- Associated Press - Monday, March 12, 2012

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 mom-and-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.