March 15, 2012 8:45AM # Suing the IRS for Fun and Liberty By [Ilya Shapiro](https://www.cato.org/people/ilya-shapiro) --- SHARE *This blogpost was coauthored by Cato legal associate Chaim Gordon.* On Tuesday, the Institute for Justice brought a [lawsuit](http://www.ij.org/about/4343) to stop recent IRS regulations that require independent tax return preparers to pay a yearly registration fee, take a competency exam, complete 15 hours of IRS-approved continuing education every year, and possibly subject themselves to mandatory [fingerprinting](http://www.forbes.com/sites/robertwood/2011/11/24/irs-may-fingerprint-tax-return-preparers/). Our colleague [Dan Mitchell](https://www.cato.org/hr-block-and-the-irs-an-unholy-alliance-to-ransack-taxpayers/) observed two years ago that these regulations appear to be the result of “regulatory capture.” As the *Wall Street Journal* [explained](http://online.wsj.com/article/SB10001424052748703436504574640572196836150.html?mod=WSJ_hps_sections_opinion): > Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business. Indeed, as others have already [noted](http://campaign2012.washingtonexaminer.com/blogs/little-guys-fight-hr-blocks-regulatory-robbery/425506), one of the [architects](http://www.irs.gov/pub/irs-utl/54419l09.pdf) of this licensing scheme is Mark Ernst, former CEO of H&R Block. These protectionist regulations were even [cited](http://washingtonexaminer.com/opinion/op-eds/2010/01/timothy-p-carney-big-tax-prep-companies-welcome-irs-regulation/33049) by UBS as a reason to buy H&R Block stock, on the grounds that they will “add barriers to entry (or continuation) for small preparers.” In defending the need for these regulations, IRS Commissioner Douglas Shulman’s most insightful explanation was that “in most states you need a license to cut someone’s hair.” This statement undoubtedly caught IJ’s attention because that “merry band of litigators” has devoted itself to [fighting](http://www.ij.org/index.php?option=com_content&task=view&id=557&Itemid=240) such senseless and corrupt regulations (including in hair salons). But these regulations are not just misguided and corrupt. They are, as IJ’s [complaint](http://www.ij.org/images/pdf_folder/economic_liberty/irs_tax_preparers/loving-v-irs-complaint_3_13_12.pdf) contends, simply beyond the IRS’s regulatory authority. The IRS claims the power to regulate tax return preparers under [31 U.S.C. § 330](http://www.law.cornell.edu/uscode/text/31/330). But that statute only authorizes the IRS to regulate “the practice of representatives of persons,” and tax return preparers do not represent persons before the IRS and do not “practice” in the sense that lawyers do when they appear before a court. Taxpayers are only “represented” when they authorize someone to act on their behalf before the IRS in an exam, controversy, or litigation setting. This is especially clear in light of the statute’s plain purpose, which is to ensure that such representatives have the “competency to advise and assist persons in presenting their *cases*” (emphasis added). Moreover, under the IRS’s expansive reading of the law, which puts under the agency’s purvey “all matters” connected with a “presentation” to the IRS, anyone who advises another about the tax aspects of a particular transaction could theoretically be guilty of unauthorized practice before the IRS. Congress clearly meant no such thing. In fact, Congress specifically amended 31 U.S.C. § 330 to allow the IRS to regulate the provision of written advice that the IRS “determines as having a potential for tax avoidance or evasion.” Such additional authority would be unnecessary under the IRS’s broad reading of the original statute. IJ had previously warned the IRS that its then-proposed regulations were [unfair](http://dailycaller.com/2010/10/08/the-irs-and-the-latest-licensing-outrage/) to mom-and-pop tax return preparers and [exceeded](http://www.rothcpa.com/archives/005990.php) its statutory authority, but the IRS neither altered its plan nor explained why it thinks that it has the authority to regulate tax return preparers in the first instance. Now the IRS will have to explain its [power grab](http://www.nypost.com/p/news/opinion/opedcolumnists/an_ugly_irs_power_grab_0beonAmh199715OrSbCnCI) to a federal judge. Watch IJ’s [excellent case launch video](http://youtu.be/0-1IEqYy4lc). IJ attorney Dan Alban explains the case in an editorial [here](http://www.washingtontimes.com/news/2012/mar/12/crony-capitalism-versus-economic-liberty/) and in an interview [here](http://video.cnbc.com/gallery/?video=3000078457). ##### Related Tags [Constitutional Law](https://www.cato.org/constitutional-law), [Regulation](https://www.cato.org/regulatory-studies), [Tax and Budget Policy](https://www.cato.org/tax-budget-policy), [Robert A. Levy Center for Constitutional Studies](https://www.cato.org/robert-levy-center-constitutional-studies) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).