D.C. Circuit Upholds IRS’s Voluntary Regulation of Tax Preparers — Majority Holds APA’s Statutory Notice and Comment Not Required: AICPA V. IRS

Abstract

In American Institute of Certified Public Accountants v. Internal Revenue Service, the D.C. Circuit Court of Appeals reversed the District Court’s dismissal and held, for the second time, that the AICPA had standing to challenge the IRS’s Annual Filing Season Program – a voluntary program to regulate tax return preparers. The D.C. Circuit went a step further and, instead of remand, ruled on the merits of the AICPA’s challenge. It upheld the IRS’s authority to promulgate the voluntary program to enhance the skills of licensed tax return preparers. While the D.C. Circuit was unanimous on the standing issue and the merits of the challenge, it split two-to-one on whether the IRS had followed proper procedure when it adopted the AFSP without first providing the requisite “notice and comment” period required by the Administrative Procedures Act.

This Article analyzes three critical issues from the decision: standing, the merits of the challenge, and the dissent’s contention that the APA requires notice and comment for this rulemaking. The article concludes that the dissents analysis is APA is compelling and the IRS should have not have bypassed the notice and comment period in promulgating the AFSP. Despite the unanimous holding on the merits, that glaring procedural defect warranted the critical remedy of remand and vacatur. Without it, future IRS rulemaking may be guided by the “no harm, no foul” mindset and result in an unfortunate erosion of the due process protections of the APA.

Keywords: Taxation, APA Notice & Comment, IRS, Competitor Standing