Suing the IRS – And Winning

by Ryan Young on February 18, 2014 · 1 comment

in Legal, Regulation

Proving that sometimes good guys can win, our friends at the Institute for Justice are celebrating a big win against the IRS. In a move supported by large, established tax preparation firms, the IRS tried to require all tax preparers to get licenses. The licenses, along with other requirements such as annual continuing education courses, would raise costs for smaller firms and put many individual preparers out of business entirely; one sees why large firms would welcome the extra burden. They would face less competition. IJ sued to put a stop to his perfidy and preserve a more open competitive process.

A few years ago, before IJ filed its lawsuit, now-CEI adjunct analyst Caleb Brown and I co-authored an op-ed warning why mandatory tax preparer licenses are a bad idea:

Since the IRS has the power to revoke registrations, tax preparers will have to be careful not to advocate too aggressively for their clients. Besides this chilling effect, mandatory registration reduces consumer choice.

There are at least 600,000 unregistered preparers. Many of them are retirees. Others have jobs, but prepare taxes on the side to help make ends meet. Still others are volunteers. They give their services for free to people who can’t afford a tax preparer. How many will give up, rather than jump through the proposed regulatory hoops?

The IRS estimates the total cost of the new regulations at $48.5 million, plus 1.71 million hours of paperwork and record-keeping burdens. That’s equivalent to 855 full-time jobs — and not the kind that will spark an economic recovery.

Read the whole piece here. Read more about IJ’s victory here, and see a short video they produced about the case here.

jdgalt February 18, 2014 at 3:11 pm

I would like to be optimistic about this result, but I don’t see how. At least four states, including mine, similarly license or “register” tax preparers themselves, and those rules are not going away.

For that matter, I’m surprised IRS bothered to fight the case in court when they can easily get Congress to push through whatever enabling legislation they want (probably attached to a bill that falsely promises to cure the unfairness that gave us the Tea Party scandal).

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