Am. Inst. of Certified Pub. Accountants v. Comm'r, 14–5309.

• Decision Date: 30 October 2015
• Docket Number: No. 14–5309.,14–5309.
• Citation: 804 F.3d 1193
• Parties: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, Appellant v. INTERNAL REVENUE SERVICE and John A. Koskinen, in his official capacity as Commissioner of Internal Revenue Service, Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

804 F.3d 1193

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, Appellant

v.INTERNAL REVENUE SERVICE and John A. Koskinen, in his official capacity as Commissioner of Internal Revenue Service, Appellees.

No. 14–5309.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 18, 2015.

Decided Oct. 30, 2015.

Douglas R. Cox argued the cause for appellant. With him on the briefs were Russell B. Balikian and Jacob T. Spencer.

Bethany B. Hauser, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Gilbert S. Rothenberg and Jonathan S. Cohen, Attorneys. Ellen P. DelSole, Attorney, entered an appearance.

Noel L. Allen was on the brief for amicus curiae National Association of State Boards of Accountancy in support of neither party.

Before: TATEL, Circuit Judge, and EDWARDS and GINSBURG, Senior Circuit Judges.

Opinion

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Appellant, a professional association of certified public accountants and their firms, challenges an Internal Revenue Service program that allows previously uncredentialed tax return preparers who take required courses and fulfill other prerequisites to obtain a “Record of Completion” and to have their names listed in the IRS's online “Directory of Federal Tax Return Preparers.” Appellant argues that the IRS lacks statutory authority to implement the program, acted arbitrarily and capriciously in adopting it, and failed to engage in required notice and comment rulemaking. The district court found that appellant's members will suffer no actual or imminent harm and dismissed the complaint for lack of Article III standing. For the reasons set forth in this opinion, we conclude that Appellant has adequately alleged the program will subject its members to an actual or imminent increase in competition and that it therefore has standing to pursue its challenge.

I.

Because “[t]he federal income tax code is massive and complicated ... it is not surprising that many taxpayers hire someone else to help prepare their tax returns.” Loving v. IRS (Loving III), 742 F.3d 1013, 1014 (D.C.Cir.2014). The tax return preparer market consists of four groups: (1) certified public accountants (CPAs); (2) lawyers; (3) “enrolled agents”; and (4) unenrolled preparers. CPAs and attorneys are subject to state professional licensing regimes, and enrolled agents are licensed by the IRS and subject to various IRS requirements including taking continuing education courses and passing an exam. These three groups are also subject to IRS Circular 230, which includes rules and disciplinary procedures for practice before the IRS.

By contrast, unenrolled preparers are subject to less stringent regulation. Although they, like all tax return preparers, must obtain a “Preparer Tax Identification Number” and list that number on every return they sign, see Treas. Reg. § 1.6109–2, they have no obligation to take courses or pass an exam. The “hundreds of thousands” of unenrolled preparers, Loving III, 742 F.3d at 1021, account for about sixty percent of all tax return preparers. Appellees' Br. 4.

In 2011, the IRS issued the Registered Tax Return Preparer Rule (“the Rule”). 76 Fed. Reg. 32,286. The Rule would have required unenrolled preparers to become “registered tax return preparer[s]” in order to continue assisting clients with their tax returns. Id. at 32,301. Under the Rule, preparers would have had to complete fifteen hours of continuing education training annually, pass a written examination, and subject themselves to portions of Circular 230. Id. at 32,301, 32,303, 32,306.

Three unenrolled preparers challenged the Rule, arguing that it exceeded the IRS's authority to “regulate the practice of representatives of persons before the Department of the Treasury.” 31 U.S.C. § 330(a). In Loving v. IRS, the district court agreed and permanently enjoined the IRS from enforcing the Rule against unenrolled preparers. 917 F.Supp.2d 67 (D.D.C.2013). Although the district court later denied a stay pending appeal, it modified its order to make clear that nothing in the injunction “requir[ed] the IRS to dismantle its entire scheme” because the IRS could “choose to retain the testing centers and some staff, as it is possible that some preparers may wish to take the exam or continuing education even if not required to.” Loving v. IRS, 920 F.Supp.2d 108, 111 (D.D.C.2013). “Such voluntarily obtained credentials,” the district court explained, “might distinguish [participating preparers] from other preparers.” Id. Although we affirmed, we said nothing about either the district court's clarification of its injunction or the permissibility of the Rule remaining in place on a voluntary basis. Loving III, 742 F.3d 1013.

After our decision in Loving —and perhaps inspired by the district court's suggestion—the IRS adopted the program at issue in this case, the “Annual Filing Season Program” (“the Program”). The Program offers preparers who, among other things, complete required continuing education, pass an exam, and subject themselves to portions of Circular 230, a “Record of Completion”—an official notice that they have complied with the Program. See Annual Filing Season Program, Rev. Proc. 2014–42, 2014–29 I.R.B. 192. In addition, the IRS lists participating preparers in its online “Directory of Federal Tax Return Preparers,” which also includes CPAs, lawyers, and enrolled agents. Internal Revenue Service, Directory of Federal Tax Return Preparers with Credentials and Select Qualifications , http://irs.treasury.gov/rpo/rpo.jsf (last visited Oct. 20, 2015). The IRS designed the Program to “encourage tax return preparers who are not attorneys, certified public accountants ..., or enrolled agents ... to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns.” Annual Filing Season Program § 1. The Program is “voluntary and no tax return preparer is required to participate.” Id. § 3.

According to IRS Commissioner John Koskinen, the Program allows participants “to stand out from the competition by giving them a recognizable record of completion that they can show to their clients.” Compl. ¶ 7 (internal quotation marks omitted). The Program, however, prohibits preparers from using “the term[s] ‘certified,’ ‘enrolled,’ or ‘licensed’ to describe [a Record of Completion] or in any way imply[ing] an employer/employee relationship with the IRS or mak[ing] representations that the IRS has endorsed the tax return preparer.” Annual Filing Season Program § 4.07.

The American Institute of Certified Public Accountants (“the Institute”), a professional organization with about 400,000 accountants and accounting firms as members—some of whom employ unenrolled preparers—challenged the Program, arguing that even the voluntary program exceeds the IRS's statutory authority and that, in adopting it, the agency acted arbitrarily and capriciously and failed to comply with required notice and comment procedures. Anticipating a standing challenge, the Institute alleged in its complaint that the Program harms its members in three ways: (1) by confusing consumers and causing competitive harm; (2) by imposing regulatory burdens on unenrolled preparers that some of the Institute's members employ; and (3) by increasing the regulatory burden on Institute members. Compl. ¶ 12.

The IRS did in fact seek dismissal on standing grounds, arguing that the Program caused no harm because it was entirely voluntary, and that, regardless, each of the Institute's three standing theories was fatally flawed. In opposing the IRS's motion to dismiss, the Institute submitted seven declarations to substantiate its allegations regarding its Article III standing.

The district court granted the IRS's motion to dismiss. American Institute of Certified Public Accountants v. IRS, No. 1:14–cv–01190, 2014 WL 5585334 (D.D.C. Oct. 27, 2014). Passing over the IRS's argument that the Program causes the Institute's members no harm because it is voluntary, the district court agreed with the IRS that “each of [the Institute's] assertions of standing is fatally flawed in its own right.” Id. at *4. The Institute appeals. Our review is de novo. Mendoza v. Perez, 754 F.3d 1002, 1010 (D.C.Cir.2014) (reviewing a dismissal for lack of standing de novo).

II.

The “irreducible constitutional minimum of standing contains three elements”: (1) plaintiffs must have suffered an injury in fact that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical”; (2) the injury must be “fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court”; and (3) “it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks and alterations omitted). In order to demonstrate Article III standing to maintain its procedural challenge—i.e., that the IRS failed to engage in notice and comment rulemaking—the Institute need show only that the Program itself, rather than the procedures used to adopt it, causes a redressable harm. See Mendoza, 754 F.3d at 1010. “In evaluating plaintiffs' standing at the motion to dismiss stage we must assume that the plaintiffs state a valid legal claim and must accept the factual allegations in the complaint as true.”Id. (internal quotation marks and alterations omitted).

Associations have representational standing if: “(1) at least one of their members has standing to sue in her or his own right, (2) the interests the association seeks to protect are germane to its purpose, and (3) neither the claim asserted nor the relief requested requires the participation of an individual member in the lawsuit.” American Library Ass'n v. FCC, 401 F.3d 489, 492 (D.C.Cir.2005). The...