Court rules IRS can't regulate tax preparers

A federal appeals court ruled Tuesday that the IRS doesn't have the authority to broadly regulate tax preparers, striking down a crucial Obama administration program to battle return fraud.

The D.C. Court of Appeals — upholding a federal court’s 2013 ruling — said the IRS overreached by trying to implement continuing education requirements for hundreds of thousands of tax return preparers.

"It might be that allowing the IRS to regulate tax-return preparers more stringently would be wise as a policy matter,” the appeals court said. “But that is a decision for the Congress and the president to make if they wish by enacting new legislation.”

The IRS had said it had the authority to license and regulate tax return preparers because of a 19th century statute that said the Treasury Department could regulate the work of agents that come before it. The statute dealt with soldiers who had lost horses during their service.

IRS officials have said that its regulation efforts would be an important weapon against the small number of unscrupulous tax preparers.

But Dan Alban of the libertarian Institute for Justice, the lead attorney for the tax preparers challenging the IRS program, called the court’s ruling “a major victory for tax preparers — and taxpayers — nationwide.”

Opponents of the IRS program have argued that it would hurt the independent tax preparers, and give new advantages to large tax preparation businesses like H&R Block and certified public accountants.

“The court found that Congress never gave the IRS the power to license tax preparers, and the IRS cannot give itself that authority,” Alban said.

Sabina Loving, a tax preparer from Chicago and the lead plaintiff in the case, added that “my customers — not the IRS — should be the ones who get to choose who prepares their taxes.”

“I have a right to earn an honest living without getting permission from the IRS,” Loving said in a statement released by the Institute for Justice. 

The agency could appeal the latest ruling, but the new IRS commissioner, John Koskinen, told reporters this year that the agency would consider offering the educational training on a voluntary basis if the court decision didn't go their way.

"The IRS is currently reviewing the decision," the agency said in a statement. "The IRS continues to believe that it’s critical for taxpayers to be able to rely on quality work from tax preparers."

H&R Block said the court's decision was a blow to taxpayers, and noted — in an argument the IRS has used before — that hairdressers and a variety of other professions face extensive government regulation.

"It is outrageous that all consumers don’t enjoy basic protections with such a significant financial transaction as tax preparation," Bill Cobb, the H&R Block chief executive, said in a statement. "Something is out of whack when you are better protected when getting your haircut than when sitting across the desk from a tax preparer."

— This story was last updated at 5:12 p.m.