Court upholds IRS authority to suspend EFINs

A district court held the IRS had not violated the Due Process Clause of the Fifth Amendment or the APA by its revocation of a tax preparation company’s EFINs and its expulsion of the company from the IRS’s e-file program.

Facts: Zirin Tax Co., doing business as Steven-Louis Income Tax Centers, operated a tax preparation business that prepared and electronically filed income tax returns for clients through the IRS’s e-file program. To do so, the company had received EFINs, which enable tax professionals and firms to electronically file tax returns on behalf of clients through the e-file system. In or around early 2024, the IRS revoked Zirin’s EFINs and expelled it from the e-file program after determining that fraudulent tax returns had been filed under the EFINs. Zirin claimed that the IRS’s decision prevented it from fulfilling its duties to its clients. 

Zirin filed suit against the IRS in district court, where it first moved for a preliminary injunction ordering the reinstatement of its EFINs to prevent further business disruption. After a hearing, the court denied the motion, finding that Zirin had failed to demonstrate irreparable harm to the business from the revocation of its EFINs.

The IRS then moved to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Zirin argued that the IRS had violated the Due Process Clause of the Fifth Amendment of the U.S. Constitution and the APA when it suspended the company’s EFINs and expelled it from the e-file program. 

Issues: The court first addressed whether Zirin’s participation in the IRS e-file program and its possession of EFINs constituted a constitutionally protected property or liberty interest under the Fifth Amendment. Here, Zirin argued that the ability to e-file functioned as a de facto business license, providing essential authorization without which it could not operate its business. Zirin pointed to Sec. 6011(e)(3), which requires most professional preparers to file tax returns electronically, to argue that this mandate created a legitimate entitlement to maintain the EFINs, which was a constitutionally protected property interest. Thus, according to Zirin, the IRS could not revoke its ability to e-file without due process of law. 

The government rebutted Zirin’s claim by stating that participation in the e-file program is not a constitutionally protected property interest; instead, the ability to file electronically is a privilege governed by the program’s suitability requirements. In accordance with IRS Publication 3112, IRS e-file Application & Participation, and Rev. Proc. 2007-40, the IRS has the right to grant, deny, or revoke EFINs based on “broad suitability standards.” These could include reasons such as disreputable conduct, unethical practices, and filing fraudulent returns. The government further argued that this discretionary framework negates any “legitimate claim of entitlement,” as participation in the program is never guaranteed. The IRS cited its criminal investigation into whether fraudulent tax returns had been filed using Zirin’s EFINs as the basis for the suspension. 

The court underscored that a property interest exists only when an individual’s expectation of continued participation is “virtually assured” or almost certain to continue and the issuing authority’s discretion to deny or revoke it is narrowly circumscribed. The court further relied on established precedent that reaffirmed that where discretion exists, no constitutional entitlement arises (Ace Partners, LLC v. Town of East Hartford, 883 F.3d 190, 195 (2d Cir. 2018); see also Natale v. Town of Ridgefield, 170 F.3d 258, 263 (2d Cir. 1999)). 

The court then considered whether the IRS’s decision to revoke Zirin’s EFINs violated the APA, 5 U.S.C. Section 706. Here, Zirin argued that the IRS had failed to follow its own established procedures, rendering its actions arbitrary and capricious. Specifically, it claimed that the sanction notice it received, which stated that a criminal investigation had determined that fraudulent returns had been filed using Zirin’s EFINs, was insufficient to alert Zirin of the actual alleged conduct that was the reason for the suspension of its EFINs. According to Zirin, the inadequacy of the notice turned the IRS’s administrative appeal process “into a mere sham” and vitiated the company’s appeal rights, preventing it from meaningfully availing itself of the appeals process provided by the IRS’s own procedures.

In response, the IRS noted that its procedures require only that participants be notified of the sanction and that it does not need to provide a detailed factual account of its investigation. Publication 3112 authorizes the IRS to “immediately suspend or expel a Provider, Principal or Responsible Official without warning or notice” under certain circumstances, including those where a criminal investigation is ongoing. The government maintained that it had followed all procedures correctly and that Zirin’s claims did not amount to an APA violation.

Holding: The court held that Zirin lacked a protected property or liberty interest in its EFINs because the IRS has the discretion to grant or revoke participation in the e-file program; thus, the revocation of the company’s EFINs and its expulsion from the IRS e-file program was not a violation of its Fifth Amendment due process rights. It also held that the IRS had not violated the APA, finding that the Service had followed its established procedures and was not required to provide more detailed information than it had in its notice informing Zirin that its EFINs were being revoked. Therefore, the court granted the IRS’s motion to dismiss Zirin’s complaint.

• Zirin Tax Company, Inc., No. 24-cv-01511 (E.D.N.Y. 10/15/25)

— Matthew Tardif is a student in the Charles H. Dyson School of Applied Economics and Management at Cornell University in Ithaca, N.Y. Thomas Godwin, CPA, CGMA, Ph.D., and John McKinley, CPA, CGMA, J.D., LL.M., are both professors of the practice in accounting and taxation in the SC Johnson College of Business at Cornell University. To comment on this column, contact Paul Bonner, the JofA‘s tax editor.