A Victory Against the IRS – Licensing and Tax Preparers

In a remarkable ruling, a federal district court judge in Washington, DC struck down new regulations imposed last year by the IRS upon up to 350,000 tax preparers, ranging from “mom and pop” preparers to employees of large tax preparation services such as H&R Block and Jackson Hewitt.

The lawsuit against the IRS was filed by the Institute for Justice, an Arlington-based non-profit law firm that challenges regulations that limit economic freedom.

In this case, the regulations had been pushed by large tax preparers, primarily out of an effort to raise the barrier to entry and costs for smaller preparers. An exemption was also in place for attorneys that shielded people working for lawyers from the regulations.

The lead attorney, Dan Alban, who challenged the regulations is a good friend of mine.

Alban called the IRS plan “an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks.”

Alban and his team of lawyers at IJ argued in their briefs that the IRS was never given the statutory authority by Congress to regulate tax preparers.

Alban’s victory is a huge win for consumers.

“It is also good for the public at large because the cost of preparing a tax return was about to go up” as a result of the increased regulations, Alban said.

A similar complaint can be lodged about the largely unnecessary and onerous regulations on lawyers. The increase of lawyer referral and rating services, such as Avvo, mean that consumers of legal services (also known as clients) have more information today than they ever had in the past about the quality of lawyers they seek to hire.

But entrenched lawyers, especially in the big law firms which tend to be wealthier, generally hate competition. And one way to stop new lawyers from entering the market or to force less prosperous lawyers out of the profession is to impose greater regulations and educational requirements.

In the name of improving the quality of legal services (because who would object to that?), law firms through the state bars that license lawyers, impose fees and Continuing Legal Education requirements that increase the cost of being a lawyer.

Some states, including the District of Columbia, have no mandatory CLE requirements. But North Carolina does. And yet there is no evidence that lawyers who practice in states where there is no mandatory continuing education requirement are worse lawyers.

New Jersey examined whether mandatory Continuing Legal Education requirements have any effect on improving the quality of legal services, and found that empirical data affirming the effectiveness of mandatory CLE do not appear to exist” (pdf).

A good lawyer is constantly learning new things, keeping abreast of legal developments, reading case law, and attending educational programs, regardless of whether there is a requirement.

One hopes that after it’s finished beating the IRS, IJ turns its attention to unnecessary licensing requirements affecting other professions.

Damon Chetson

Damon Chetson is a Board Certified Specialist in State and Federal Criminal Law. He represents people charged with serious and minor offenses in Raleigh, Wake County, and the Eastern District of North Carolina. Call (919) 352-9411.