Video: Who gave the IRS the power to license tax preparers?

posted at 12:10 pm on March 13, 2012 by Ed Morrissey

The Obama administration’s regulatory adventurism has strangled small businesses and tamped down the economic recovery, and a new lawsuit from the Institute of Justice against the IRS gives one small demonstration of the damage done.  Joined by three independent tax preparers, IJ wants the court to block the IRS from enforcing a new regulation it enacted without any authority from Congress that would put as many as 350,000 independent tax preparers out of business (via Instapundit):

Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.

But last year the IRS imposed a sweeping new licensing scheme that forces tax preparers to get IRS permission before they can work. This is an unlawful power grab that exceeds the authority granted to the IRS by Congress.

The burden of compliance will fall most heavily on independent tax return preparers and small businesses. Unsurprisingly, big firms such as H&R Block and Jackson Hewitt support the licensing scheme. As The Wall Street Journal explained: “Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business.”

These regulations are typical government protectionism. They benefit powerful industry insiders and at the expense of entrepreneurs and consumers, who will likely have fewer options and face higher prices. But tax preparers have a right to earn an honest living without getting permission from the IRS. And taxpayers—not the IRS—should be the ones who decide who prepares their taxes.

That is why on March 13, 2012, three independent tax preparers joined the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia. This lawsuit challenges the IRS’s statutory authority to impose this licensing scheme, and seeks to overturn regulations that would affect an estimated 350,000 tax return preparers, forcing many of them to stop working in the occupation of their choice.

The support of big firms like H&R Block and Jackson Hewitt come as no great shock [full disclosure: I’ve been a very satisfied client of the former for many years].  Large players welcome government intervention in the form of licensing and regulation because larger firms have the resources to deal with it.  It gives them a competitive advantage over smaller firms, which don’t usually have the personnel to keep up with licensing requirements.  I’ve seen this before in other industries, where the licensing requirements get demanded by big firms that claim to be worried about the professional standards of their industry based on anecdotes of fraud or incompetence that hardly characterizes the type of work done by independents.  The net result is less competition, fewer jobs, and higher prices — because someone has to pay for the costs associated with licensing and “continuing education,” and all business costs eventually get paid by consumers.

If public policy demands licensing for tax preparation — and there may be a good case for it — then Congress should consider the question, not unelected bureaucrats.  The IRS should not have the ability to impose licensing requirements by executive fiat alone, especially given the impact it will have on independent preparers and their customers.

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This is really rich! My taxes are generally fairly straight-forward but a few years ago I ran into a situation having to do with my IRA 72t early withdrawal setup where the TurboTax explanation was ambiguous as to which option applied. So, I spent several days and many hours on the phone waiting to talk to a live IRS tax expert regarding this.

When I finally got someone and explained my confusion he told me that the IRS could not help. Furthermore, he stated that most of the tax law expertise resides within companies like TurboTax who spend millions of dollars a year having their CPAs reviewing new tax law in order to create a working program. And, get this, he said I would be better off contacting TurboTax to get an authoritative explanation to my inquiry.

As it turned out, he was right!

Sailfish on March 13, 2012 at 5:23 PM

Do we even have a Congress anymore?
Do Republicans belong to it?

albill on March 13, 2012 at 5:54 PM

As it turned out, he was right!

Sailfish on March 13, 2012 at 5:23 PM

A Family member found out last year that it’s worse than ever so I can understand your frustration. I never contact them. Reading the Tax Forms and Schedules are better.

There is no need for such a complicated tax system. Last year the Investment Company made a mistake!! Now, that was a headache since they send the info to the IRS first. I corrected their error and filed the 1040. Never heard anything, so I assume it was ok. I doubt many of the IRS helpers would have even understood the problem, LOL

bluefox on March 13, 2012 at 6:25 PM

I keep waiting to be told I need a daycare license to raise my kids from my own home. and then pay union dues for it.

redmama on March 13, 2012 at 8:43 PM

This is why I keep saying that if “it” does not pass through Congress it is neither Law, nor Rule, nor Regulation. Congress cannot delegate any thing that it can do for itself; this is the essence of the Necessary clause. That clause is merely for the Execution of the powers, meaning to enforce, collect, inspect, print, etc..

John Kettlewell on March 14, 2012 at 12:30 AM

I was surprised when early on the Administration stopped the student loan program.

davod on March 14, 2012 at 1:22 AM

Do we even have a Congress anymore?
Do Republicans belong to it?

albill on March 13, 2012 at 5:54 PM

They are all gutless turds and hiding till after the election. Then watch them jump up and tell us how brave they are.

swinia sutki on March 14, 2012 at 7:11 AM

The IRS used 3 types of regulations: Administrative, Procedural, and Legislative. Of these three only one is tied to a legislative statute and therefore has the force of law. Administrative and Procedural regulations apply only to employees of the IRS and are tied to decisions of the tax court and have all the weight of a suggestion. Any regulation that expands the scope of the law is obviously invalid because the Secretary of the treasury cannot make law.
BTW can anyone tell me what law makes anyone liable for the Income Tax?

WyattsTorch on March 14, 2012 at 10:58 AM

This is another reason the federal income tax should be totally repealed, and taxation returned to the states. Let the federal government collect from the states. That would go a long way to restoring Federalism.

GWB on March 14, 2012 at 11:44 AM

In the mind of the average bureaucrat this is going to create new jobs:

Behold the professional figure of the Tax Preparer Licensing Paperwork Preparer!

And wait to see what happens when next genius comes out with the certification for the Tax Preparer Licensing Paperwork Preparer.

Ali Mentary on March 14, 2012 at 12:08 PM