIN regulations indicate a connection to the RTRP
regulations.” Id. at 15-16. The government has not presented any additional arguments that
change the Court’s perspective that the two sets of regulations are “clearly interrelated.”
Finally, the Court remains steadfast in its view that the PTlN fees are not justified under
the IOAA. Unlike in other cases where courts found fees permissible, here the underlying
regulatory scheme was invalidated in Loving. Id. at 17-19. The Court agrees with the plaintiffs
that the IRS cannot use an invalidated regulatory scheme to bootstrap in a fee. ECF No. 85 at 12.
In sum, the Court is not persuaded that the government’s rehashed arguments present
“serious, substantial, difficult and doubtfu ” issues. The Court has not been presented with any
new information that has come to light since it ruled on this matter and remains convinced that
the case was correctly decided Although the (;ourt can deny the stay request on`these grounds
alone, the Court will analyze the remaining factors as well.
B. Likelihood of Irreparable Harm
The government alleges that it will suffer “two distinct irreparable harms: (1) the loss of
all PTIN user fees during the pendency of the appeal; and (2) the need to cut other taxpayer
services and programs to cover the uncollected amounts. (See Doc. 84-1 at 13-18.)” ECF No. 86
at 8. The government estimates that absent a stay it will lose out in collecting $37.6 million in
fees. ECF No. 84 at 15. And that if it is “ultimately successful on appeal, the United States may
not have any legal or practical method to recover” the uncollected fees. ECF No. 9.
The Court is not persuaded by these arguments The D.C. Circuit has established a “high
standard for irreparable injury.” Chaplaincy of Full Gospel Churches v. Engalnd, 454 F.3d 290,
297 (D.C. Cir. 2006). The injury “must be both certain and great; it must be actual and not
theoretica .” Id. (citing Wisc. Gas Co. v. FERC, 758 F.2d 669, 674 (D.C.Cir.1985) (per curiam)).
Plaintiffs must demonstrate that the injury is “of such imminence that there is a clear and present
need for equitable relief to prevent irreparable harm.” Id.' (internal quotations removed).
Moreover, the injury “must be beyond remediation” and “[m]ere injuries, however substantial, in
terms of money, time and energy necessarily expended in the absence of a stay are not enough.”
Id. (internal quotations removed).
First off, the Court is not convinced that the government will be unable to recoup
uncollected fees should they ultimately prevail. While it might not be easy, the government is
unable to say with absolute certainty that a restitution claim would not be viable. Additionally, it
is not clear to the Court why if the government, by its own admission, can refund PTIN holders,
ECF No. ~84-1 at 18, it cannot also retroactively charge PTIN holders who were not required to
pay a fee during the pendency of the appeals Given these outstanding questions, the govemment
has not established that the harm is “certain,” “not theoretical,” and “beyond remediation.”
Chaplaincy, 454 F.3d at 297.
Even if the Court was to accept that the government would be unable to recover the
$37.6 million in uncollected fees, the harm would still not meet the “high standard for irreparable
injury.” Chaplaincy, 454 F.3d at 297. “It is also Well settled that economic loss does not, in and
of itself, constitute irreparable harm.” Wisconsin Gas, 758 F.2d at 674. The loss must
“threaten[] the very existence of the movant’s business.” Ia'.; see also Cily of Moundridge v.
Exxon Mobil Corp., 429 F.Supp.2d ll7, 129 (D.D.C. 2006) (finding no irreparable harm where
cities did “not establish that the loss of revenue threatens the existence of the public utilities
plaintiffs run, or the municipalities themselves”). Here, the government acknowledges that a loss
of $37.6 million would constitute a mere 0.3% of the IRS’s yearly budget. ECF 8-2-3 at 11 9. Put
simply, 0.3% is a rounding error when considering the IRS’s overall budget. And courts have
consistently found that greater magnitudes of economic harm fall short of the bar for irreparable
harm. See e.g. ConverDyn v. ‘Moniz, 68 F. Supp. 3d 34? 48 (D.D.C. 2014) (finding that a $10
million expected loss, or 10% of revenues, was “not of sufficient magnitude”); TGS Tech., Inc. v.
U.S. Dep't of Air Force, 1992 WL 19058, at *4 (D.D.C.1992) (holding that plaintiff did not
establish irreparable injury when loss amounted to “only” twenty percent of business).
Finally, the Court finds the government’s second argument for irreparable harm-that it
will have to transfer funds from other programs and services to pay for the PTIN program_
similarly unavailing First off, it is not clear to the Court why the harm is “certain.” The
government can decide to discontinue the issuance of PTINs entirely during the pendency of the
appeal,~ which would dramatically reduce the cost to the government And as the plaintiffs point
`out, since this litigation has been pending for years, the government could have structured its .
contract with the third-party administering the PTIN program “to protect its financial interests.”
Friends of Capital Crescent 'l`rail v. F ederal Transit Administration, 2017 WL 2781446, at *5
(D.D.C. 2017). And “a stay pending appeal is not intended to inoculate a party against the risks
of litigation, nor is it the Court’s role to grant emergency relief to protect a party from the l
consequences of its own fully-informed decisions.” Id. (citations omitted). Furthermore, the
logical extension of the government’s argument is that any diversion of government resources is
irreparable-a conclusion that upends the idea that establishing irreparable harm is a high bar.
C. Harms to the Plaintij% and the Public Interest
Next, the Court turns to the remaining two factors_whether the plaintiffs will be hanned
by a stay and whether the stay is in the public interest. -The government argues that the plaintiffs
will not face substantial harm from a stay because “they Would be entitled to a refund if . .. an
appeal is unsuccessful.” ECF No.84-1 at 18. While the Court does believe that there is some
harm to having to pay a fee upfront and wait for a refund, that harm is not considerable On the
final factor, the government further contends that a stay is per se in the public interest if the
government demonstrates that it will suffer irreparable injury. Id. at 19. Since the Court does
not believe that the government has established a likelihood of irreparable injury, the government
has failed to carry its burden on this factor.
IV. CONCLUSION
For the reasons stated herein, the Court finds that the government has failed to establish
three of the four factors required for a stay pending appeal Therefore, the government motion for
a stay, ECF No. 84-1, is DENIED. A separate Order consistent with this Memorandum Opinion
shall-issue this date.
SIGNED this lyr'day of December, 2017,
Zaa- i¢~¢¢*§»
v
Royce C. Lamberth
United States District Judge