IRS tries but fails to impose onerous new regulations on tax preparers

Wednesday, January 23, 2013 by: J. D. Heyes
Tags: IRS, regulations, tax preparers

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(NaturalNews) Because of the United States' complex, byzantine tax code, an entire cottage industry of tax preparers and tax preparation software has emerged as a way to help navigate the law and remain on the good side of the Internal Revenue Service.

Were lawmakers to ever adopt, and a president sign, legislation that would dramatically simplify the tax code - say, passage of a single-rate flat tax - this cottage industry would disappear overnight because taxpayers would no longer need trained professionals just to file tax returns.

But Congress won't ever do that because lawmakers, as well as presidents from time to time, like to use the tax code punitively, to punish certain income classes and industries (sound familiar?). The IRS then plays the role of enforcer.

Federal judge: No new regulations for you

Having stacked the game against taxpayers already, now Congress and the IRS are trying to take over the very industry they helped create, but thankfully the courts are having no part of it.

A federal judge ruled Jan. 18 that the tax agency cannot impose a raft of new regulations that included, among other things, requiring hundreds of thousands of tax preparers to take and pass a competency exam (no such exam for IRS agents and lawmakers was proposed, by the way).

U.S. District Judge James Boasberg in the District of Columbia ruled in favor of three tax preparers who filed a suit last year with the help of the Arlington, Va.-based Institute for Justice, a libertarian-leaning legal group, The Associated Press reported.

The IRS has sought the new regulations since 2011, in response to what the agency said was an increase in poorly done returns. Among new regulations for tax preparers included the requirement to pass a qualifying exam, pay an annual application fee (of course), and a requirement they take 15 hours annually of continuing education courses. Certified Public Accountants and attorneys would have been exempted from the requirement.

The Institute for Justice argued that the tax collecting agency did not have the statutory authority to impose the strict new rules. The institute further said that the regulations would put tens of thousands of mom-and-pop tax preparers out of business "because the regulations were onerous" and because they created "a competitive disadvantage to the attorneys and CPAs who were exempt," AP reported.

The judge's order puts in place an injunction against the IRS, barring the agency from implementing the regulations which have to date been placed in a piecemeal fashion. The exam testing competency would have been implemented in 2014.

'An unlawful power grab by one of the most powerful federal agencies'

The ruling "is good for the public at large because the cost of preparing a tax return was about to go up" as a result of the IRS regulations, said Institute of Justice attorney Dan Alban. He added that the timing of the ruling is good because tax preparation specialists who might have had to close shop will now be able to work on returns in the coming tax season.

In comments to AP, Alban called the agency's plan "an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks."

IRS attorneys argued that the agency not only possessed the statutory authority to impose the regulations, but also the inherent authority to do so (no doubt owed to Congress' unwillingness to reign the agency in over the past several decades).

The government can appeal the judge's ruling and likely will, given federal tendencies to gather as much power unto Washington as can be gathered.

The impact of the regulations would not have been inconsequential. The AP reported that 60 percent of all U.S. tax returns are done by paid tax preparers, according to a study by the Government Accountability Office, Congress' watchdog agency.

Don't penalize preparers, make tax code simpler to understand

In a 2006 study, the GAO took tax returns from 19 separate commercial tax preparation firms; 17 of the 19 incorrectly calculated taxes due.

But rather than see that statistic as a sign that the tax code is simply too complex, the government would rather impose new regulations and fees on preparers instead of making the code much simpler to understand and comply with.

According to ABC News, nearly seven decades ago, the IRS used to run television commercials extolling the simplicity of filing your own taxes; instructions on filing taxes then were two pages.

"Forms are as simple as careful thought and planning can make them," one ad said.

Not anymore.

"Certainly there's no one person that understands the tax code. It's too big. It's too complicated," says David Keating of the National Taxpayers Union, a group that advocates for a simpler tax code.

Indeed it is and obviously, by design.


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