AICPA sues IRS over voluntary return preparer program

By:
CHRIS GAETANO
Published Date:
Aug 8, 2014
The AICPA has filed a lawsuit against the IRS over a voluntary tax return preparer program that the institute said is riddled with flaws and should never have been implemented, since the IRS lacks the statutory authority to do so.

The suit, filed on July 16, targets an IRS program called Annual Filing Season [AFS], which allows tax preparers to represent clients before the IRS and obtain a certificate from the service that they can display in their workplaces, provided that they register with the government, take 18 hours of continuing professional education and take a competency test. The certification would last for one year.

Beyond its voluntary nature, the program is similar to the mandatory tax preparer registration program that the IRS had previously sought to institute before it was struck down by a federal court this past February in the case Sabina Loving et al. vs. Internal Revenue Service et al.

Based on this similarity, the AICPA suit—filed in Washington, D.C., federal court—argued that the program is merely an attempt to circumvent the court order and said that the fact that the IRS has proceeded with the program “is particularly brazen in light of the court’s decision in Loving which expressly stated that although ‘it might be that allowing the IRS to regulate tax return preparers more stringently would be wise as a policy matter ... that is a decision for Congress and the President to make if they wish by enacting new legislation.’”

While, technically, participation in the program is voluntary, the AICPA suit argued that considering the advantage it would give individual tax preparers, market forces would quickly work to make it, de facto, mandatory, and that the IRS knew this when it decided to create the program. In other words, this voluntary program, the AICPA said, is voluntary in name only.

“The IRS understands the incentives created by the AFS rule: faced with the prospect of not participating and losing business, tax return preparers will ‘choose’ to comply. As a result, the AFS rule is mandatory as a practical matter and achieves substantially the same outcome as the rule invalidated in Loving,” the AICPA lawsuit said.

Further, the AICPA pointed out that the IRS did not offer an opportunity for the public to comment on the program, which it was required to do under administrative procedure.

Beyond these points, the AICPA also argued that the program itself is “arbitrary and capricious” and “fatally flawed.” The program, the AICPA said, creates new categories of tax return preparers (e.g., tax return preparers, and tax return preparers who comply with the rule) from which people will need to distinguish, which the AICPA felt would just cause confusion in the marketplace. Further, the AICPA said, while the program explicitly says preparers are not allowed to imply any sort of specific endorsement by the IRS to their clients, “most consumers will none the less conclude that the IRS has endorsed tax return preparers who have complied with the AFS rule.” In the end, the AICPA said, the program does not actually achieve what it’s meant to do, which is to ensure that tax preparers are qualified and competent, and filter out unethical or fraudulent practitioners.

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