In­de­pen­dent tax pre­par­ers to sue over new li­cens­ing

The Washington Times Daily - - Business - BY MATTHEW BARAKAT

Af­ter three decades as a part-time tax pre­parer, 80-year-old Elmer Kil­ian of Ea­gle, Wis., is con­cerned that new IRS reg­u­la­tions may pre­vent him from hang­ing out his shin­gle.

Mr. Kil­ian is one of three plain­tiffs in a fed­eral law­suit by a lib­er­tar­ian le­gal cen­ter this week that chal­lenges new li­cen­sure re­quire­ments for hun­dreds of thou­sands of tax pre­par­ers across the na­tion.

The IRS says the new reg­u­la­tions, more than two years in the mak­ing, are needed to en­sure that tax­pay­ers who hire tax pre­par­ers get high-qual­ity ser­vice. The reg­u­la­tions re­quire most paid tax pre­par­ers to pass a fed­eral com­pe­tence exam and take on­go­ing con­tin­u­ing-ed­u­ca­tion cour­ses to keep up with changes in tax laws.

But the Ar­ling­ton-based In­sti­tute for Jus­tice, which ex­pects to file the law­suit Tues­day in Washington on be­half of Mr. Kil­ian and two oth­ers, says the IRS lacks the statu­tory au­thor­ity to re­quire those kinds of li­censes with­out con­gres­sional au­tho­riza­tion.

The new rules are also bad pol­icy, the in­sti­tute con­tends, that put mo­mand-pop tax pre­par­ers out of busi­ness and give un­fair ad­van­tages to lawyers and cer­ti­fied public ac­coun­tants, who are ex­empt from many of the li­cens­ing re­quire­ments.

“The likely re­sult of these reg­u­la­tions is less op­tions for con­sumers and higher prices,” said Bob Ewing, a spokesman for the in­sti­tute.

The in­sti­tute cites re­search that shows the per­cent­age of the U.S. work­force sub­ject to li­cen­sure has in­creased from 5 per­cent in the 1950s to 30 per­cent in 2006. The in­sti­tute has filed nu­mer­ous le­gal chal­lenges ques­tion­ing gov­ern­ment au­thor­ity to li­cense var­i­ous pro­fes­sions, from hair braiders to tour guides to yoga teach­ers.

Mr. Kil­ian said the costs of com­ply­ing with the new reg­u­la­tions might re­quire him to sub­stan­tially in­crease his fees: $64 an­nu­ally to reg­is­ter, plus more than $100 to take the IRS com­pe­tence exam, plus the time and cost as­so­ci­ated with con­tin­u­ing-ed­u­ca­tion cour­ses and per­haps the need to buy a com­puter to com­ply with other parts of the reg­u­la­tions.

He said he would be more likely to quit the busi­ness.

An­other plain­tiff, John Gam­bino of Hobo­ken, N.J., said he thinks the new reg­u­la­tions are de­signed to ben­e­fit big tax-prepa­ra­tion firms — which sup­port the changes — and lawyers and CPAS who don’t have to take the com­pe­tency test.

“I view it as crony cap­i­tal­ism” to fa­vor busi­nesses with con­nec­tions in Washington at the ex­pense of in­de­pen­dent pre­par­ers, Mr. Gam­bino said.

The IRS claims au­thor­ity to en­act the reg­u­la­tions un­der a 19th-cen­tury law au­tho­riz­ing the ex­ec­u­tive branch to “reg­u­late the prac­tice of rep­re­sen­ta­tives of per­sons be­fore the Depart­ment of the Trea­sury.”

But Dan Al­ban, an at­tor­ney with the In­sti­tute for Jus­tice, says the law was writ­ten be­fore there was a fed­eral in­come tax or an In­ter­nal Rev­enue Ser­vice, with the ap­par­ent goal of pro­tect­ing mil­i­tary pen­sion­ers who were be­ing swin­dled by un­scrupu­lous lawyers on claims they filed for lost horses.

An IRS spokesman said the agency couldn’t com­ment on a law­suit that hasn’t even been filed yet, but it pro­vided a state­ment say­ing that gen­er­ally, the ex­emp­tions for lawyers and CPAS from the com­pe­tency exam ex­ist “be­cause they have gen­er­ally al­ready passed a test and have con­tin­u­ing-ed­u­ca­tion re­quire­ments” in their re­spec­tive pro­fes­sions.

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