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Dead Civil War Horses and the IRS

  • Sep 26, 2013 | Gail Cole

 What does a dead horse have to do with a tax preparer?

The IRS is using an anachronistic law pertaining to horses lost or killed during the Civil War to defend it's regulation of tax preparers.

An oversight program was created by the IRS in late 2011 "to increase the quality of the tax preparation industry and to improve services to taxpayers." Under it, all paid tax return preparers are required to register with the IRS each year, which qualifies them for a Preparer Tax Identification Number (PTIN).

The IRS makes clear that certain tax preparers must take additional steps--basically anyone who is not a certified accountant or an attorney. In order to be deemed a Registered Tax Return Preparer, tax preparers must:

  • Pass a one-time competency test;
  • Pass a tax compliance check;
  • Pass a suitability check; and
  • Complete 15 hours of continuing education each year (beginning in 2012).

Tax preparers have until December 31, 2013, to pass the one-time competency test.

More than one tax preparer has filed suit against the IRS over these new requirements. In brief, the lawsuit brought against the IRS* "challenges the authority of the Internal Revenue Service ("IRS") to license tax return preparers. As explained by an article in Forbes, "The crux of the plaintiff's argument is this: Congress never gave the IRS the authority to license tax preparers, and the IRS can't give itself that power."

In January 2013, a U.S. Court agreed with the plaintiffs. The case is back in court now because the IRS appealed that decision.

Horses killed or missing during the Civil War

The IRS is building their defense around the Horse Act of 1884, in which "Congress granted the Secretary of the Treasury the authority to regulate the admission of agents representing claimants before the Treasury Department….." The 19th century legislation grew out of the fact unauthorized agents representing claimants were abusing the system and inflating claims for horses lost or killed during the Civil War. The IRS insists that the law allows for the regulation of tax preparers today. (Forbes).

It remains to be seen, since the Appeals Court is still deciding. But no matter how the court rules, people will continue to rely on tax professionals to prepare all sorts of taxes: income, withholding, sales, etc.

Regulation may or may not guarantee better tax preparation. According to Finance Post, "Studies have shown that a person can call the IRS with the exact same question, talk to several different agents and get a different answer each time." With so much room for error, errors will occur.

An automated sales tax solution minimizes hassle and risk.

* Sabina Loving et al v. Internal Revenue Service, U.S. Court of Appeals for the District of Columbia Circuit, No. 13-5061

photo credit: rreichle via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.