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The Meaning of the IRS's Loss

The Meaning of the IRS's Loss

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February 14, 2014

A little more than a year ago, this blog noted that the Institute for Justice had won a victory over the Internal Revenue Service . The federal district court in Washington, D.C., had struck down the IRS’s attempt to regulate people who prepare tax returns. But the federal government appealed.

This week, IJ won again. It defeated the government’s appeal of that victory. The government may yet appeal to the Supreme Court.

Like the lower court’s ruling , the D.C. Circuit’s opinion is something less than a ringing affirmation of an individual’s right to do business without permission. It’s an interpretation of a federal statute giving the Treasury Department (which includes the IRS) the power to regulate those who “practice before” it. The court rejected—for six different reasons—the government’s interpretation of that power as extending to tax preparers. “In light of the text, history, structure, and context of the statute,” the court said, “it becomes apparent that the IRS never before adopted its current interpretation for a reason: It is incorrect.”

The case should remind us of something important: As powerful as regulatory agencies may be—and even though their interpretations of the laws they apply carry weight—they still have limits. They have only the power Congress gives them. And Congress, of course, has to answer to the public .

There’s something else worth noting here: H&R Block, which claims to prepare one out of every six tax returns in the country, condemned the decision. It wants to be regulated, and it may now ask Congress for a new statute so that it can be. Why? “All consumers should have access to the protection that our clients receive when working with our highly trained tax professionals,” its CEO said in a statement .

But of course, any consumer who wants H&R Block’s services is free to choose H&R Block. What regulations would do is deny consumers access to some competing services—those provided by people who couldn’t afford the fees or continuing education required by the regulations. Maybe those are inferior services (and maybe they’re not), but consumers have the same protection whether they choose H&R Block or a competitor: the protection of making their own choice in light of the evidence, including the reputations of the various firms. By backing these regulations, H&R Block is trying to deny customers alternatives. Perhaps it hopes that if you can’t choose your favorite tax preparer anymore, you’ll “choose” H&R Block.

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