BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

IRS Scores Victory In Court Against AICPA In Tax Preparer Suit

Following
This article is more than 9 years old.

In the latest chapter of "definitely not the last word on regulating tax preparers," another lawsuit has been resolved and this time, it's the Internal Revenue Service (IRS) that brought home the win. That case, American Institute of Certified Public Accountants (AICPA) v. Internal Revenue Service et al, was dismissed by U.S. District Court Judge James E. Boasberg earlier this week.

If that name - U.S. District Court Judge James E. Boasberg - rings a bell, it's likely that you've been following the saga of the IRS' attempt to regulate tax preparers. Judge Boasberg wrote the Loving opinion that barred the IRS from regulating tax preparers (the Appeals Court upheld with his ruling this year).

As a result of the Loving ruling, IRS was forced to drop its compulsory education and testing requirements, as well as the new Registered Tax Return Preparer (RTRP) designation. In place of the banned RTRP designation, the IRS announced the Annual Filing Season Program (AFSP) which is both voluntary and temporary. Under the AFSP, an uncredentialed tax preparer (meaning, basically, those without initials like JD, LLM, CPA or EA at the end of their names) would register with the IRS, agree to take 18 hours of continuing education each year and sit for a comprehension test of 100 questions.

Not everyone was thrilled with the new designation. At the top of the list of the disgruntled? The AICPA. The organization had previously called the program "unlawful and improper" and sent a strongly worded letter to IRS Commissioner Koskinen (downloads as a pdf) telling him so. The organization specifically voiced concern that the program "would cause significant legal problems that may ultimately frustrate the IRS’ goals, confuse the public, and lead to litigation." The AICPA also alleged that the IRS did not have the statutory authority to move ahead with the program. Shortly thereafter, in July 2014, the AICPA officially filed suit to stop the program, calling it "an illegitimate exercise of government power" and saying that it "also represents an impermissible end run around Loving v. IRS."

The defendants (IRS) argued that the case should be dismissed. After consideration of the motion and allowing the AICPA to argue otherwise, the case was dismissed for lack of standing.

Standing is a legal term which alludes to the ability of a party to bring a suit against the other party. Not everyone is entitled to challenge every action by bringing suit in court: can you imagine what a muddle that would make of the legal system? A party must prove that they have both the right to bring a lawsuit and that have brought the lawsuit in the right place.

To have standing in federal court, the plaintiff must have suffered an "injury in fact" - meaning an actual or imminent injury and not one that is hypothetical. Additionally, "there must be a causal connection between the injury and the conduct" and it must be "likely" that the injury would be remedied with a favorable decision of the court. If the plaintiff meets all of that criteria, the case can go forward: if the plaintiff fails on any one of those criteria, there's no standing.

That's what happened here. The AICPA claimed injury to its members as individual employers but the Court did not buy any of the AICPA's reasons why standing might apply using an agency/employer theory. The court explained that employers are not granted standing simply based upon the injuries of their employees (except in very limited circumstances). Perhaps more damaging, however, is the court's decision that the AICPA's fears outlined in the complaint are "far too speculative to support its claim of injury." The court found no actual connection between the new program and the alleged injury, writing:

AICPA has not demonstrated that permitting unenrolled preparers to distinguish themselves vis-à-vis other unenrolled preparers will result in competitive injury to CPAs and accounting firms who compete on the basis of more rigorous credentials.

In other words, even if the AICPA could bring the lawsuit on behalf of its individual members, there's no harm. And without harm, there's no case. And with that, the matter was dismissed.

The AICPA is "surprised and disappointed by the ruling," according to a spokesperson for the AICPA. As for the next steps? The AICPA could appeal but hasn't yet made a decision, saying, "We are analyzing the decision in order to evaluate our options."

Does this mean that there's a finally a period at the end of the quest to regulate preparers? Hardly. Even if there are no more lawsuits over aspects of the program (my prediction: there will be - remember there's at least one pending), the current AFSP is only temporary. IRS Commissioner Koskinen is hopeful that Congress will address the matter but that's asking a great deal: Congress has, for years, been happy to stay out of the whole mess.

(H/T: Dan Alban @Frimp13)

Follow me on Twitter or LinkedInSend me a secure tip