This just in from the Institute for Justice:

A federal court today just struck down the IRS’s new licensing rules....

Three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—joined forces with the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia. 

Late today, U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers.

“Today’s ruling is a victory for hundreds of thousands of tax preparers across the country and the tens of millions of taxpayers who rely on them to prepare their taxes,” said Attorney Dan Alban of the Institute for Justice, the nation’s leading legal advocate for the rights of entrepreneurs. “This was an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks.  The court ruled today that Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.”

The court enjoined the IRS from enforcing its new licensing scheme for tax preparers, which was poised to put tens of thousands of tax preparers out of business. ...

Judge Boasberg further recognized that the IRS recently did a “flip-flop” with regard to its ability to license tax preparers, declaring for years it did not have the authority to do so but only recently claiming that it did have that power. 

The IRS can appeal this ruling to the U.S. Court of Appeals for the District of Columbia Circuit. 

Here's a quick reminder of the stakes in this case, which pitted small tax prep firms against a raft of unauthorized new rules from the Internal Revenue Service that would have put many of them out of business:

At the end of last year, I blogged about new Internal Revenue Service (IRS) rules that require small-time tax preparers to pay annual fees, take IRS exams, and obtain 15 hours of expensive continuing education.  Attorneys and certified public accountants are exempt from the requirements, and big tax firms like H&R Block actually backed the regulation, which will put many of their seasonal competitors out of business.

The economic litigation firm, Institute for Justice (IJ), filed a suit in March on behalf of several tax preparers with the U.S. District Court for the District of Columbia. But the new rules kicked in while they were still waiting for a ruling.

That leaves up to 350,000 mom-and-pop operations with an uncertain future. It is too late for them to comply with the law’s continuing education requirements. But the court could rule any day, making it theoretically possible for them to accept clients this tax cycle.