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IRS Uses Dead-Horse Law To Argue For Increased Regulations On Tax Preparation Industry

The government recently argued that it has the authority to regulate tax return preparation businesses using a "dead horse" law as precedent. Tax preparers, represented by the Institute for Justice, challenged the ruling in the case Sabina Loving et al v. Internal Revenue Service. At the hearing of the Court of Appeals for the District of Columbia circuit, both sides argued about the applicability and precedent of an 1884 law that applied to loss claims regarding horses dead or missing because of the Civil War. The proposed regulations call for tax preparers to pass a competency test upon opening shop. Tax preparers would also be required to keep up with annually updated continuing education. Though this case is obviously a cause of concern for many tax return preparers, the issue is far from settled. A decision is at least several months away. Government attorneys presented what, in their view, is a justification for regulatory measures. Some background is necessary to clarify the government's perspective. After the Civil War, many people claimed losses against horses that died or disappeared because of the chaos and hardship of war. Soon, advocates for such claims helped prepare their case and collect U.S. government compensation for the dead horse losses. Often, these advocates charged a percentage of amount collected for their services. With such a pay structure and scant reliable records, it was perhaps inevitable that dishonest claims became widespread. The government reacted with regulations to cut down on fraud and ensure that "enrolled agents" were qualified and honest in their dealings with clients and the government. With that historical background, the DOJ claims that today's tax return preparers are much like those advocates. Allegedly, the opportunity for fraud and abuse is large enough to justify regulation. Institute for Justice Attorneys' countered that tax preparer businesses undeniably provide a service that is, in very broad strokes, similar to the "enrolled agents" referred to in the dead-horse law. However, today's tax preparation services are not the same type of business operation since they do not provide clients with legal representation mentioned in the "dead horse" legislation. Thus, argues the Institute for Justice, the alleged legal precedent does not apply.

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