With tax season upon us, we take a little extra delight in celebrating a court decision slapping down the Internal Revenue Service. In 2011, the IRS issued new regulations to license every tax-return preparer in the nation. Last week, the D.C. Circuit Court of Appeals upheld a January 2013 lower-court ruling that roundly rejected the regulations.
The regulations would have required anyone wanting to be a tax-return preparer to register with the IRS, pass a certification exam, pay annual fees and take 15 hours of continuing-education courses each year. Curiously, the IRS relied for its legal basis for the regulations upon an 1884 law passed to address soldiers seeking compensation for their horses killed during the Civil War.
The court determined, “If we were to accept the IRS interpretation of (the statute), the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multibillion dollar tax-preparation industry. Yet nothing in the statute’s text or the legislative record contemplates the vast expansion of the IRS’s authority.”
The two largest corporate tax-return preparers, H&R Block and Jackson Hewitt, lobbied for the regulations, knowing that it would disproportionately harm smaller companies and independent preparers, thus reducing their competition and allowing them to increase prices and profits. The Institute for Justice, which represented the plaintiffs in the case, Loving v. IRS, estimated that the IRS licensing scheme would have adversely affected more than 350,000 tax-return preparers and put tens of thousands of “mom-and-pop” preparers out of business.
“My customers — not the IRS — should be the ones who get to choose who prepares their taxes,” said Sabina Loving, the lead plaintiff. “I have a right to earn an honest living without getting permission from the IRS.”
The IRS argued that its licensing proposal was necessary to protect taxpayers from incompetent tax-return preparers. But the issue is not nearly so much the competency of tax-return preparers as it is the size and complexity of the U.S. tax code. It consists of nearly 74,000 pages and has roughly tripled in size in 30 years.
According to the National Taxpayer Advocate, which acts as a sort of IRS ombudsman, it takes individuals and businesses approximately 6.1 billion hours — the equivalent of 3 million full-time jobs — to prepare their taxes.
This is insanity. The tax code needs to be cleaved back now, and with a chainsaw, not a scalpel.
Let us hope that, besides halting the tax man’s regulatory overreach, the Loving v. IRS ruling may help to curtail attempts by other regulatory agencies to expand their scope and power beyond the authority given them by Congress. Unfortunately, it will take many more such decisions to significantly scale back the federal government’s bureaucratic Hydra.
— From the Orange County Register