After my last blog, I figured the only way the IRS could go in its PR image was up, but boy was I wrong. Last week, AICPA filed a lawsuit against the IRS challenging its “Voluntary” Program for Tax Return Preparers and asking the U.S. District Court to halt the program’s implementation. So the hits just keep on rolling for the embattled federal agency.
Now you know things have to be pretty bad if AICPA is filing a lawsuit (learn more). It’s not the kind of thing they normally do and you know they want to have a constructive relationship with the IRS on behalf of their members and taxpayers. But I think they were finally exasperated in trying to deal with this issue through dialogue and normal channels, and finally even they had enough and did what they felt they had to do about this program.
In filing the suit, AICPA President Barry Melancon said in a statement: “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.”
Melancon went further in explaining why AICPA was filing this suit: "By implementing a purportedly 'voluntary' program that is mandatory in effect, the rule is an end-run around Loving v. IRS, a federal court ruling which struck down the IRS’s earlier attempt to regulate tax return preparers. The IRS simply does not have the authority to proceed with the new rule. By doubling the number of categories of tax return preparers to eight, the rule will also confuse consumers. Worse yet, the new rule will do nothing to address the problem of unethical or fraudulent tax return preparers – which should be a top priority.”
You can see the entire AICPA 23-page complaint here.
AICPA also claims the IRS did not properly follow the Administrative Procedures Act (APA) in implementing the program without a notice and comment period as the APA requires. The IRS, not surprisingly, says they didn’t need to follow the APA. The court will decide who is right on that point. And this case has been assigned to the same judge who overruled the IRS in the Loving v. IRS matter. Also, AICPA encouraged the IRS to consider a different approach that is clearly within its authority to regulate tax return preparers and that is to make them all subject to Circular 230. But instead, the IRS has chosen to go forward with this voluntary program that is questionably legal and effective. Go figure.
Oh, and last week the U.S. House of Representatives voted to cut funding for the IRS by $1.14 billion. This would leave the IRS with a budget of $9.8 billion for the fiscal year that starts Oct. 1, which is 13 percent below this year’s funding level and 21 percent below the Obama administration’s request. All in all, it was another bad week for the IRS.