Florida Tax Review


Alex H. Levy


Nearly anyone can be a tax preparer. There is no test to pass or code of ethics to follow. With few barriers to entry, the field of tax preparation has drawn unscrupulous players, many of whom prey on low-income families who claim the earned-income tax credit. In 2011, the IRS endeavored to regulate the anything-goes world of tax preparation. But a group of small-government activists at the Institute for Justice challenged the IRS's regulations in federal court. And they won. The US. Court of Appeals for the D.C. Circuit struck down the regulations as beyond the 1R.S. 's authority under section 330 of Title 31 of the United States Code. In the wake of that decision, Loving v. IRS, the only path forward for advocates of taxpayer protection is for Congress to explicitly empower the IRS to regulate swindlers posing as tax professionals. This Article is, fundamentally, a story of political and judicial failure in the age of small government absolutism. In a different era, federal oversight of unscrupulous tax preparers who have represented the blandest kind of common sense. But the Institute for Justice was able to convince a panel ofjudges on what is widely regarded as the second most influential court in the country that IRS oversight of tax preparers is unlawful. The government's litigation strategy proved bumbling and ill-considered; it was easily outmaneuvered by its ideologically-driven adversary. In the Article, I provide background on the IRS regulations and the process by which they were developed; I detail the pervasive fraud and incompetence that motivated the IRS to act; I explore the Institute for Justice's push to invalidate the regulations in court, and I look at the arguments it made outside the courtroom; I evaluate the state­level experience with tax preparer regulations to see what can be learned from these "laboratories of democracy"; and, finally, I discuss how to proceed in the aftermath of Loving.