Originally published on Forbes.com.
The American Institute of Certified Public Accountants was in the United States District Court for the District of Columbia court defending our brand against hordes of unernrolled tax preparers waving their IRS Records of Completion. I’m trying to decide whether this case or the big deal they made out of responding to H & R Block’s new grab for upscale business is really a good use of AICPA resources. It seems to me that if AICPA was really looking out for keeping tax work being done by American CPAs, the organization would be fighting outsourcing return preparation to India. But that’s just me.
Second Attempt To Tackle Unregulated Preparers
The IRS made a stab at regulating tax preparers, but it turned out that it was exceeding its authority. So it has moved to a voluntary arrangement called the Annual Filing Season Program. By jumping through some hoops, a preparer can obtain a Record of Completion.
The Program allows these unenrolled preparers to apply for a “Record of Completion,” which the IRS will issue “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 of Circular 230.
That creates a new category of preparers to the mix of CPAs, attorneys, enrolled agents and unenrolled preparers. As the court puts it.
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.
It is worth noting that many of the CPAs competing for tax preparation business are not themselves tax preparers and they will in the interest of “leverage” and “pushing work down” have the preparation work done by people who are not yet CPAs or outsource the work to India.
It Is About Standing
The AICPA challenge to the program was initially knocked out on standing, but that decision was overturned on appeal. The appellate decision did allow that there still might be an issue with standing and that is what the current District decision is about.
In reaching its decision, however, the Court of Appeals discussed two important points relevant here. First, it made clear that it was only deciding that the competitive-injury-via-brand-dilution theory of standing sufficed for meeting Article III’s injury-in-fact requirement. Second, that court gave passing mention to an issue raised by the IRS for the first time on appeal – namely, that AICPA’s “grievance does not arguably fall within the zone of interests protected or regulated by the statutory provision it invokes.” Id. (citations and quotation marks omitted). But because “the IRS never presented this argument to the district court,” the D.C. Circuit declined to address it.
So the decision is all about “zone of interest to be protected by the statute.” That had the court looking at “the competitive-harm-by-brand-dilution injury”. In order to get at this, the court looked at the purpose that Congress had in originally passing the statute that is now 31 USC 330 – Practice before the Department. It relates to Civil War horses (Gotta love it. Can’t make this stuff up)
As one member of Congress explained, veterans were being “victimized by the sharks that lie around this city and who make their living by practicing deception on soldiers,” taking as much as “one half claim,” while the Treasury Department was “unable” to “guard the interests” of these veterans “because no law authorized them to disbar the disreputable claim agents from practice.” 15 Cong. Rec. 5222 (1884) (statement of Rep. Townshend). ……..
………the Court concurs that Congress was animated by a concern for protecting “claimants” who wanted a slice of congressionally appropriated funds for “horses and other property lost in the military service,” and that the grant of regulatory authority was designed to effectuate that purpose.
At any rate, the point of the statute is to protect consumers against crooked representatives, not representatives against competition from one another.
On the surface, it seems difficult to square AICPA’s interest in dismantling the IRS’s program with Congress’s goal of safeguarding consumers. In creating the AFS Program, the IRS aimed to improve unenrolled preparers’ knowledge of federal tax law, thereby “protecting taxpayers from preparer errors.” Rev. Proc. 2014-42, § 2. This objective appears closely aligned with Congress’s goal of ensuring taxpayers are provided “valuable service.” 31 U.S.C. § 330(a)(2)(C). AICPA does not impugn the IRS’s motive in creating the program or otherwise argue that, apart from the risk of “consumer confusion” – i.e., that consumers might confuse a more-qualified but higher-priced CPA with a less-qualified but cheaper unenrolled preparer – the AFS program does not flow logically from Congress’s objective of protecting consumers. Rather, it seeks to eliminate the Program notwithstanding its potential benefit to consumers precisely because the program’s “’government-backed credential[]’” renders “unenrolled preparers … ‘better able to compete against other credentialed preparers,’ ‘uncredentialed employees of members,’ and ‘CPAs and their firms.’”
Program Still Might Have Issues
The decision does not totally bless the new program. The court went so far as to caution the IRS that somebody other than the AICPA might be able to mount a credible challenge.
A final word. While AICPA does not have a cause of action under the APA to bring this suit, the Court has little reason to doubt that there may be other challengers who could satisfy the rather undemanding strictures of the zone-of-interests test. “The same claim may be viable in the hands of one challenger and not in those of another that, for example, has interests that make it less than a reliable private attorney general to litigate the issue of the public interest in the … case.” HWTC IV, 885 F.2d at 925-26 (citations and quotation marks omitted). Given the points raised in the merits briefing, which the Court now has no occasion to consider, Defendant may wish to ensure that its Program was properly promulgated before a suitable party mounts its own challenge.
Other Coverage
Law 360 had something on the decision as did the National Society of Accountants. Commenting on the NSA piece Robert Flach reflected on his deep reverence for CPAs who prepare tax returns .
The AICPA continues to oppose any program that identifies individuals who have proven competency and currency in preparing 1040s. They feel CPA’s “own” the tax preparation industry and continue to try to maintain the bogus “urban tax myth” that CPAs are 1040 experts.
The AICPA claimed its members were injured parties because they could lose business to the voluntarily registered preparers. Of course CPAs will lose business if there is a way to properly identify tax preparers who remain current in 1040 tax law – and they should!
Of course, my own beef is that the AICPA is probably mainly trying to protect CPAs, who might not even prepare their own returns, leveraging the CPA brand to charge premium rates for uncredentialled preparers on the other side of the world.