By Bernie Becker - 04/08/12 09:00 PM EDT
The IRS is confident that its initiatives to increase regulation of tax preparers will be found legal, despite challenges from opponents.
With a libertarian group filing a lawsuit saying the agency is in the midst of a power-grab, Doug Shulman, the IRS commissioner, said last week that new requirements would help smoke out unscrupulous preparers and were being implemented with care.
Under the IRS regulations, certain preparers have to pass a new competency test and complete 15 hours of education requirements a year.
According to the most recent figures, roughly 60 percent of taxpayers were using paid preparers.
But while it often takes a government license to cut hair, Shulman said that, before recent IRS efforts, there weren’t basic competency requirements for tax return preparers — even as government reports found some preparers making significant errors.
“I'm the IRS commissioner, so I'm biased that taxes are more important than how your hair looks,” Shulman said Thursday. “I know other people view that differently.
“It's a small number of people that are unscrupulous, but those are people that we need to make sure we're focused on so that taxpayers get good treatment,” the commissioner later added.
The IRS has said that it has the authority to implement its initiatives under a statute that allows the Treasury Department to regulate the work of representatives who come before it.
Sheldon Cohen, a former IRS commissioner, told The Wall Street Journal he thought the courts would be sympathetic to that argument.
“The IRS has always claimed, and the courts have always sustained, the right to govern who practices before it,” Cohen said.
But Dan Alban, an attorney at the Institute for Justice, which filed a federal suit in March challenging the IRS efforts with three independent preparers, said the agency was relying on a 19th-century law that was enacted before the modern income tax.
Because of that, the Institute for Justice says that the IRS is trying to take hold of an authority — licensing tax preparers — that Congress hasn’t given it.
“This is an overreach,” Alban told The Hill. “This broadens their power beyond anything the statute authorizes.”
The group, which has challenged governments over school choice and eminent domain as well, also says that the regulations give an unfair advantage to certified public accountants, enrolled agents and tax-preparation chains like H&R Block and Jackson Hewitt.
Certified public accountants and enrolled agents are exempt from the new IRS requirements, with the agency saying they already meet more stringent guidelines.
But the three plaintiffs in the lawsuit say the new regulations could cause them to raise their fees, or even go out of business.
An identification number required of all preparers costs more than $60 a year, the fee for the competency test is $116 and Alban estimated that preparers could rack up hundreds of dollars a year to meet education requirements.
“These regulations are typical government protectionism,” the Institute for Justice says on its website. “They benefit powerful industry insiders and at the expense of entrepreneurs and consumers, who will likely have fewer options and face higher prices.”
Alban also said that the IRS has other tools — including the identification numbers, which his institute is not challenging — to increase oversight of the tax-preparer community.
But groups like the American Institute of Certified Public Accountants (AICPA), as well as the nation’s taxpayer advocate, are supporting the IRS efforts.
Nina Olson, the taxpayer advocate, called the oversight program “critical” in her most recent annual report to Congress, and said she was pleased with the IRS’s progress in implementing it.
Still, Ed Karl, AICPA’s vice president of taxation, said that while he thought the IRS initiatives benefited the government and the public, he could understand the resistance from certain preparers.
“I would have to say when you go from no regulatory regime to having something like this, it is adding an extra burden,” Karl told The Hill.