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

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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Jazz Shaw 10:01 AM on June 04, 2023