The government is trying to impose regulations on tax return preparers again. This time they are relying on rather questionable authority. It is a post-Civil War statute called the “Horse Act of 1884.”
After the Civil War, individuals often filed loss claims against the US government, primarily for horses that were lost in battle. A cottage industry sprung up that provided representation in the filing of such claims. Not surprisingly, once agents started filing loss claims for a fee, there was a spike in fraudulent claims, so the government began regulating them, giving only the ethical ones the title of “enrolled agent.”
That title still exists today. Enrolled agents are tax preparers that also have authority to represent taxpayers before the IRS. They often prepare tax returns, but they are also permitted to negotiate for tax relief as a representative of the taxpayer. In the hierarchy of tax professionals, they fit somewhere between a regular tax preparer and a tax accountant. The legal team opposing regulation points out that the key difference is that a tax preparer may not actually represent a taxpayer. The IRS would have the court ignore this distinction and expand a 140-year-old statute.
I don’t know if it is fair to require that every tax preparer take tests, pay fees and maintain a license. With so many people using tax software to file on their own, the mom-and-pop tax prep firms already struggle quite a bit these days. Regulation of the entire tax preparation industry would hit some firms pretty hard.