Stop me if you’ve heard this one before… Except, this time, there’s a twist.
Just a few weeks after Internal Revenue Service Commissioner John Koskinen announced the launch of the Annual Filing Season program (AFS), a voluntary program to regulate tax return preparers, a challenge has been filed in the U.S. District Court to stop it. This time, however, the challenge didn’t come from independent preparers, as before, but from the American Institute of CPAs (AICPA).
(And yes, there are a lot of acronyms so far. It gets worse… I’ll try to keep them to the bare minimum.)
While the speed of the lawsuit caught many (including me) by surprise, the crux of the complaint did not. The AICPA had previously called the “unlawful and improper” and in a strongly worded letter to Commissioner Koskinen (downloads as a pdf), voiced concern that the program “would cause significant legal problems that may ultimately frustrate the IRS’ goals, confuse the public, and lead to litigation.” The AICPA also alleged at the time that the IRS does not have the statutory authority to move ahead with the program (notably, the AICPA believes that the IRS did not comply with the notice and comment requirements of the Administrative Procedure Act, or APA). Commissioner Koskinen dismissed those concerns when the program was announced.
The 23-page complaint fleshes these concerns out more fully, charging that the new program “is an illegitimate exercise of government power” and “and also represents an impermissible end run around Loving v. IRS.” Loving, of course, is the case that tripped up the IRS’ original plans to regulate tax preparers. In February 2014, an appellate court judge confirmed the findings of a lower court that the IRS did not have the legal right to regulate tax preparers. That case put a period to a two-year fight raised by independent tax preparers claiming that the IRS Registered Tax Return Preparer (RTRP) was an overreach.
The IRS did not challenge the ruling in Loving but rather instituted a voluntary program – one that Commissioner Koskinen called “temporary” – with the hope that Congress would grant the agency statutory authority to institute a more formal and permanent program. With Congress on summer recess and well, Congress being Congress, that hasn’t happened.
In the meantime, the AICPA claims that the AFS is “an obvious attempt to bypass the Court’s binding decision and to assume powers Congress has not given it.” It doesn’t matter, according to the AICPA, that the new program purports to be voluntary since it’s really de facto mandatory. According to the complaint, “[f]aced with the prospect of not participating and losing business, tax return preparers will “choose” to comply.” That, the AICPA claims, makes it clear that the “rule is mandatory as a practical matter” and thus, the program “achieves substantially the same outcome as the rule invalidated in Loving.”
The AICPA also avers that the new program is doomed on procedure since the rollout was done without the notice and comment period as should be required by the APA. Under the APA, “an agency must provide for notice and comment except when issuing a procedural rule, an interpretive rule, or a general statement of policy or upon a showing of ‘good cause.'” The IRS does not believe that the APA applies with respect to the new program but the AICPA disagrees. There is, they argue, no evidence that the “good cause” exception applies, and further, the new program is not a procedural rule nor is it an interpretive rule or a general statement of policy. Specifically, the lawsuit says the APA should apply because the new program is “binding as a practical matter.”
Had the APA been followed, and a comment period issued, the AICPA claims that the IRS would have been forced to respond to their concerns. Instead, the rule was implemented without comment and, as a result, will cause “significant harm.”
So what does the AICPA ultimately want? In its complaint, the AICPA asks the court to stop the IRS from implementing the new program for the upcoming filing season, effectively postponing the start date until the matter is finally resolved.
In a statement posted to its website, the AICPA called for 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.” The AICPA also demanded that the IRS follow the APA and allow for public comment on the matter.
The IRS has not yet issued a response. I’ll be sure to update when it happens.