AICPA Files Suit Against The IRS – Association Seeks to Halt Arbritrary Tax Preparer Rules
America’s biggest trade group of CPAs & accounting professionals
has drawn a line into the sand against the Internal Revenue Service
“The IRS’s new rule regulating tax return preparers is an unlawful exercise of government power,” Barry Melancon, president of the American Institute of Certified Public Accountants (AICPA), said in a statement. “At a minimum, the IRS must conduct a legitimate notice-and-comment rulemaking before proceeding.”
Yesterday, the American Institute of CPAs (AICPA) sued the Internal Revenue Service in federal court, stating that the Agency’s recent launch of a new so-called “voluntary” tax preparer regulation scheme is not lawful. The AICPA has been quite adamant on this position over the past several months , saying that it constitutes “de facto mandatory.”
“The AICPA has been a steadfast supporter of the IRS’s overall goals of enhancing compliance by tax return preparers and elevating ethical conduct,” said Melancon.. But Melancon also posits that this issue crosses the line.
“By implementing a purportedly ‘voluntary’ program that is mandatory in effect, the rule is an end-run around Loving v. IRS, a federal court ruling which struck down the IRS’s earlier attempt to regulate tax return preparers,” Melancon continued. “The IRS simply does not have the authority to proceed with the new rule. By doubling the number of categories of tax return preparers to eight, the rule will also confuse consumers. Worse yet, the new rule will do nothing to address the problem of unethical or fraudulent tax return preparers – which should be a top priority.”
“As a result, the AICPA has filed suit in federal court to prevent the IRS from moving ahead with this unjustified and unlawful program.”
According to legal expert Alistair M. Nevius, J.D. at JournalofAccountacy.com –
The AICPA’s complaint is brought under the Administrative Procedure Act (APA), 5 U.S.C. §§551–706, and it alleges that the IRS violated the APA’s notice and comment requirements when it implemented the rule through a revenue procedure. The APA requires federal government agencies to provide for notice and comment, except when issuing “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice” (5 U.S.C. §553(b)). The complaint states that the revenue procedure implementing the program fits under none of these exceptions.
The AICPA also alleges that the rule is “an illegitimate exercise of government power” because it violates the APA and is “an impermissible end run” around the decision in Loving, 742 F.3d 1013 (D.C. Cir. 2014), aff’g 917 F. Supp. 2d 67 (D.D.C. 2013), which held that the IRS does not have statutory authority to regulate tax return preparers. The complaint notes that the rule implements a program that is nearly identical to the mandatory return preparer registration program that was invalidated in Loving.
The complaint also notes that the IRS cites no statutory authority that allows it to implement the new rule, and, under 5 U.S.C. §706(2)(C), without statutory authority, the program is invalid.
Melancon and the AICPA also indicated that the IRS should immediately halt the program, seek advice and commentary from tax professionals, and utilize the tools and data the Agency already has in order to better monitor potentially unethical tax return preparers.
The IRS initiated steps in 2011 to regulate unlicensed tax preparers for the first time, with a system requiring testing and education requirements.
Previously the U.S. Court of Appeals ruled that the IRS did not have the legal authority of its own to establish regulations on over 700,000 tax return preparers not presently licensed as attorneys, accountants or “enrolled agents.” Consequently the Agency had to shelve its mandatory licensing program and ask Congress for authority to reinstate it. “Unless and until such happens, a voluntary program would be run,” the IRS said.
The Agency has estimated that nearly sixty percent of U.S. tax preparers perform services without license or oversight, and with some doing a poor or even fraudulent job at it.
Under the proposed voluntary program, participating tax preparers would register with the IRS, take 18 hours of continuing education each year and be tested. Passing such test would earn preparers a record of completion good for the filing season.
About a third of the $9.4 billion tax return business is controlled by just four large companies. The remaining two-thirds is divided among licensed and unlicensed preparers, many of them small and sole preparers.