AICPA Lawsuit Challenges IRS's New Voluntary Tax Return Preparer Program.
(Parker Tax Publishing August 22, 2014)

In late June, the IRS announced a new voluntary program, called the Annual Filing Season Program, which it designed to encourage education and filing season readiness for paid tax return preparers. The program is scheduled to be in place for the 2015 filing season. Shortly after the IRS announcement, the American Institute of Certified Public Accountants (AICPA) filed a lawsuit in D.C. district court challenging the new program.

Annual Filing Season Program

In 2011, the IRS issued regulations that mandated testing and continuing education (CE) for paid tax return preparers and created a Registered Tax Return Preparer (RTRP) credential. The RTRP designation was for preparers with valid preparer tax identification numbers PTINs, who passed an IRS competency test, and completed 15 hours of CE. However, in 2003, the D.C. Circuit Court of Appeals upheld a D.C. district court's holding in Loving v. IRS, 2013 PTC 10 (2013), that the IRS regulations mandating competency testing and CE for paid tax return preparers were invalid.

In the wake of the courts' rejection of the RTRP program, the IRS announced a new voluntary program, the Annual Filing Season Program. Under the Annual Filing Season Program, unenrolled return preparers can obtain a Record of Completion when they voluntarily complete a required amount of CE, including a course in basic tax filing issues and updates, ethics, and other federal tax law courses. Tax return preparers who elect to participate in the program and receive a Record of Completion from the IRS will be included in a database on IRS.gov that will be available by January 2015. In Rev. Proc. 2014-42, which is generally effective as of June 30, 2014, the IRS issued guidance on the Annual Filing Season Program requirements that practitioners must meet if they want to receive a Record of Completion and be included in the IRS.gov database.

OBSERVATION: The IRS submitted a proposal to Congress to explicitly authorize the IRS to regulate all paid tax return preparers. Before the 2013 court decision invalidating the RTRP program, over 62,000 return preparers passed an IRS-administered competency test and completed the requirements to become RTRPs. The Annual Filing Season Program will exempt RTRPs and others who have successfully completed certain recognized national or state tests from the filing season refresher course that will be required for other participants.

An Annual Filing Season Program Record of Completion is not required for an attorney, CPA, enrolled agent (EA), enrolled actuary, or enrolled retirement plan agent to represent taxpayers before the IRS. Further, the procedures in Rev. Proc. 2014-42 do not in any way affect or limit the ability of attorneys, CPAs, or EAs to represent taxpayers before the IRS.

AICPA Complaint

According to the AICPA, the Annual Filing Season Program is an unlawful exercise of government power. By implementing a purportedly "voluntary" program that is mandatory in effect, the AICPA called the program an end-run around Loving v. IRS. The IRS simply does not have the authority to proceed with the new rule, the AICPA charged.

The AICPA brought the lawsuit under the Administrative Procedure Act (APA), saying that in issuing Rev. Proc. 2014-42, the IRS ignored the notice and comment requirements of the APA. By circumventing the protections afforded by the APA, the AICPA said, the IRS avoided having to respond to comments that would have demonstrated that the new program is fatally flawed and arbitrary and capricious.

In its lawsuit, the AICPA argues that the Annual Filing Season Program will confuse consumers because it creates four new categories (for a total of eight) of tax return preparers among which consumers will have to distinguish (unenrolled tax return preparers, unenrolled tax return preparers who comply with the rule, enrolled agents, enrolled agents who comply with the rule, CPAs, CPAs who comply with the rule, attorneys, and attorneys who comply with the rule). In addition, the AICPA claims, although the IRS has cautioned tax return preparers that they are in no way permitted to imply an employer/employee relationship with the IRS or make representations that the IRS has endorsed the tax return preparer, most consumers will nonetheless conclude that the IRS has endorsed tax return preparers who have complied with the rules of the Annual Filing Season Program. The AICPA notes that IRS Commissioner Koskinen has emphasized that the Record of Completion and listing in the Directory of Federal Tax Return Preparers can be used as a means by which tax return preparers can market themselves.

The AICPA is asking the IRS to withdraw the new rule, consult with stakeholders, and use the tools and data already at its disposal to monitor unethical tax return preparers. At a minimum, the AICPA said, the IRS must conduct a legitimate notice and comment rulemaking before proceeding. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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