Despite Losing in Court, IRS Still Trying to Regulate Tax Preparers

Despite Losing in Court, IRS Still Trying to Regulate Tax Preparers
May 21, 2014

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

One week after the federal court victory of three independent tax return preparers over the IRS became final, thus blocking the IRS from imposing a licensing scheme on hundreds of thousands of tax return preparers, the IRS is back at it.

This time the IRS is angling to create a “voluntary” regulatory program. IRS Commissioner John Koskinen has announced he favors a voluntary certification program if Congress does not give the IRS the authority to impose licensing requirements on tax return preparers.

The American Institute of CPAs (AICPA) expressed its opposition to the program in a letter to Koskinen. The AICPA has “deep concerns with regard to a voluntary system, and the speed with which the IRS is moving to implement such a system,” wrote AICPA President and CEO Barry C. Melancon and Jeffrey A. Porter, chairman of the AICPA tax executive committee. “We believe a voluntary program would create confusion regarding the relative proficiencies of the various types of preparers. In addition, the proposed voluntary system would undoubtedly leave the impression among most taxpayers that certain tax return preparers are endorsed by the Internal Revenue Service.”

Wouldn’t Fix Problems

Melancon and Porter also questioned the proposal’s likely effectiveness. “As a practical matter, any voluntary regime constructed would still not address the problems with unethical and fraudulent tax return preparers,” they wrote. They added, “We are concerned that the IRS is rapidly moving forward without widely disseminating the proposal or seeking public comments.”

Instead of a voluntary program, the AICPA recommended in the letter “the IRS should focus its efforts on utilization of the current preparer tax identification number (PTIN) program and increased taxpayer education.” PTIN allows the IRS to accumulate data on activities of specific tax return preparers as well as classes of preparers so the IRS can tailor compliance and education programs.

The matter arises from the lapse of a May 13 deadline for the IRS to file a petition seeking review from the U.S. Supreme Court. Koskinen has said the IRS doubted the Court would take the case.

Courts Reject IRS Claim

The legal fight began two years ago, after the IRS claimed authority under the “Horse Act” of 1884 to impose a nationwide licensing scheme on tax preparers. The Horse Act was passed to govern compensation claims for dead horses brought on behalf of Civil War veterans.

By arguing Congress gave the IRS the authority to impose licensing requirements on income tax preparers under a statute enacted in 1884, the IRS claimed a power that would have been granted nearly 30 years before the income tax was enacted and the IRS was created—and before professional tax preparers existed.

Three independent tax preparers—Sabina Loving of Chicago, Illinois, Elmer Kilian of Eagle, Wisconsin, and John Gambino of Hoboken, New Jersey—filed suit in March 2012 in the U.S. District Court for DC. They argued the IRS exceeded its authority by attempting to enact the regulations without Congress’s approval. U.S. District Court Judge James E. Boasberg agreed, and he struck down the regulations as unlawful in January 2013.

In February of this year, a three-judge panel of the DC Circuit Court of Appeals upheld the district court opinion, ruling, “The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading of [the statute.]” The case is Loving v. IRS.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)