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Lawsuit Faults IRS on Tax Preparer Rule

The AICPA filed a lawsuit against the IRS and IRS Commissioner John Koskinen seeking to overturn the agency’s new rule for tax preparers. The suit charged that the IRS’s Annual Filing Season Program will confuse consumers and impose additional regulatory burdens and costs on tax preparers.

The AICPA filed a lawsuit against the IRS and IRS Commissioner John Koskinen on July 15, 2014, to overturn the agency’s new rule regulating tax preparers.

In a complaint filed in the U.S. District Court for the District of Columbia, the AICPA charged that the Annual Filing Season Program “is an illegitimate exercise of government power” and “is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

The AICPA asked the court to declare the rule unlawful and forbid the IRS from implementing it.

“The AICPA has been a steadfast supporter of the IRS’s overall goals of enhancing compliance by tax return preparers and elevating ethical conduct,” AICPA President and CEO Barry Melancon said in a news release. “However, the IRS’s new rule regulating tax return preparers is an unlawful exercise of government power.”

Melancon called upon 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,” Melancon added, “the IRS must conduct a legitimate notice-and-comment rulemaking before proceeding.”

Under the proposed voluntary program, tax return preparers would receive an IRS certificate for display in return for completing a continuing education program that includes a comprehension assessment.

The AICPA said no law authorized the IRS to propose its program and added that the program will be viewed as “an end-run around Loving v. IRS,” in which the U.S. Court of Appeals for the District of Columbia in February rejected an earlier IRS attempt to regulate tax preparers.

“Undeterred by the court’s ruling, the IRS and the commissioner seek to implement a nearly identical rule disguised as a purportedly ‘voluntary’ program,” the complaint said. “The IRS’s actions are an obvious attempt to bypass the Court’s binding decision and to assume powers Congress has not given it.”

The complaint said that tax preparers historically fall into four major categories: CPAs, attorneys, enrolled agents, and unenrolled tax return preparers. The new rule creates four new categories of tax preparers, which the AICPA said will confuse consumers.

The complaint also said the rule does not address the problem of unethical or fraudulent tax return preparers.

“If allowed to proceed,” the complaint said, “the AFS rule will cause significant harm. By creating four new categories (for a total of eight) of tax return preparers, the rule will confuse consumers seeking assistance in preparing their taxes and increase the likelihood that consumers will hire a tax return preparer who is not best-suited to prepare their returns. If a taxpayer’s returns are inaccurate, the taxpayer is ultimately liable for repaying the IRS with interest.”

The AICPA said the rule will impose additional regulatory burdens and costs on tax return preparers.

“The AICPA has sought to work with the IRS to achieve workable solutions to this issue,” the complaint said, “including noting that the IRS has an array of penalties—including criminal penalties—it can levy against unethical and incompetent tax return preparers. But the IRS has simply dismissed all alternatives out of hand, determined to forge ahead with its preferred option.”

The IRS did not respond to a request for comment as this story was being written. In June, when the AICPA complained about the program, the agency issued a statement from Koskinen stating that the program “will be a step to help protect taxpayers during the 2015 filing season.”

“About 60 percent of tax return preparers operate without any type of oversight or education requirements,” the statement said. “Our program will give unenrolled return preparers a way to stay up-to-date on tax laws and changes, which we believe will improve service to taxpayers. It’s also important to note this program is not to replace the important tax work done by certified public accountants, enrolled agents, and attorneys. “

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