Tax Prep Panic

IRS over-regulation


As W2s and 1099s started rolling in, mom-and-pop tax preparers around the country were stuck in limbo, thanks to new rules issued by the Internal Revenue Service.

The rules, which took effect at the beginning of 2013, required small-time tax preparers to pay annual fees, take IRS exams, and complete 15 hours of continuing education classes. If the courses were taken through the IRS Nationwide Tax Forums, the price tag for compliance totals about $1,000. Attorneys and certified public accountants were exempt from the requirements. Big tax firms such as H&R Block actually backed the new rules, which would have put many of their seasonal competitors out of business.

In March 2011, the Institute for Justice, a libertarian public interest law firm, challenged the regulations in federal court on behalf of several tax preparers, arguing that rules weren't authorized by Congress and prevented citizens from exercising their economic rights. 

And a couple of weeks after the rules kicked in this January, U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers, and recognized that the new rules were a flip-flop for the IRS, which has claimed for years that it did not have the authority to license or regulate tax prep firms.

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