Sabina Loving and Elmer Kilian appear to have very little in common. She lives in an impoverished neighborhood on the South Side of Chicago, he resides in tiny Eagle, Wis., population 1,950. She's black, he's white. She works in an office across the street from her rowhouse. He works at his kitchen table in his rural home. She's been pursuing her chosen profession for three years. He's been at it for three decades. But for all their differences, Loving and Kilian have two key things in common -- they are tax return preparers and both have a lot of guts. They are suing the Internal Revenue Service, telling it to back off from doing something over which it has no legal authority.
Last year, the federal tax agency issued a new rule usurping the power to grant or withhold licenses to prepare federal tax returns. Loving and Kilian are two of an estimated 350,000 individuals across America who offer their services to their neighbors during the annual tax season, preparing their federal returns for a small fee. They are independent, self-employed and need to satisfy their customers to earn a living. When it became clear that the IRS rule favored corporate preparers like H&R Block and other special interests like lawyers and accountants, Loving and Kilian turned to the Institute for Justice for help. The IJ is an Arlington public interest law firm that specializes in cases involving challenges to illegal government licensing schemes, especially those that create obstacles to employment.
The IRS attempt to oversee tax preparers was made to order for the IJ. "Congress never gave the IRS the authority to license tax preparers, and the IRS can't give itself that power," said attorney Dan Alban of the Institute for Justice. "This is an unlawful power grab by one of the most powerful federal agencies." The suit against the IRS was filed by the IJ in the U.S. District Court for the District of Columbia.
The fundamental issue here is straightforward. "I have a right to earn a living preparing taxes without permission from the IRS, and so do my employees" Loving said. "My customers, not the IRS, should decide who prepares their taxes," Kilian said. The IRS rule requires payment of fees, passing a government exam, and taking 15 hours of continuing-education classes every year in order to be certified by the government. Loving and Kilian contend that the cost of complying with such requirements would force them to double or triple the fees they charge their clients. The inevitable result would be the end of their businesses.
The main beneficiaries of this IRS gambit would be the special interests like H&R Block and the American Institute for Certified Public Accountants that actively lobbied for the new rule. Like all special interests with inside tracks on government regulation, Block, AICPA and their allies see an opportunity to limit competition and drive more business their way. The IJ has an impressive record of court victories. If there is any justice in this world, this case will become another notch for the firm.