The American Institute for Certified Public Accountants (AICPA) filed a lawsuit in July 2014 challenging the IRS’s Annual Filing Season Program (AFSP). Almost exactly one year ago, a District Court for the District of Columbia ruled that the AICPA did not have standing to sue. The AICPA appealed that ruling, and in a decision announced today the Court of Appeals for the District of Columbia ruled that the lower court was wrong: The AICPA did have standing and the lawsuit will move forward.
To have standing, a plaintiff in a lawsuit needs three elements:
(1) plaintiffs must have suffered an injury in fact that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical”; (2) the injury must be “fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court”; and (3) “it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” [citation omitted]
For an association to be able to have standing,
“(1) at least one of their members has standing to sue in her or his own right, (2) the interests the association seeks to protect are germane to its purpose, and (3) neither the claim asserted nor the relief requested requires the participation of an individual member in the lawsuit.” [citation omitted]
The IRS challenged only the first of these issues. The AICPA gave three reasons in their lawsuit why they had standing. One of these, competitor standing, was the focal point of this decision.
Here, the Institute’s members, like the researchers in Sherley and the congressmen in Shays, will face intensified competition as a result of the challenged government action. Specifically, participating unenrolled preparers will gain a credential and a listing in the government directory. The Institute alleges—and we must accept as true for purposes of assessing its standing—that this will “dilute[] the value of a CPA’s credential in the market for tax-return-preparer services” and permit unenrolled preparers to more effectively compete with and take business away from presumably higher-priced CPAs.
The Court found that the AFSP harms the AICPA’s members even if it doesn’t cause confusion.
The Institute alleges that unenrolled preparers are part of the same tax return preparation market as its members. Indeed, the IRS itself reports that sixty percent of tax return preparers are unenrolled preparers. We see nothing at all speculative or attenuated about the Institute’s contention that “[u]nenrolled preparers with government-backed credentials will be better able to compete against other credentialed preparers, and especially against uncredentialed employees of [Institute] members.” Nor do we see anything speculative or attenuated about the allegation that CPAs and their firms are more likely to lose business to an unenrolled preparer with a Record of Completion and a listing in the government directory than to an unenrolled preparer with no credentials at all. [citations omitted]
The IRS then says because AFSP participants can’t use the words “certified,” “enrolled,” or “licensed” that there’s no problem with increased competition. The Court disagreed with that argument.
Without violating any of these restrictions, however, participating preparers remain free to tell potential clients that they have a Record of Completion demonstrating that they satisfied the Program’s educational requirements and passed the test. Indeed, that is the very purpose of the Program. Moreover, participating preparers’ names will appear in the Directory of Federal Tax Return Preparers alongside the names of CPAs and other credentialed preparers. 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.”
The Court of Appeals reversed the lower court ruling, so the AICPA’s lawsuit will move forward.
So the AFSP is back on very thin ice. The original lawsuit claims by the AICPA look very accurate to me. And there’s a new one: Unenrolled preparers who do not participate in the AFSP will be denied the ability to represent taxpayers’ whose returns they prepared in examinations (as of January 2016). This makes the program look a lot more mandatory than voluntary. My suspicion is that the one and only tax season for the AFSP was the past filing season.
