The American Institute of CPAs (AICPA) sent two letters to IRS Commissioner John Koskinen – one on May 21 and another on June 24 – asking that the tax-collection agency not put in place a voluntary education program for paid tax preparers.
The lawsuit, filed in the US District Court for the District of Columbia on Tuesday, said the IRS’s new Annual Filing Season Program is “unlawful” and an attempt to bypass two courts’ rulings that prevent the agency from mandating continuing education and competency testing of the roughly 60 percent of US tax return preparers who are not attorneys, CPAs, and enrolled agents.
“The AICPA has been a steadfast supporter of the IRS’s overall goals of enhancing compliance by tax return preparers and elevating ethical conduct. However, the IRS’s new rule regulating tax return preparers is an unlawful exercise of government power. The IRS simply does not have the authority to proceed with the new rule,” AICPA President and CEO Barry Melancon, CPA, CGMA, said in a statement on Tuesday.
The IRS announced the new education initiative on June 26 and finalized the program’s requirements on June 30. According to a revenue procedure issued by the IRS last month, tax preparers with a valid Preparer Tax Identification Number (PTIN) are eligible to participate in the Annual Filing Season Program if they successfully complete a federal tax-filing season refresher course that is administered by an IRS-approved continuing education provider.
The refresher course must generally cover tax law and filing requirements relevant to Form 1040 series returns and schedules. At the completion of the six-hour course, applicants will be given a test with a minimum of 100 questions. To successfully complete the refresher course, applicants must correctly answer 70 percent of the questions.
Preparers must also voluntarily complete 18 hours of continuing education from an IRS-approved provider on the following topics:
- Two hours of ethics or professional responsibility.
- Six hours of federal tax law updates.
- Ten hours of federal tax law topics.
Preparers who successfully completed the tax-filing season refresher course would have satisfied the six-hour federal tax law update requirement, according to the revenue procedure.
The IRS noted that for the first year, a transition rule will be applied to prorate the required hours. For the 2015 filing season, a total of 11 hours would need to be earned in 2014, including the six-hour refresher course, three hours of federal tax law topics, and two hours of ethics.
Preparers who complete the continuing education requirements will receive a record of completion from the IRS. The record of completion is effective for only one calendar year. Once issued, it covers tax returns prepared and signed from either January 1 of the year covered by the record of completion or the date the record of completion was issued until December 31 of that year – whichever is later.
Paid preparers who receive a record of completion from the IRS will be included in a database on the agency’s website. The database will be available by January 2015 to help taxpayers determine return preparer qualifications.
AICPA: Program Is De Facto Mandatory
The initiative is a Plan B of sorts for the IRS, which is hoping Congress will pass legislation that will give it the authority to regulate tax return preparers. A few years ago, the IRS launched the Registered Tax Return Preparer (RTRP) program, which required unlicensed preparers to obtain a PTIN, pass a competency test, pay an annual application fee, and complete 15 hours of continuing education annually.
But independent tax practitioners Sabina Loving, John Gambino, and Elmer Kilian spearheaded a legal challenge of the RTRP program in 2012, claiming the regulations would result in fee increases, a loss of business, and possibly shuttering their mom-and-pop tax-preparation operations.
The IRS argued that the “Horse Act” of 1884 – a statute passed to govern compensation claims for dead horses brought on behalf of Civil War veterans, which is now codified under Section 330 of Title 31 of the US Code – authorized the agency to “regulate the practice of representatives of persons before the Department of the Treasury.”
But the IRS suffered a blow in federal appeals court last February when a panel of three judges upheld a lower court’s 2013 ruling that the agency did not have the legal right to regulate tax return preparers, which invalidated the RTRP program’s testing and education requirements.
The IRS had until May 12 to file a petition with the US Supreme Court to appeal the two courts' rulings, but chose not to.
In the lawsuit, the AICPA said that the IRS may contend that the new initiative is different from the RTRP program invalidated by the courts’ rulings because it is considered voluntary. But in reality, the new rule is de facto mandatory because it creates a strong competitive incentive for unenrolled tax return preparers to comply, the lawsuit stated. As a result the program is mandatory as a practical matter and “achieves substantially the same outcome” as the RTRP program nixed in the lawsuit.
Melancon said on Tuesday the new program also does nothing to address the problem of unethical or fraudulent tax return prepares – which he noted should be a top priority for the IRS.
“The IRS should withdraw the new rule, consult with stakeholders, and use the tools and data already at its disposal to monitor unethical tax return preparers,” he added. “At a minimum, the IRS must conduct a legitimate notice-and-comment rule-making before proceeding.”