EDITORIAL: A rare victory for taxpayers

The court applies a little horse sense to kill an IRS scheme

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The president’s stunning proclamation that he will ignore the Constitution’s checks and balances to go it alone puts new pressure on the judiciary. In the tug of war between the three branches of government, it often falls to judges to take the pen out of the hand of an overeager executive.

The U.S. Court of Appeals for the D.C. Circuit did just that Tuesday to foil the Internal Revenue Service’s attempt to regulate kitchen-table tax preparers without authority from Congress to do so.

Over the past hundred years, the annual tax ritual has gone from filling out a relatively straightforward three-page form with a one-page instruction sheet to the stressful struggle on April 15 with a maze of forms, schedules and worksheets.

Instructions now fill several volumes, and the rules are so complex that a cottage industry of small entrepreneurs who have figured out the system hang out a shingle during tax season. It’s an opportunity to make a little money on the side. Neighbors are more than willing to pay someone they know to help them navigate through the confusion.

The big boys in the professional tax-preparation firms, such as H&R Block, were naturally pleased by the White House decree that tax preparers need a license. Large companies can afford to pay the annual fees and send employees to 15 hours of continuing education every year. That’s a significant burden on the part-timer who works only during tax season.

There’s more than a hint of cronyism in the administration’s decision to target tabletop tax preparation. In 2009, the president named Mark Ernst, the former CEO of H&R Block, to be IRS deputy commissioner. Mr. Ernst pushed the rule to eliminate the competition for his former employer.

The IRS argued that its regulatory scheme rests on the Horse Act of 1884, which was adopted to limit fraudulent claims for compensation for horses taken (many were killed) for Union army service in the Civil War. This statute became irrelevant decades before the income tax was adopted.

The three-judge appellate panel applied a little horse sense. “In our judgment,” the court said, “the traditional tools of statutory interpretation — including the statute’s text, history, structure and context — foreclose and render unreasonable the IRS’s interpretation of [the Horse Act] … . The IRS may not unilaterally expand its authority through such an expansive, atextual and ahistorical reading of [the law].”

Some of the beneficiaries of the rule seemed to have been kicked in the head by Old Paint. “Something is out of whack,” says H&R Block’s current CEO, Bill Cobb, “when you are better protected when getting your haircut than when sitting across the desk from a tax preparer.”

Government certification is hardly a guarantee of quality, and cutting hair is not rocket science, either. But every official in the executive branch swears an oath and signs a paper that says he will “support and defend the Constitution of the United States.”

In recent times, such certification hasn’t always been worth the paper it’s printed on. It’s a blessing for all that the Institute for Justice brought this lawsuit to remind the bureaucrats at the IRS to stop horsing around and follow the law.

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