Wednesday, February 12, 2014

The Taxman Loseth / The IRS can't legally regulate tax preparers.

Review & Outlook from the Wall Street Journal writes: The Obama Administration has treated the IRS as a regulatory errand boy, and on Tuesday a federal appeals court struck down one of its more egregious examples of overreach.
In 2011, the IRS decided to crack down on those dastardly folks known as independent tax-return preparers, requiring them to pass certification exams and pay annual fees for helping people navigate the U.S. tax code. In Sabina Loving v. Internal Revenue Service, a unanimous three-judge panel on the D.C. Circuit Court of Appeals overturned the rules that would have affected 600,000 to 700,000 tax preparers.
The IRS claimed its power from a 1884 law that allowed it to "regulate the practice of representatives of persons before the Department of the Treasury." That's a statute Congress originally passed for soldiers seeking compensation for lost horses and equipment before the income tax existed.
The IRS asserted that tax preparers qualify as "representatives of persons," Judge Brett Kavanaugh wrote for the court, but that definition doesn't fit because the preparers can't legally bind taxpayers with their decisions. While a tax preparer provides a service, taxpayers are legally responsible for the information they submit to the Treasury. "If we were to accept the IRS's interpretation of Section 330, the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry," the court wrote. "The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading [of the law]."
All of this is a welcome and especially timely rebuke for an Administration that seems to believe it can rewrite the law as it pleases whenever it pleases. The media may be asleep, and Congress divided, but at least the courts are still on the job.
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