Originally published on Forbes.com Nov 4th, 2014
When people at the AICPA decided that it would be a good idea to sue the IRS, because the IRS wanted to test tax preparers on a voluntary basis, they did not check with the membership. Or if they did, I missed the memo. I’m not the only member shaking his or her head wondering what they were thinking. Judge James Boasberg of the United States District Court for The District of Columbia ruled against the AICPA. It’s pretty embarrassing. I’m thinking about taking the Enrolled Agent exam.
What Is The AICPA All About?
The American Institute of Certified Public Accountants is a tax exempt organization. The exemption is under Code Section 501(c)(6) (Business leagues, etc.), just like the National Football League. So AICPA files Form 990, which is available on guidestar.org. Unlike the NFL exemption, the AICPA exemption might actually cost the government something as the organization had revenue in excess of expenses of $15 million for the year ended July 31, 2013. According to the 990, the primary purposes of the AICPA are to:
….serve and unite the accountancy profession, to develop and maintain high professional standards, to advance the science of accountancy, to develop and improve accountancy education and provide for the examination of candidates.
I’m not sure how that mission was threatened by the IRS proposal. Maybe just a resistance to the multiplication of financial credentials. Given the plethora of credentials now available though, it doesn’t seem like one more would do much harm, but let’s take a look at the arguments that the AICPA was making.
What’s The Harm In A Voluntary Preparer Credential?
The AICPA had arguments that the IRS should have had a comment period and did not have the statutory authority to implement the program. Before getting into that, it had to establish that it had standing to bring the suit,
The AICPA complaint first argued that the program was not really voluntary:
In reality, however, the new rule is de facto mandatory because it creates a strong competitive incentive for unenrolled tax return preparers to comply. Indeed, Commissioner Koskinen and the IRS have admitted as much. Commissioner Koskinen stated that the Record of Completion and place in the Directory of Federal Tax Return Preparers will enable those who successfully complete the program “to stand out from the competition by giving them a recognizable record of completion that they can show to their clients.”
There is the hardship the program might impose on CPA firms.
Certain accounting firms that are members of the AICPA employ individuals who will be injured by the additional regulatory burdens created by the AFS rule. In addition, AICPA members will be directly injured by the AFS rule because it requires firms to “take reasonable steps” to ensure that their newly regulated employees comply with Circular 230.
Then there is the confusion that consumers will suffer.
The AFS rule will confuse consumers. It creates four new categories (for a total of eight) of tax return preparers among which consumers will have to distinguish (unenrolled tax return preparers, unenrolled tax return preparers who comply with the rule, enrolled agents, enrolled agents who comply with the rule, CPAs, CPAs who comply with the rule, attorneys, and attorneys who comply with the rule).
Well there you go. Sticking up for the member firms, their employees and the all important confused consumers.
It Did Not Go Well
You could tell from the opening that that the IRS which had lost on the mandatory program in the same court was going to do better in this opinion.
In July 2014, taking the Court’s observation to heart, the IRS established the Annual Filing Season Program. Rather than mandating compliance like its predecessor, the new Program seeks to encourage unenrolled tax preparers to voluntarily augment their understanding of federal taxation. Notwithstanding this modification, the IRS’s initiative has again triggered litigation in this Court over the scope of the agency’s authority. But this time around, the challenge comes from a surprising source. Plaintiff American Institute of Certified Public Accountants does not represent the unenrolled tax preparers targeted by the Program; instead, its membership consists of individual certified public accountants and accounting firms. (Emphasis added)
Judge Boasberg ruled that AICPA did not have standing to bring the suit and that was the long and the short of it. Here is what the Judge saw behind the whole exercise.
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.
In his regular e-mail to his customers Lucien Gauthier of the Boston Tax Institute wrote:
As correctly predicted by one of our esteemed faculty members, the District Court held that the AICPA lacked standing to bring the suit. The District Court described the challenge to the Service’s voluntary program as coming “from a surprising source” (the AICPA). Apparently the District Court was as astonished as I was that the AICPA would try to thwart the Service’s attempt to upgrade the tax preparation skills of unenrolled preparers through a voluntary program. What will the AICPA attack next – motherhood and apple pie???
Lu is both a lawyer and a CPA. He is not a member of AICPA and has a pretty low opinion of the value that the organization delivers to its members. I remember one of his classes in which Lu asked us what were the various bodies we were subject to in tax practice. I mentioned the AICPA Standards of Tax Practice and he mocked me for the rest of the class. As far as I’m concerned, Boston Tax Institute provides the best value classroom continuing professional education in New England. You’re on your own for lunch though and the danish tends to be not so good,
Kelly Erb discussed the legal fine points of standing, but being a lawyer and all is not suffering the embarrassment that I am.
Adrienne Gonzalez at Going Concern summed it up beautifully with her post title – Judge: AICPA Was a Little Melodramatic About IRS’s Voluntary Registration Program. One of her readers commented that the case was a waste of AICPA dues dollars and a waste of AICPA credibility.
On the bright side Fuller Tax Blog noted that maybe it was good for the IRS to chalk up a win,
Given the many recent defeats by the IRS in cases involving the regulation of tax preparers, much less the tea party targeting scandals, this ruling likely came as a welcomed reprieve for the beleaguered organization.
Bob Flach, The Wandering Tax Pro, who is not a great fan of the profession ascribed selfish motives to the AICPA
The AICPA erroneously feels that CPA’s “own” the tax preparation business, and wants to discourage any credential or designation that identifies competence and currency in preparing 1040s.
Rachel Millios, an Enrolled Agent with a location independent tax practice, did not think that the AFSP program really threatened Circular 230 professionals (CPAs, lawyers and Enrolled Agents), although she does have a low opinion of the program.
It elevates the profession as a whole, and ultimately promotes effective tax administration, if we raise the bar among compensated tax professionals. This could be solved by Congressional legislation, to specifically empower the IRS to regulate paid tax return preparers (easier said than done, obviously). The band-aid that is the AFSP is just that: a temporary patch, a waste of taxpayer resources and IRS personnel time, and completely without meaning to the general taxpaying public.
Will The IRS Have Test Centers In Bangalore And Mumbai?
Over the years I have heard rumors that the AICPA is totally beholden to Big 4 and large national firms. I don’t know about that although I was surprised to see in the Form 990 that PWC collected $455,854 in consulting fees from the organization. Taking on this case would seem to indicate more of a concern for the little guys in the profession, since it would seem that they are the ones who might face competition from unenrolled preparers with upgraded credentials. Somehow Mitt Romney forsaking PWC and driving to a strip mall to bring his umpteen K-1’s to Liberty Tax, but making sure to ask for a preparer who has passed the new exam seems unlikely.
Then my villainous cynical mind kicks in. Suppose large local and regional firms started pledging that any non-CPAs who touched your return would be people who had at least passed the IRS exam and challenged you to ask the larger firms if they could match that. A very large portion of the tax work done by the largest firms is actually done in India. Clients who take the time to read the voluminous engagement letters are aware of this, but still it might prove something of an embarrassment. If the firms went ahead and had their Indian employees take the exam, I’m thinking the Tea Party would have a blast with the long list of Indian names on the IRS preparer rolls.
Surprised And Disappointed
AICPA President Barry Melancon sent out an email on the decision.
We were surprised and disappointed by the ruling, and have begun the process of analyzing it in order to evaluate our options. As in all legal matters, multiple options are present,
For this we are paying a salary of $1.6 million to Mr. Melancon. Lu Gauthier’s faculty member took ten seconds to predict the case would be knocked out on standing. I’m thinking the organization should find a better way to spend our dues or maybe just rebate some of them. What do other CPAs think?
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