A federal judge has dismissed a lawsuit against the Internal Revenue Service by the American Institute of CPAs over its new program offering voluntary education and testing of non-CPA tax preparers.
Judge James Boasberg, the same judge who handed down the Loving v. IRS ruling last year invalidating the IRS’s attempt to impose mandatory testing and continuing education of non-credentialed tax preparers, issued a ruling in the new case Monday. The ruling last year ended the IRS’s efforts to regulate the tax preparation profession through a Registered Tax Return Preparer designation that would require registration, testing and continuing education of tax preparers who are not already subject to such requirements as CPAs, enrolled agents or attorneys. In the case, Loving v. IRS, three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—sued the IRS, represented by the libertarian law firm the Institute for Justice, which argued that the IRS had exceeded its statutory authority in trying to impose mandatory testing and education of preparers. Boasberg ruled in favor of the preparers.
After the IRS lost the case on appeal earlier this year, the IRS instead introduced a voluntary program, known as the Annual Filing Season Program, in June in an effort to give independent tax preparers more training and an online database that taxpayers could consult to find qualified preparers (see IRS Offers Voluntary Tax Preparer Education Program). However, the AICPA filed suit to stop the program in July, arguing that the new voluntary program was also an unlawful exercise of government power, representing what AICPA president and CEO Barry Melancon called an “end run” around the Loving v. IRS decision (see AICPA Sues IRS over Voluntary Program for Tax Preparers).
“By implementing a purportedly 'voluntary' program that is mandatory in effect, the rule is an end-run around Loving v. IRS, a federal court ruling which struck down the IRS’s earlier attempt to regulate tax return preparers,” Melancon said in July. “The IRS simply does not have the authority to proceed with the new rule. By doubling the number of categories of tax return preparers to eight, the rule will also confuse consumers. Worse yet, the new rule will do nothing to address the problem of unethical or fraudulent tax return preparers—which should be a top priority.” The AICPA also argued that the IRS had circumvented the normal process of issuing a notice and soliciting comments and feedback before proceeding with the program.
In his ruling Monday, Boasberg said the AICPA lacked standing and would not be harmed by a voluntary program. “Arguing that AICPA and its members have suffered no harm from the program, Defendants IRS and the IRS Commissioner have now moved to dismiss the suit for lack of standing. Agreeing, the Court will grant Defendants’ Motion,” wrote Boasberg.
He disagreed with the AICPA’s contention that customers would use unenrolled tax preparers who participated in the Annual Filing Season Program instead of CPAs, noting, “CPAs already operate in a competitive market in which several different types of qualified preparers have carved out individualized niches. AICPA has not demonstrated that permitting unenrolled preparers to distinguish themselves vis-à-vis other unenrolled preparers will result in competitive injury to CPAs and accounting firms who compete on the basis of more rigorous credentials.”
The AICPA has not decided yet whether to appeal the ruling. “We are surprised and disappointed by the ruling,” said a spokesperson for the AICPA. “We are analyzing the decision in order to evaluate our options.”
In his ruling, Boasberg also dismissed some of the AICPA’s other arguments, including that the new program would create new categories of tax preparers that would confuse the marketplace.
“Fairly viewed, the Program arguably creates one additional category’ of tax preparers: unenrolled tax preparers who participate in the Program and receive a Record of Completion,” he wrote. “Nothing about that category is inherently confusing.”
Boasberg disagreed that consumers would be confused by the introduction of such a term into the “tax-preparer lexicon.”
“Beneath its amorphous rhetoric about confusion, the crux of Plaintiff’s concern is apparent: its membership feels threatened by the specter of increased competition from previously uncredentialed preparers who choose to complete the program,” the judge wrote. He acknowledged that increased competition stemming from governmental action can, under certain circumstances, provide a basis for standing, but he pointed out that competitor standing cannot be premised on pure conjecture.
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