The Shulman-era IRS preparer regulation program is dead. The Appeals Court for the DC Circuit today upheld the DC District decision in Loving, a decision holding that the IRS had no authority to enact its elaborate “Registered Tax Return Preparer” regime. The winning attorneys at the Institute for Justice issued a press release:
Today, the D.C. Circuit Court of Appeals ruled that the IRS had no legal authority to impose a nationwide licensing scheme on tax-return preparers. The decision affirms a January 2013 ruling by U.S. District Court Judge James E. Boasberg, which struck down the IRS’s new regulations as unlawful. Both courts rejected the agency’s shocking claim that tax-preparer licensure was authorized by an obscure 1884 statute governing the representatives of Civil War soldiers seeking compensation for dead horses.
“This is a major victory for tax preparers—and taxpayers—nationwide,” said Dan Alban of the Institute for Justice, the lead attorney for the three independent tax preparers who filed the suit. “The court found that Congress never gave the IRS the power to license tax preparers, and the IRS cannot give itself that authority.”
It’s great news for taxpayers, who will not have their return prep costs artificially increased by a regulatory scheme written by a former H&R Block CEO. It’s good news for preparers, who will not have to waste time and effort in futile paperwork that will do nothing to solve the real problems of the tax system — baroque complexity and internal controls so weak that petty grifters steal billions through refund fraud annually.
The court was blunt in dismissing IRS arguments that a Reconstruction-era statute on Civil War claims gave them the authority to invent an elaborate preparer regulation scheme out of thin air:
In our view, at least six considerations foreclose the IRS’s interpretation of the statute.
Put simply, tax-return preparers are not agents. They do not possess legal authority to act on the taxpayer’s behalf. They cannot legally bind the taxpayer by acting on the taxpayer’s behalf. The IRS cites no law suggesting that tax-return preparers have legal authority to act on behalf of taxpayers. Indeed, a tax-return preparer who tried to act on the taxpayer’s behalf would run into trouble with the IRS…
The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading of Section 330.
It’s bad news for the already battered legacy of The Worst Commissioner Ever, who let identity theft balloon while he wasted his time on this pointless exercise.
Congratulations to Dan Alban and the Institute For Justice for their winning work in this case. I’m glad to have played a small role as an early agitator against preparer regulation and as a participant in an Amicus brief to the D.C. Circuit opposing the rules.