IRS Ignored Law in Tax Prep Program, Accountant Suit Says

The U.S. Internal Revenue Service is trying to circumvent a court ruling that struck down its plan to regulate tax-return preparers by starting an identical program disguised as voluntary, an accountants’ group claimed.

A federal appeals court said in February that the IRS lacked authority to regulate paid tax preparers and upheld a lower-court ruling throwing out licensing rules for as many as 700,000 practitioners. Its new, voluntary program is an unlawful “end-run” around that decision and should be ended, the American Institute of Certified Public Accountants said in a suit filed today in federal court in Washington.

“The IRS’s actions are an obvious attempt to bypass the court’s binding decision and to assume powers Congress has not given it,” the AICPA said in the complaint.

The IRS’s new program requires tax-return preparers to pass a 100-question written exam and complete 15 to 18 hours of continuing education each year, the same demands as the regulation thrown out by the appeals court, the AICPA said. The IRS had touted its original rule, which imposed standards on preparers who aren’t certified public accountants, as necessary to combat fraud.

The rule, which the IRS issued on June 30, goes into effect in 2015.

Unethical Preparers

By creating four new categories of tax-return preparers, the rule will confuse consumers about the service provider’s qualifications, the AICPA said. At the same time, the program fails to effectively address issues related to unethical preparers who knowingly understate income or file invalid refund claims, according to the complaint.

Although purportedly voluntary, the program creates a “strong, competitive incentive” for unenrolled tax return preparers to comply or face losing business, the AICPA said. The group accused the IRS of flouting notice and comment requirements for the rule, depriving the public, including the group’s members, of an opportunity to air their concerns.

The IRS said today in a statement that the rule doesn’t violate the appeals court decision or conflict with any administrative or legal requirements. The new rule is a “reasonable attempt” to address tax-preparer competency while the agency continues to encourage Congress to enact new legislation, the agency said in a statement.

“While we agree that a voluntary program is not the ideal solution for providing return preparer oversight, we believe that in the interim, encouraging uncredentialed tax return preparers to improve their filing and tax law education will benefit preparers, taxpayers and overall tax administration,” the agency said.

The case is American Institute of Certified Public Accountants v. Internal Revenue Service, 14-1190, U.S. District Court for the District of Columbia (Washington)

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