As American citizens prepare their tax returns to meet the April 15 deadline, the Internal Revenue Service (IRS) may be the ones feeling a little added pressure this tax season. That's because of their recently announced new licensing practices that could have a serious impact on taxpayers and independent tax return preparers.
On Monday, the Institute for Justice (IJ), a national civil liberties law firm, announced that they have teamed with three independent tax preparers from around the country to file suit against the IRS in federal court.
“Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power,” said Attorney Dan Alban of the Institute for Justice. “This is an unlawful power grab by one of the most powerful federal agencies.”
The new regulations, effective for this tax season, require the more than 350,000 independent tax preparers nationwide to receive permission from the IRS before they can file tax returns on behalf of their clients. Beginning this year, these small business owners must take 15 hours of continuing education classes each year to be considered a “registered tax return preparer.” By the end of 2013, these tax preparers will have to pass an IRS-mandated competency exam.
In addition to the training, the costs and fees incurred with the required courses and exams could weigh heavily on small businesses and could be as much as $1,000 annually.
“These licensing requirements impose a substantial burden on small tax preparation businesses and independent tax return preparers, many of whom prepare taxes on a part-time or seasonal basis,” said Alban in an email.
“Many of these independent preparers and small businesses will have to either stop preparing taxes or raise their prices, making it more difficult for them to compete on price with the larger tax preparation firms, which can more easily absorb these costs, and CPA firms and law firms, which are generally exempt from these licensing regulations and thus won’t have to pay the licensing costs.”
Attorneys, Certified Public Accountants (CPAs) and “enrolled agents” from firms like H&R Block and Jackson Hewitt (who lobbied for the law change) are exempt from these requirements. IJ argues that independent tax return preparers and small businesses will be most heavily impacted.
“The burden of compliance will fall most heavily on independent tax return preparers and small tax preparation businesses,” stated Alban. “One tax-industry expert has noted that these regulations create a ‘barrier to entry’ and are a ‘deterrent’ to smaller tax preparation businesses, predicting that the regulations ‘will create a vacuum’ of tax preparers as independent preparers exit the market.”
The Institute for Justice released a video as part of today’s news release. IJ is a 501(c)(3) organization based in Arlington, Virginia with chapters across the country, including a local chapter based in Minneapolis.