In February 2014, the D.C. Circuit unanimously held that the IRS lacked the statutory authority to regulate tax return preparers. Loving v IRS, No. 13-5061 (D.C. Cir. Feb. 11, 2014). For an extensive analysis of the decision, see this TaxProf Blog op-ed by Steve Johnson (Florida State).
The IRS yesterday announced a "voluntary" program to regulate tax return preparers. IRS Commissioner John Koskinen stated:
[T]he IRS had started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. But we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing. So we’re launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.
I say “temporary” because we have been urging Congress to enact a proposal in the President’s Fiscal Year 2015 Budget that would give us the authority for mandatory oversight of return preparers. This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers.
See also the statement by National Taxpayer Advocate Nina Olson.
In a 14 page letter to Commissioner Koskinen, the American Institute of CPAs argues that the program is illegal:
We write today to express our strong concern that the IRS’s proposed program—in which tax return preparers would receive an IRS certificate for display in return for completing a continuing education program that includes a comprehension assessment (the “proposed program”)—would cause significant legal problems that may ultimately frustrate the IRS’s goals, confuse the public, and lead to litigation. ...
First, no statute authorizes the proposed program. The IRS’s general authority to administer the tax code under 26 U.S.C. § 7803 does not provide an adequate basis to proceed. Because federal agencies may act only pursuant to a valid delegation of authority by Congress, the IRS may not implement the proposed program. This fatal flaw cannot be overcome by the IRS. That no statutory provision expressly prohibits such a program does not legitimize an otherwise illegitimate act.
Second, and relatedly, the proposed program will inevitably be viewed as an end-run around Loving v. IRS, which held that the IRS lacks authority to regulate tax return preparers under 31 U.S.C. § 330. To be sure, the regulations invalidated in Loving were mandatory, and the proposed program is purportedly voluntary. But in reality tax return preparers would face an overwhelming, compelled incentive to participate in the IRS’s credentialing program, meaning that the proposed program will be de facto mandatory. In the wake of Loving, that is impermissible.
Third, the IRS has evidently concluded, in developing the proposed program, that it need not comply with the notice and comment requirements of the Administrative Procedure Act (“APA”). This is incorrect. ...
Finally, the current proposal is arbitrary and capricious because it fails to address the problems presented by unethical tax return preparers who defraud their clients, runs counter to evidence presented to the IRS, and will create market confusion. ...
We believe that the proposed program is unlawful and improper. We continue to believe that additional regulation of tax return preparers might yield significant benefits and that the IRS can achieve these objectives while remaining consistent with Loving and other statutory limitations on the IRS’s authority.