Horsing Around with Tax Preparers

This is a big week for taxes and technology. State "insurance exchanges" are scheduled to open for business under the Affordable Care Act, which lets consumers sign up for tax-subsidized individual health insurance. The White House has already announced that technological glitches will delay online enrollment on the small business ("SHOP") and Spanish-language sites. That's a decidedly 21st-century, "first world" problem. So, why on earth is the IRS lassoing an 1884 law dealing with lost Civil War horses to regulate tax preparers?

Right now, there are no industry-wide rules governing tax preparers. So, back in 2011, the IRS announced their new "Return Preparer Initiative," which required preparers to register with the IRS, pass a competency test, and take continuing education classes. The new rules apply to any tax preparer who isn't already regulated as an attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA).

In 2012, a group of preparers sued to stop the program, arguing that the IRS lacked congressional authority to enforce it. Earlier this year, Judge James Boasberg agreed, shutting down the program. Naturally, the IRS appealed. And that brings us to our horses.

After the Civil War, thousands of Americans who had lost horses in the conflict brought war loss claims against the government. A whole stable full of agents emerged to press claims for the victims, usually for a piece of the recovery. Would you be shocked to learn that some of those claims were bogus, with greedy agents representing broken-down old nags as "Sea Biscuit"-class steeds? So the government passed the "Enabling Act of 1884" — also referred to as "the Horse Act of 1884" — to grant the Treasury Department permission to regulate them. (You remember all of this from high-school history, right? OK, neither did we.)

Well, last week, the IRS took their appeal to court, and saddled their argument on the Horse Law. Gil Rothenberg, who argued the government's case, said "I hate to beat a dead horse, especially one from the Civil War." But he argued that tax preparers represent clients just like 19th-century "enrolled agents" represented theirs. Therefore, he says, the 1884 law gives the Treasury the same authority to regulate today's tax preparers.

"Hold your horses," say the tax preparers who filed the case! Today's tax preparers merely provide a service to their clients. They don't actually "represent" them before the government the same way attorneys, CPAs, and EAs all do. That makes the 19th-century law a horse of a different color, with no binding authority to today's case.

Tax experts who observed the oral arguments report the judges sounded skeptical of the IRS's argument. We should know sometime early next year what the final decision will be. Of course, if Congress doesn't like the results, they can simply saddle up new legislation to hobble the Court.

We think the real question isn't who regulates your tax professionals. We think the real question is what sort of attitude a tax professional brings to the table. Are they content to put the right numbers in the right boxes on the right forms, then call it a day? Or do they give you the plan you need to create the savings you really want? So call us for that plan. And remember, we're here for your whole herd!

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