Am. Inst. of Certified Pub. Accountants v. Internal Revenue Serv.
| Decision Date | 03 August 2016 |
| Docket Number | Civil Action No. 14-1190 (JEB) |
| Citation | 199 F.Supp.3d 55 |
| Parties | AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, Plaintiff, v. INTERNAL REVENUE SERVICE, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Russell Balikian, Douglas R. Cox, Gibson, Dunn & Crutcher, LLP, Washington, DC, for Plaintiff.
Joseph E. Hunsader, Kyle Lamar Bishop, Geoffrey John Klimas, U.S. Department of Justice, Washington, DC, for Defendants.
Unlike the legal-services market, the tax-preparation ecosystem is a biodiverse habitat within which four species of tax-preparers compete for clients—certified public accountants (CPAs), attorneys, enrolled agents, and unenrolled tax preparers. The first three are subject to varying levels of licensing requirements and regulatory controls, while the fourth—some 600,000 unenrolled preparers—have long remained in the regulatory shadows. In 2011, the IRS decided the time had come for unenrolled preparers to show their bona fides. It thus promulgated a rule that would have required all unenrolled preparers to, among other things, pass a qualifying exam and satisfy continuing-education requirements. Three unenrolled preparers displeased by these new requirements filed suit, and this Court along with the Court of Appeals agreed that the IRS had exceeded its statutory authority in creating the new rule.
Undaunted, the IRS in July 2014 created the Annual Filing Season Program, a certification regime that contained many of the same components as the prior unlawful rule but made all participation voluntary. Notwithstanding its noncompulsory character, this program also had its detractors, who believed the IRS lacked authority to create it. This time, though, it was not the unenrolled preparers bringing suit, but rather the American Institute of Certified Public Accountants, a professional organization that represents accountants and accounting firms—some of which also employ unenrolled preparers. This Court granted the IRS's motion to dismiss on standing grounds for lack of injury, but the D.C. Circuit reversed. In so doing, however, the Court of Appeals indicated that it was not determining whether AICPA had also demonstrated its entitlement to sue—i.e. , whether it came within the zone of interests protected by the relevant statute. This prompted the IRS on remand to file a Motion for Judgment on the Pleadings with regards to that very issue. As the Court ultimately concludes that AICPA does not fall within the applicable zone of interests, it will grant Defendants' Motion.
When someone wants help preparing his taxes—April is the cruelest month—he will usually look to one of "four groups: (1) certified public accountants (CPAs); (2) lawyers; (3) ‘enrolled agents'; and (4) unenrolled preparers." Am. Inst. of Certified Pub. Accountants v. IRS (AICPA II), 804 F.3d 1193, 1194 (D.C.Cir.2015). The first three are regulated by either the IRS or state adjuncts: "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." Id. at 1194–95. All three are also bound by the strictures of IRS Circular 230, "which includes rules and disciplinary procedures for practice before the IRS." Id. at 1194.
The fourth group—unenrolled preparers—is simultaneously the least regulated and the most numerous, comprising around 60% of the tax-return-preparation market. Id. at 1198. Apart from being required to obtain and use a "Preparer Tax Identification Number," Treas. Reg. § 1.6109–2, they are not otherwise required to take classes, pass an exam, or demonstrate competency in preparing tax returns. See AICPA II, 804 F.3d at 1195.
In 2011, the IRS decided it was time to take a closer look at unenrolled preparers. In June of that year, it promulgated a rule, see Registered Tax Return Preparer Rule, 76 Fed. Reg. 32,286 (June 3, 2011), that would have required any unenrolled preparer to pass a qualifying examination, complete fifteen hours of continuing-education courses annually, and subject herself to Circular 230, a document that, as mentioned, provides details regarding what counts as sanctionable conduct and the procedural particulars of the IRS's disciplinary regime. See id. at 32,301, 32,303, 32,306 ; see also 31 C.F.R. §§ 10.20 -.38.
§ 330(a) (2012) ().1 The IRS homed in on its power in § 330(a)(1) to "regulate the practice of representatives of persons before the Department" as justifying its regulatory ambitions. See 76 Fed. Reg. at 32286.
Three unenrolled preparers challenged the rule, arguing that its promulgation exceeded the IRS's authority under that statutory provision. This Court agreed, granting summary judgment to the plaintiffs and enjoining enforcement of the rule. See Loving v. IRS (Loving I), 917 F.Supp.2d 67, 74 (D.D.C.2013). On appeal, the D.C. Circuit affirmed, concluding that when a person acts as a tax-return preparer, she is not acting as a "representative" of her client as that term is used in § 330(a)(1). Loving v. IRS (Loving III), 742 F.3d 1013, 1017 (D.C.Cir.2014). Reinforcing this reading, the phrases "practice ... before the [IRS]" and "presenting their cases" in §§ 330(a)(1) and (2) make clear that Congress was intending to give the IRS the power to regulate representatives in "traditional adversarial proceedings" like audits, rather than non-adversarial activities like preparing and filing a tax return. Id. at 1017–18. Because "the process of filing a tax return" is essentially "one of self-assessment" and demands neither "arguments [n]or advocacy in support of the taxpayer's position," the court concluded that "tax-return preparers do not practice before the IRS when they simply assist in the preparation of someone else's tax return," and are thus not "representatives" who fall within the IRS's regulatory orbit. Id.(citations and quotation marks omitted).
Id. at 111. Perhaps taking this clarification to heart, the IRS decided to retain much of the rule's infrastructure, but did so by relying on tax preparers' willingness to voluntarily participate. It is this voluntary program that sits at the heart of the current suit.
In July 2014, the IRS released Revenue Procedure 2014-42, albeit without notice and comment, in which it created the Annual Filing Season Program. See Rev. Proc. 2014-42 (AFS Program), 2014-29 I.R.B. 192 (2014) ; see also Internal Revenue Manual 32.2.2.3.2 (Aug. 11, 2004) (defining "Revenue Procedure" as "an official statement of a procedure by the Service that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code, related statutes, tax treaties, and regulations, or information that, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge"). The "new, voluntary[AFS] Program [is] designed to encourage tax return preparers who are not attorneys, certified public accountants (CPAs), or enrolled agents (EAs)"—i.e. , who are unenrolled preparers—"to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns." Id.§ 1 (emphasis added).
The Program allows these unenrolled preparers to apply for a "Record of Completion," which the IRS will issue "[u]pon verification that the requirements in section 4 of this revenue procedure have been met." Id.§ 4. Those requirements include, inter alia , (a) obtaining a preparer-tax identification number, (b) taking an annual "federal tax filing season refresher course," (c) passing a comprehension test, (d) completing a minimum of fifteen hours of continuing education annually; and (e) consenting to be "subject to the duties and restrictions relating to practice before the IRS in [specified portions] of Circular 230." Id.
Quite unlike the 2011 rule, "no tax return preparer is required to participate." Id.§ 3. The IRS did, however, create several incentives to drum up interest. First are reputational benefits. The IRS designed the Program to allow successful participants to " ‘stand out from the competition by giving them a recognizable [R]ecord of [C]ompletion that they can show to their clients.’ " Compl., ¶ 7 (quoting Defendant IRS Commissioner John Koskinen). In addition, participants' names also appear in the IRS's online Directory of Federal Tax...
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