IRS Protectionism: New Licensing Scheme Challenged in Major Federal Lawsuit

For more visit http://www.ij.org/IRS

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.

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[wickedeagans]

this is wrong! heck, its unconstitutional to take taxes from my income any way!!

Ron Paul 2012!

[govtmustleavemealone]

Which one do you trust better: a licensed tax preparer from a yellow book or an unlicensed tax preparer that was recommended by your good friend? I'll choose my friend's recommendation over government license.

[Andrew Gisler]

I have a better solution. Lets just move to a Fairtax. That way we get rid of the IRS and tax preparers. Stop wasting money on paper pushes and let them go into the workforce to make a real contribution to our economy.

[herkfsu]

Good for you. You can advertise that then and you might get more clients. But it is quite immoral to force someone else to do this simply because you think it is best. They are't harming you. if I know someone who is great at tax returns, I don't want them to have to be bothered with taking and paying for a useless test. If I want this individual to prepare my taxes, the government has no right to say otherwise.

[herkfsu]

Typical statist reply. Why would I go to a bad tax preparer and what incentive do they have to do my taxes poorly? It is about 'nickel and diming' the small businesses for the sake of the larger businesses. This is cronyism at it's finest. Let me worry about myself and don't charge me fees for doing something I am already doing or don't need in the first place. Individual responsibility is something America lost long ago and justifications of state expansion like this only drive us further away.

[AtibbsSPARTAN]

It's the responsibility of taxpayers to check references and understand the experience of the people they do business with. In this day and age it is easier than ever. Go in blind with the cheapest preparer in town that lives under a bridge? You'll get burned but that's not the system's problem. Licensing schemes protect big players period.

Comparing tax preparing to practicing medicine is a real stretch.

[Angie Mercer]

No, bad preparers continue to create additional taxes for people in the form of penalties and interest because they stay in business. The IRS closes very few places. Where I am, there are three businesses who do terrible tax prep work. I know because I fix what they mess up. The consumer/tax payer is the real victim here. But I agree that if all doctors have to have licenses, then all tax preparers should. The fact that H&R Block doesn't have licenses preparers is a clue, folks.

[Diana Sheltra]

It is the tax preparer's responsibility to be educated!

[Diana Sheltra]

If the three people who sued the IRS put that much energy into passing the exam, they would have had several hours left over. The test is basic competency. If you cannot pass this test, you have no business preparing taxes.. You do not have to spend hundreds of dollars on classes as this is basic stuff. I would think that the general public would rather hire a tax preparer who is licensed that someone who does not keep up with the tax laws and cannot pass a basic test.

[ender36]

I take a state test then the irs makes me take the fed test then I pay for a number then I have to take a test the is the same as the state test and fed test. I have been doing tax for 30 years. I do well in audits and get the most I can get back at a low cost. the irs and gov do not like independents and the big firms make people pay 3 to 4 times more for the same work. I do this because my mom got audited in 1981. It scared her so I looked at it when to the audit and they owed her $467. LOL

[communeofone]

2:45 no no no no! my social studies teacher told me that regulations are the result of concerned citizens making their voices heard to their duly elected representatives and the selfless, hardworking, civic minded, apolitical public servants in our various administrative agencies. these licensing laws are the will of we the people, dammit! this is _change_ we need! stop trying to corrupt us with your evil libertarian public choice cynicism, institute for justice!

[HeyItzMeDawg]

"We do a major disservice to our clients by not being on top of the latest..."

So you're saying that if I don't do a perfect job when I prepare tax returns for my family and friends for a small fee I should be blackmailed, kidnapped, and/or shot and killed?

The testing takes time and money, things most people don't have in abundance. But regardless of how difficult it is to get a license, the fact that you think that people should be subjected to violence if they don't get one is ridiculous.