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AICPA Wins Reversal on IRS Tax Preparer Education Program, Lawsuit Can Proceed

The AICPA sued the IRS over its Annual Filing Season Program, AFSP, which allows uncredentialed tax preparers to be listed on the IRS Web site after taking 18 hours of continuing education and passing a comprehensive exam.

The AICPA objected on a number of grounds, arguing that the IRS lacks statutory authority to implement the program, acted arbitrarily and capriciously in adopting it, and failed to engage in required notice and comment rulemaking. The district court found that AICPA members will suffer no actual or imminent harm and dismissed the complaint for lack of standing.

The Court of Appeals reversed, in American Institute of CPAs v. IRS (October 30, 2015), concluding that the AICPA has adequately alleged the program will subject its members to an actual or imminent increase in competition and that it therefore has standing to pursue its challenge.

“The IRS argues that Institute members will face no increased competition from unenrolled preparers because both the Program itself and Circular 230 restrict how preparers can use their Records of Completion to advertise or solicit business,” the court stated.

“In support, the agency emphasizes the Program makes clear that preparers may not use the term ‘certified,’ ‘enrolled,’ or ‘licensed’ to describe [a Record of Completion] or in any way imply an employer/employee relationship with the IRS or make representations that the IRS has endorsed the tax return preparer.”

However, the court noted that without violating any of these restrictions, participating preparers are free to tell potential clients that they do have a Record of Completion demonstrating that they satisfied the program’s educational requirements and passed the test. “Moreover, participating preparers’ names will appear in the Directory of Federal Tax Return Prepares alongside the names of CPAs and other credentialed preparers,” the court said. “As the Institute helpfully sums up, ‘because the Rule distorts the competitive marketplace and dilutes [Institute] members’ credentials by introducing a government-backed credential and government-sponsored public listing, it harms those members regardless of whether it also confuses consumers.’”

In January 2013, U.S. District Court Judge James Boasberg ruled that an earlier mandatory program that the IRS had imposed requiring continuing education and testing of tax preparers exceeded the IRS’s statutory authority. After the IRS lost the case on appeal, the IRS rolled out a voluntary program known as the Annual Filing Season Program last year.

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