The Spectacle Blog

Court Rules IRS May Not Regulate Tax Preparers

By on 2.11.14 | 12:57PM

In a unanimous opinion, a 3-judge panel of the DC Circuit Court of Appeals has handed the IRS another defeat in that agency's apparently never-ending quest to regulate, control, and dominate as many aspects of American political and financial life as possible.

The court ruled that the IRS's rules regarding the regulation of independent tax preparers were, for at least six reasons, outside of the IRS's authority -- which is to say illegal.

The opinion itself summarized the rules nicely: "Among other things, the new regulations require that paid tax return preparers pass an initial certification exam, pay annual fees, and complete at least 15 hours of continuing education courses each year. The IRS estimates that the new regulation s will apply to between 600,000 and 700,000 tax return preparers."

The court ruled that:

  • The IRS's classification of independent tax preparers as "representatives" of taxpayers is wrong
  • Preparing tax returns does not comprise a "practice...before the Department of the Treasury" as the IRS had claimed
  • The regulations do not fit under the congressional intent of the law which the IRS claimed as its authority underlying the regulations
  • The IRS's claim of authority would "would effectively gut Congress’s carefully articulated existing system for regulating tax return preparers"
  • Nothing in the legislative record suggests that Congress wanted the IRS to "regulate hundreds of thousands of individuals in the multi-billion dollar tax preparation industry", and
  • The IRS's past approach to this issue contradicts the agency's arguments in this case.

The last nail in the IRS's coffin in this case comes in the judges' unanimous conclusion, which should be a touchstone for all judges considering similar issues:

The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading of Section 330. As the Supreme Court has directed in words that are right on point here, the “fox-in-the-henhouse syndrome is to be avoided . . . by taking seriously, and applying rigorously, in all cases, statutory limits on agencies’ authority. ”

At least on this day, score one for (barely) limited government.

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