AICPA Sues IRS Over Annual Filing Season Program

Editor: Sally P. Schreiber, J.D.

AICPA Activities

The AICPA filed suit in the U.S. District Court for the District of Columbia on July 15, asking the court to halt the IRS’s recently introduced Annual Filing Season Program. The AICPA’s three-count complaint asks the court to declare the rule implementing the program unlawful and stop its operation.

The Annual Filing Season Program, introduced June 30 in Rev. Proc. 2014-42, allows unenrolled tax return preparers and others to receive an annual Record of Completion from the IRS if they complete continuing education courses from IRS-approved providers. Participants must have a valid preparer tax identification number (PTIN) and agree to abide by the rules in subpart B and Section 10.51 of Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10). Program participants will be listed in an IRS directory of federal tax return preparers.

The AICPA’s complaint is brought under the Administrative Procedure Act (APA), 5 U.S.C. Sections 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. Section 706(2)(C), without statutory authority, the program is invalid.

The AICPA argues in its complaint that while the program is purportedly voluntary, it will actually be “de facto mandatory because it creates a strong competitive incentive for unenrolled tax return preparers to comply.” In promoting the program, IRS Commissioner John Koskinen has noted that participating in the program will allow return preparers to “stand out from the competition” (Ohlemacher, “IRS Announces Voluntary Program to Certify Tax Preparers Who Complete Course, Pass Test,” Associated Press (June 26, 2014)). The AICPA argues that the IRS is thus aware that the program creates a situation in which unenrolled tax return preparers must participate in order not to lose business to those who do.

Finally, the complaint states that the rule is “arbitrary and capricious,” that by creating new categories of tax return preparers, it will confuse consumers, and that it does nothing to address the issues of unethical or fraudulent tax return preparers who understate income or file invalid refund claims for their clients.

The complaint asks the court to declare the rule unlawful, vacate and set aside the revenue procedure, declare null and void any action taken by the IRS pursuant to the rule, enjoin the IRS from implementing the rule, and postpone the effective date of the rule pending the conclusion of the case.