Under the US Constitution, the Executive, i.e. the President, or anyone with delegated power from the President OR delegated power from Congress, can make regulations, but only to the extent of the delegation of power.
Other then the powers listed in the US Constitution (which reserved the power to tax to Congress) to the President, all power belongs to Congress.
The purpose of any agency is whatever power Congress delegated to that agency. If Congress did not delegate a power, the agency has no such power. Agencies had no inherent power unless Congress expressly granted such power or such power is implied among the list of actual powers listed.
The IRS, being an Executive Agency but dealing with TAXES, which is expressly reserved to Congress has only the power Congress has granted it and in this case the power to regulate Tax prepares was NOT a power granted to the IRS by Congress.
Here is the actual Case:
http://www.cadc.uscourts.gov/internet/opinions.nsf/B63C3129A4FE761985257C7C00539949/$file/13-5061-1479431.pdf
The Court noted that Congress in 1884:
As statutory authority for the new regulations, the IRS has relied on 31 U.S.C. § 330. Originally enacted in 1884, that statute authorizes the IRS to “regulate the practice of representatives of persons before the Department of the Treasury.” 31 U.S.C. § 330(a)(1). In the first 125 years after the statute’s enactment, the Executive Branch never interpreted the statute to authorize regulation of tax-return preparers. But in 2011, the IRS decided that the statute in fact did authorize regulation of tax-return preparers.
The Court then goes on and say the 1884 act does not apply to tax preparers:
1. The Statute covers "Representatives of persons", and that terms means someone who has the Power to BIND another. i.e an Agent can bind a principal, but tax preparers are NOT such agents for they can NOT bind the tax payer, all they are doing is filling out paperwork.
2. The Term "Practice" for 125 years was restricted to Lawyers and Accountants before the IRS itself, not people filling out paperwork, paperwork signed NOT by the tax preparer but by the tax payer.
3. The original act was included in an Act as part "of a War Department appropriation for “horses and other property lost in the military service.” and included the following paragraph:
Secretary of the Treasury may prescribe rules and regulations governing the recognition of agents, attorneys, or other persons representing claimants before his Department, and may require of such persons, agents and attorneys, before being recognized as representatives of claimants, that they shall show that they are of good character and in good repute, possessed of the necessary qualifications to enable them to render such claimants valuable service, and otherwise competent to advise and assist such claimants in the presentation of their cases
Which shows again the thrust was to people who acted as agents not just helped fill out paperwork
4. “It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Given this was part of an overall regulation of AGENTS (including Attorneys) who acted for others, as oppose to someone who just help someone fill out paperwork.
5. "The Supreme Court has stated that courts should not lightly presume congressional intent to implicitly delegate decisions of major economic or political significance to agencies". I.e if it can be shown that Congress did not intent a delegation of power, no delegation of power has been granted.
6. That the IRS from 1884 to 2011 NEVER used this Statute to regulate tax preparers, implies the IRS for 125 years assumed no such delegation of powers to regulate tax preparers existed. Congress failing to "correct" this interpretation implies Congress agreed with the IRS view that no regulations of tax preparers where intended to be included in the statute in question.
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