This article addresses the recent Memorandum & Order issued by the United States District Court for the Eastern District of New York in Zirin Tax Company, Inc. v. United States of America, 24-cv-01511 (NCM) (MMH), dated October 15, 2025. This case involved a tax preparer challenging the Internal Revenue Service’s (IRS) decision to suspend the preparer’s Electronic Filing Identification Numbers (EFINs) and subsequent expulsion from the e-file program.

Factual Background and Procedural History

The Plaintiffs in this action are Zirin Tax Company Inc., operating as Steven-Louis Income Tax Centers, The Holtz Group Inc., and Steven A. Holtz. The Plaintiffs initiated the action seeking injunctive relief, specifically requesting the Court to direct the IRS to set aside its suspension of their EFINs.

The basis for the suspension of the EFINs, according to the IRS sanction notice received by the Plaintiffs, was that a criminal investigation had determined that fraudulent returns had been filed utilizing the EFINs. Following the filing of the complaint, the Plaintiffs moved for a preliminary injunction, which the Court denied after concluding that they "failed to satisfy their burden to make a strong showing of irreparable harm".

The Defendant, the United States of America, by and through the Commissioner of the IRS, subsequently moved to dismiss the complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim pursuant to Rule 12(b)(6).

The Plaintiffs raised claims alleging violations of the Administrative Procedure Act (APA), 5 U.S.C. § 706, and the Due Process clause of the Fifth Amendment.

Preparer’s Request for Relief

Plaintiffs requested the court to mandate the IRS set aside the suspension of their EFINs. They contended they had two overlapping constitutionally protected property interests.

First, they alleged a property interest in their "ability to e-file tax returns" on behalf of clients, arguing this ability functions as a de facto business license, without which they "cannot continue to operate their tax preparation business". Second, they alleged a related property interest in their EFINs themselves, given their necessity for e-filing tax returns.

Plaintiffs argued that 26 U.S.C. § 6011(e)(3) (Section 6011)—which mandates that certain tax preparers must e-file returns—serves as the "independent source" for this protected interest. They asserted that this mandate "restrains the IRS’s discretion to revoke an EFIN," thus clarifying that an EFIN is a business license subject to constitutional due process protection.

Regarding the APA, Plaintiffs contended that the IRS violated the Act by failing to follow its own procedures. They specifically argued that the suspension notice was "wholly inadequate" to apprise them of the "specific alleged conduct that served as grounds" for the revocation, rendering the administrative appeal process a "mere sham".

Analysis of the Law

Due Process Claim: Protected Property Interest

The Court began its due process analysis by confirming the two necessary elements: (1) the existence of a deprived property or liberty interest, and (2) deprivation of that interest without due process. Crucially, the threshold issue is always whether the plaintiff possesses a constitutionally protected interest.

A protected property interest is defined by demonstrating a "legitimate claim of entitlement," which is "created and defined by existing rules or understandings that stem from an independent source". A mere unilateral expectation or abstract desire is insufficient. In the context of a government-issued license, an entitlement exists only where the agency’s discretion is "so narrowly circumscribed that approval of a proper application is virtually assured". The analysis turns on whether the issuing authority "lacks discretion to deny the [license]".

The prevailing guidance governing the IRS e-file program is found in IRS Publication 3112 and Revenue Procedure 2007-40. Publication 3112 outlines the requirement that an applicant must pass a "suitability check" to be accepted and assigned an EFIN. Furthermore, the IRS "completes suitability checks regularly" on existing participants and may revoke or sanction a provider if they do not adhere to requirements.

Publication 3112 expressly states that the IRS "may deny an applicant participation in IRS e-file for a variety of reasons". The non-exhaustive list of denial factors affords the IRS discretion, including grounds such as "[d]isreputable conduct or other facts that may adversely impact IRS e-file" or "[u]nethical practices in return preparation". Significantly, denial can be based on the applicant being the subject of an "active IRS criminal investigation". The Revenue Procedure reinforces this discretion, stating that the IRS "may sanction" a participant for violating the rules governing e-file.

Administrative Procedure Act (APA) Claim

The legal premise of the APA claim is that an agency of the government must "scrupulously observe its own rules, regulations, and procedures". An agency action may be considered arbitrary, capricious, or an abuse of discretion if the agency fails to follow its established procedures.

However, the Court noted that reviewing courts are generally not free to impose additional judge-made procedural requirements on agencies that are not mandated by the APA, other statute, or regulation.

Application of the Law to the Facts

Application to the Due Process Claim

The Court concurred with the Defendant, finding that the Plaintiffs failed to plausibly allege a constitutionally protected property interest.

The Court concluded that the IRS possesses discretion to grant, deny, and revoke participation in the e-file program. Citing Ace Partners, LLC v. Town of East Hartford, 883 F.3d 190 (2d Cir. 2018), the Court emphasized that Publication 3112’s inclusion of a "suitable persons" assessment necessarily requires the exercise of "judgment and reasoned discretion". Because the IRS may deny an application based on subjective determinations like "disreputable conduct" or "other facts that may adversely impact IRS e-file," participation is not "virtually assured," thus failing the entitlement test.

Furthermore, the Court rejected the Plaintiffs’ argument that the e-filing mandate under Section 6011(e)(3) created a protected interest. The protection arises from the issuing authority’s lack of discretion to deny or revoke, not merely because the license is necessary to operate the business.

Finally, the Court dismissed the related liberty interest claim concerning the right to occupational choice. Protection of occupational choice is only afforded when a plaintiff is "completely prohibited from engaging in his or her chosen profession". Since the Plaintiffs conceded they could continue to file returns by mail—and demonstrated they had filed hundreds of paper returns during the litigation—they were not completely prohibited from practicing tax preparation. The Court also noted that the IRS may provide administrative exceptions to the e-filing requirement (citing 26 C.F.R. § 301.6011-7(c)(2)).

Application to the APA Claim

The Court ultimately found that the Plaintiffs failed to plausibly allege that the IRS violated its own procedures.

The Plaintiffs’ contention regarding the inadequacy of the suspension notice—that it was too vague to allow for a meaningful appeal—was primarily characterized as a due process argument. Since the Plaintiffs lacked a protected property interest, they were not constitutionally entitled to notice and an opportunity to be heard.

For the APA claim itself, the Plaintiffs failed to cite any specific IRS rule or regulation prescribing the required level of detail or particularity for a sanction notice. The Court refused to imply additional notice requirements simply because an appeals process exists. The Plaintiffs’ allegations, in fact, supported the inference that the IRS followed its rule of informing participants of a sanction. Moreover, the Court noted that the notice received by Zirin Tax Company was similar to sanction notices issued in other comparable cases.

The Court also observed that Plaintiffs appeared to abandon an earlier theory that the IRS improperly manipulated procedures by suspending EFINs immediately without exigent circumstances, especially since they provided no rule requiring an "exigency" for immediate suspensions (citing IRS Pub. 3112, 2018 WL 3977928, at *22).

Conclusions of the Court

The Court granted the Defendant’s motion to dismiss the complaint.

Due Process Conclusion: Plaintiffs failed to plausibly plead a constitutionally protected interest in their EFINs and participation in the IRS e-file program because the guidelines governing the program afford the IRS a significant degree of discretion in granting, denying, and revoking participation based on suitability checks. Therefore, the due process claim was dismissed.
APA Conclusion: Plaintiffs failed to state an APA claim because their complaint did not reveal any factual basis from which to infer that the IRS violated any specific rule or regulation regarding the required content of the sanction notice.

The complaint was dismissed, and the case was ordered closed.

Prepared with assistance from NotebookLM.