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IRS Sued – AGAIN!

According to an article by Alistar M. Nevius, J.D. in the Journal of Accountancy dated July 15, 2014, the American Institute of Certified Public Accountants (AICPA) filed suit against the Internal Revenue Service (IRS) in U.S. District Court for the District of Columbia on Tuesday, 07/15/2014.  In the suit, the AICPA is asking the court to halt the IRS’s recently introduced Annual Filing Season Program (AFSP), which I outlined in my post of 07/01/2014, where I also expressed the AICPA’s concerns with the program.  The AICPA’s three-count complaint asks the court to declare the rule implementing the program unlawful and stop its operation, based on:

  1. The IRS’s establishing the program in a “revenue procedure” violated the Administrative Procedure Act’s (APA) “notice and comment requirements” (“the APA requires federal government agencies to provide for notice and comment, except when issuing interpretive rules, general statements of policy, or rules of agency organization, procedure or practice”), none of which the new AFSP does;
  2. The program is “an illegitimate exercise of government power” and is an “impermissible end run” around the federal courts decision in the Loving case, which nullified the IRS’s Registered Return Preparer Program (RTRP), requiring non-CPAs, attorneys or Enrolled Agents to pass an exam and complete 15 hours of continuing professional education annually; and
  3. That the program is “arbitrary and capricious”, that “by creating new catgories of tax return preparer it will confuse consumers, doing nothing to address the issues of unethical or fraudulent tax return preparers who understate income or file invalid refund claims for their clients”.

In the suit, the AICPA also claims that “while the program is purportedly voluntary, it will actually be de facto mandatory because it creates a strong competitive incentive for the unenrolled tax return preparers to comply”, since, in promoting the program, IRS Commissioner John Koskinen noted that “participating in the program will allow return preparers to stand out from the competition”.

In the suit, the AICPA is asking the court “to declare the rule unlawful, vacate and set aside the revenue procedure, declare null and void any action taken by the IRS persuant to the rule, enjoin the IRS from implementing the rule, and postpone the effective date of the rule pending the conclusion of the case”.

Frankly, as I said when the RTRP program was established, I thought it was an effective program to protect the public from unscrupulous and uninformed tax return preparers.  The courts, in a decision and an appeal, invalidated the RTRP, a decision I disagreed with (see previous blog posts).  I also agreed with the AFSP as a step in the right direction. However, I ALSO agree with the AICPA in its suit that the AFSP is an end run around the Loving decision, by putting in almost identical requirements in the AFSP that were in the RTRP, and recognizing preparers that successfully complete the program through a listing on IRS.gov.  As the court said in the ruling in the Loving case, based on the courts finding in Loving that “the IRS cites no statutory authority that allows it to implement the new rule”, the Registered Tax Return Preparer Program, that the only way to regulate persons that get paid to prepare tax returns is for Congress to legislate it, and honestly, it doesn’t appear that that will be happening anytime soon with all the shenanigans going on in Washington DC lately.

In my opinion, ALL this resides around protecting innocent consumers from less than capeable tax return preparers simply out to make a buck.   I believe tax preparation is a VERY serious matter and folks that get paid to provide the service should be regulated to protect the public.  However, I also understand where the Congress stands currently on its unwillingness to give ANY more power to the service refrencing its blatant disregard for controlling its power in the past, so I guess we’re at a standstill here for now.  I will stay on top of the issue and bring more information out whenever I receive it.