Monday, February 4, 2013
Wall Street Journal editorial: Beating the H&R Tax Blockers. And the Horse the IRS Rode In On:
Big government and big business are often blood brothers, colluding to squeeze out the little guy. So here's a shout out to a group of small-business tax preparers who have struck a blow for competition and the rule of law.
Our story begins with 2011 IRS regulations that require anyone who takes money for tax-preparation advice to be licensed by the federal government. For the first time, tax preparers have to pass a qualifying exam, pay an annual fee and submit to 15 hours of continuing education every year.
As we noted in a January 7, 2010 editorial, the compliance costs would push many mom-and-pop advisers out of the market, raising prices for millions of taxpayers who need help with their increasingly complex tax forms.
That was precisely the goal of tax giants like H&R Block that lobbied for the rule. They were joined by the likes of Intuit (seller of do-it-yourself tax software) and professional accountants, who were exempt. (Accountants are more politically organized than mom and pop.) These big players found a big ally in the IRS, which saw a chance to expand its power and use exams to, er, nudge tax preparers into offering advice that yields more revenue to the government.
Enter the Institute for Justice, the public-interest legal group that challenged the rule in court on behalf of three independent tax preparers and charged that the IRS lacks the legal authority to write such rules. The IRS had based its authority on an 1884 statute (predating the IRS and the income tax) that concerned military pensioners who had monetary claims against the U.S. government, mostly for lost horses. Yes, lost horses.
The Institute for Justice dared to point out that the IRS itself had in the past acknowledged that the 1884 horse statute didn't let it regulate tax preparers. The Institute further pointed out that Congress had failed on eight separate occasions to pass a law that would have specifically given the IRS such rule-making power.
"In the land of statutory interpretation, statutory text is king," noted District of Columbia federal Judge James Boasberg, in a ruling last month siding with the plaintiffs. If the IRS views tax-preparer licensing as "vital" policy, then it ought to get Congress to agree, he said, slapping a permanent injunction on the rules.
Judge Boasberg on Friday denied the IRS's request for a stay of the injunction. Rather than continuing to fight in court, the agency would do better to cashier the rules on legal and economic grounds. They are a classic example of big business harnessing government power to aid the powerful at the expense of small-business competitors. Meantime, won't someone in Congress tell the IRS to stop exceeding its legal authority?