Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-05309/USCOURTS-caDC-14-05309-0/pdf.json

Parties Involved:
American Institute of Certified Public Accountants
Appellant
Internal Revenue Service
Appellee
John A. Koskinen
Appellee
National Association of State Boards of Accountancy
Amicus Curiae

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 18, 2015 Decided October 30, 2015

No. 14-5309

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS,

APPELLANT

v.

INTERNAL REVENUE SERVICE AND JOHN A. KOSKINEN, IN HIS 

OFFICIAL CAPACITY AS COMMISSIONER OF INTERNAL REVENUE 

SERVICE,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:14-cv-01190)

Douglas R. Cox argued the cause for appellant. With him 

on the briefs were Russell B. Balikian and Jacob T. Spencer.

Bethany B. Hauser, Attorney, U.S. Department of Justice, 

argued the cause for appellees. With her on the brief were 

Gilbert S. Rothenberg and Jonathan S. Cohen, Attorneys. 

Ellen P. DelSole, Attorney, entered an appearance. 

Noel L. Allen was on the brief for amicus curiae National 

Association of State Boards of Accountancy in support of 

neither party.

USCA Case #14-5309 Document #1580978 Filed: 10/30/2015 Page 1 of 12
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Before: TATEL, Circuit Judge, and EDWARDS and 

GINSBURG, Senior Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Appellant, a professional 

association of certified public accountants and their firms,

challenges an Internal Revenue Service program that allows 

previously uncredentialed tax return preparers who take 

required courses and fulfill other prerequisites to obtain a 

“Record of Completion” and to have their names listed in the 

IRS’s online “Directory of Federal Tax Return Preparers.”

Appellant argues that the IRS lacks statutory authority to 

implement the program, acted arbitrarily and capriciously in 

adopting it, and failed to engage in required notice and 

comment rulemaking. The district court found that appellant’s

members will suffer no actual or imminent harm and

dismissed the complaint for lack of Article III standing. For 

the reasons set forth in this opinion, we conclude that

Appellant has adequately alleged the program will subject its 

members to an actual or imminent increase in competition and 

that it therefore has standing to pursue its challenge.

I.

Because “[t]he federal income tax code is massive and 

complicated . . . it is not surprising that many taxpayers hire 

someone else to help prepare their tax returns.” Loving v. IRS

(Loving III), 742 F.3d 1013, 1014 (D.C. Cir. 2014). The tax 

return preparer market consists of four groups: (1) certified 

public accountants (CPAs); (2) lawyers; (3) “enrolled agents”; 

and (4) unenrolled preparers. CPAs and attorneys are subject 

to state professional licensing regimes, and enrolled agents 

are licensed by the IRS and subject to various IRS 

requirements including taking continuing education courses 

and passing an exam. These three groups are also subject to 

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IRS Circular 230, which includes rules and disciplinary 

procedures for practice before the IRS.

By contrast, unenrolled preparers are subject to less 

stringent regulation. Although they, like all tax return 

preparers, must obtain a “Preparer Tax Identification 

Number” and list that number on every return they sign, see

Treas. Reg. § 1.6109-2, they have no obligation to take 

courses or pass an exam. The “hundreds of thousands” of 

unenrolled preparers, Loving III, 742 F.3d at 1021, account 

for about sixty percent of all tax return preparers. Appellees’ 

Br. 4.

In 2011, the IRS issued the Registered Tax Return 

Preparer Rule (“the Rule”). 76 Fed. Reg. 32,286. The Rule 

would have required unenrolled preparers to become 

“registered tax return preparer[s]” in order to continue 

assisting clients with their tax returns. Id. at 32,301. Under the 

Rule, preparers would have had to complete fifteen hours of 

continuing education training annually, pass a written 

examination, and subject themselves to portions of Circular 

230. Id. at 32,301, 32,303, 32,306.

Three unenrolled preparers challenged the Rule, arguing 

that it exceeded the IRS’s authority to “regulate the practice 

of representatives of persons before the Department of the 

Treasury.” 31 U.S.C. § 330(a). In Loving v. IRS, the district 

court agreed and permanently enjoined the IRS from 

enforcing the Rule against unenrolled preparers. 917 F. Supp. 

2d 67 (D.D.C. 2013). Although the district court later denied a 

stay pending appeal, it modified its order to make clear that 

nothing in the injunction “requir[ed] the IRS to dismantle its 

entire scheme” because the IRS could “choose to retain the 

testing centers and some staff, as it is possible that some 

preparers may wish to take the exam or continuing education 

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even if not required to.” Loving v. IRS, 920 F. Supp. 2d 108, 

111 (D.D.C. 2013). “Such voluntarily obtained credentials,” 

the district court explained, “might distinguish [participating 

preparers] from other preparers.” Id. Although we affirmed,

we said nothing about either the district court’s clarification 

of its injunction or the permissibility of the Rule remaining in 

place on a voluntary basis. Loving III, 742 F.3d 1013.

After our decision in Loving—and perhaps inspired by 

the district court’s suggestion—the IRS adopted the program 

at issue in this case, the “Annual Filing Season Program”

(“the Program”). The Program offers preparers who, among 

other things, complete required continuing education, pass an 

exam, and subject themselves to portions of Circular 230, a 

“Record of Completion”—an official notice that they have 

complied with the Program. See Annual Filing Season 

Program, Rev. Proc. 2014-42, 2014-29 I.R.B. 192. In 

addition, the IRS lists participating preparers in its online 

“Directory of Federal Tax Return Preparers,” which also 

includes CPAs, lawyers, and enrolled agents. Internal 

Revenue Service, Directory of Federal Tax Return Preparers 

with Credentials and Select Qualifications, http://irs.treasury

.gov/rpo/rpo.jsf (last visited Oct. 20, 2015). The IRS designed 

the Program to “encourage tax return preparers who are not 

attorneys, certified public accountants . . . , or enrolled agents 

. . . to complete continuing education courses for the purpose 

of increasing their knowledge of the law relevant to federal 

tax returns.” Annual Filing Season Program § 1. The Program 

is “voluntary and no tax return preparer is required to 

participate.” Id. § 3.

According to IRS Commissioner John Koskinen, the 

Program allows participants “to stand out from the 

competition by giving them a recognizable record of 

completion that they can show to their clients.” Compl. ¶ 7 

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(internal quotation marks omitted). The Program, however,

prohibits preparers from using “the term[s] ‘certified,’ 

‘enrolled,’ or ‘licensed’ to describe [a Record of Completion] 

or in any way imply[ing] an employer/employee relationship 

with the IRS or mak[ing] representations that the IRS has 

endorsed the tax return preparer.” Annual Filing Season 

Program § 4.07.

The American Institute of Certified Public Accountants 

(“the Institute”), a professional organization with about 

400,000 accountants and accounting firms as members—

some of whom employ unenrolled preparers—challenged the 

Program, arguing that even the voluntary program exceeds the 

IRS’s statutory authority and that, in adopting it, the agency 

acted arbitrarily and capriciously and failed to comply with 

required notice and comment procedures. Anticipating a 

standing challenge, the Institute alleged in its complaint that 

the Program harms its members in three ways: (1) by 

confusing consumers and causing competitive harm; (2) by 

imposing regulatory burdens on unenrolled preparers that 

some of the Institute’s members employ; and (3) by 

increasing the regulatory burden on Institute members. 

Compl. ¶ 12.

The IRS did in fact seek dismissal on standing grounds, 

arguing that the Program caused no harm because it was 

entirely voluntary, and that, regardless, each of the Institute’s 

three standing theories was fatally flawed. In opposing the 

IRS’s motion to dismiss, the Institute submitted seven 

declarations to substantiate its allegations regarding its Article 

III standing.

The district court granted the IRS’s motion to dismiss.

American Institute of Certified Public Accountants v. IRS, No.

1:14-cv-01190, 2014 WL 5585334 (D.D.C. Oct. 27, 2014).

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Passing over the IRS’s argument that the Program causes the 

Institute’s members no harm because it is voluntary, the 

district court agreed with the IRS that “each of [the 

Institute’s] assertions of standing is fatally flawed in its own 

right.” Id. at *4. The Institute appeals. Our review is de novo.

Mendoza v. Perez, 754 F.3d 1002, 1010 (D.C. Cir. 2014)

(reviewing a dismissal for lack of standing de novo).

II.

The “irreducible constitutional minimum of standing 

contains 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.” Lujan v. Defenders of 

Wildlife, 504 U.S. 555, 560–61 (1992) (internal quotation 

marks and alterations omitted). In order to demonstrate 

Article III standing to maintain its procedural challenge—i.e., 

that the IRS failed to engage in notice and comment 

rulemaking—the Institute need show only that the Program 

itself, rather than the procedures used to adopt it, causes a 

redressable harm. See Mendoza, 754 F.3d at 1010. “In 

evaluating plaintiffs’ standing at the motion to dismiss stage 

we must assume that the plaintiffs state a valid legal claim 

and must accept the factual allegations in the complaint as 

true.” Id. (internal quotation marks and alterations omitted).

Associations have representational standing if: “(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 

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member in the lawsuit.” American Library Ass’n v. FCC, 401 

F.3d 489, 492 (D.C. Cir. 2005). The IRS challenges only the 

first of these three requirements.

We begin and end with the Institute’s claim of competitor 

standing. As explained in Sherley v. Sebelius, although we 

have employed “various formulations” for determining 

competitor standing, “the basic requirement common to all 

our cases is that the complainant show an actual or imminent 

increase in competition, which increase we recognize will 

almost certainly cause an injury in fact.” 610 F.3d 69, 73 

(D.C. Cir. 2010). In Sherley, we held that adult stem cell 

researchers had competitor standing to challenge Department 

of Health and Human Services guidelines that increased the 

range of embryonic stem cell research eligible to compete 

with their research for government grants. Id. at 72–74. In 

Shays v. Federal Election Commission, we held that two 

congressmen seeking reelection had competitor standing to 

challenge Commission regulations that they alleged allowed 

statutorily forbidden campaign practices. 414 F.3d 76 (D.C. 

Cir. 2005). Although the challenged regulations applied to the 

plaintiff congressmen as well as to their competitors, we held 

that “when regulations illegally structure a competitive 

environment—whether an agency proceeding, a market, or a 

reelection race—parties defending concrete interests . . . in 

that environment suffer legal harm under Article III.” Id. at 

87.

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 

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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. Appellant’s Reply Br. 12.

After the completion of briefing in this case, this Court

issued its opinion in State National Bank of Big Spring v. 

Lew, in which we denied a bank’s claim that it had competitor 

standing to challenge the government’s designation of a 

competitor as “too big to fail.” 795 F.3d 48 (D.C. Cir. 2015). 

Although this designation subjected the competitor to 

additional regulation, the plaintiff alleged it would also result 

in a reputational benefit that would allow its competitor to 

borrow money more cheaply. Id. at 55. Rejecting this 

argument, we held that “the link between (i) the enhanced

regulation of [the competitor], (ii) any alleged reputational 

benefit to [the competitor], and (iii) any harm to [the plaintiff] 

is simply too attenuated and speculative to show the causation 

necessary to support standing.” Id.

In our view, the links we found unduly speculative in 

State National Bank are far tighter here. To begin with, the 

link between the government-backed credentials offered to 

unenrolled preparers and the reputational benefit they will 

enjoy is hardly speculative. Indeed, the reputational benefit is 

the very point of the IRS Program. As Commissioner 

Koskinen explained, the Program allows participants “to stand 

out from the competition by giving them a recognizable 

record of completion that they can show to their clients.”

Compl. ¶ 7 (internal quotation marks omitted). Moreover, 

unlike State National Bank’s mandatory “too big to fail”

designation, which was not intended to be laudatory, the IRS 

Program at issue here is both voluntary and clearly intended 

to offer competitive benefits to those unenrolled preparers 

who participate in the Program. “Basic economic logic”

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suggests that unenrolled preparers will choose to participate 

only if they believe the resulting reputational benefit will 

produce a substantial enough competitive advantage to 

outweigh their compliance costs. Cf. United Transportation 

Union v. ICC, 891 F.2d 908, 912 n.7 (D.C. Cir. 1989) (noting 

that allegations of competitive harm founded on “basic 

economic logic” can establish standing). And although the 

Institute has offered no evidence that the competitive harm 

has yet occurred, our precedent imposes no such requirement. 

“Because increased competition almost surely injures a seller 

in one form or another, he need not wait until allegedly illegal 

transactions hurt him competitively before challenging 

the . . . governmental decision that increases competition.” 

Sherley, 610 F.3d at 72 (internal quotation marks and 

alterations omitted).

Seeking to escape this logic, the IRS argues that the 

Program will help unenrolled preparers compete only with 

other unaffiliated unenrolled preparers who decline to 

participate, rather than with the CPAs and CPA firms that 

comprise the Institute’s membership. The Institute responds 

with two arguments: (1) that consumers will be confused 

about the meaning of the Record of Completion, believing 

either that it conveys IRS endorsement of the preparer or that 

it represents a superior credential to a CPA license; and (2) 

that even if the Program causes no confusion, it still causes 

competitive harm by “dilut[ing] the value of a CPA’s 

credential in the market for tax-return-preparer services” and 

by making it more difficult for unenrolled preparers employed 

by the Institute’s members to secure business. Appellant’s

Reply Br. 12.

Despite the fervor with which the parties dispute the 

confusion issue, we have no need to reach it because we agree 

with the Institute’s second argument—that the Program harms 

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its members competitively even if it causes no confusion. The 

Institute alleges that unenrolled preparers are part of the same 

tax return preparation market as its members. Compl. ¶¶ 18–

21. Indeed, the IRS itself reports that sixty percent of tax 

return preparers are unenrolled preparers. Appellees’ Br. 4.

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.” 

Appellant’s Reply Br. 12. 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.

The IRS argues that Institute members will face no 

increased competition from unenrolled preparers because both 

the Program itself and Circular 230 restrict how preparers can 

use their Records of Completion to advertise or solicit 

business. Appellees’ Br. 32–34 & n.4. In support, the agency 

emphasizes that the Program makes clear that preparers “may 

not use the term ‘certified,’ ‘enrolled,’ or ‘licensed’ to 

describe [a Record of Completion] or in any way imply an 

employer/employee relationship with the IRS or make 

representations that the IRS has endorsed the tax return 

preparer.” Annual Filing Season Program § 4.07. And 

Circular 230, the IRS points out, prohibits statements that are 

“false, fraudulent, or coercive” or “misleading or deceptive.” 

31 C.F.R. § 10.30(a)(1).

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 

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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.” 

Appellant’s Reply Br. 13. Given that the Institute has 

adequately alleged that the Program “illegally structure[s] a 

competitive environment” in which its members “defend[] 

concrete interests,” Shays, 414 F.3d at 87, the Institute has 

competitor standing.

This, however, does not end our task because the IRS 

also claims that the Institute’s “‘grievance’” does not 

“‘arguably fall within the zone of interests protected or 

regulated by the statutory provision’” it invokes. Appellees’ 

Br. 36 (quoting Mendoza, 754 F.3d at 1016); see also id. at 

35–40. But the IRS never presented this argument to the 

district court, a prerequisite to our consideration of a nonjurisdictional issue absent “exceptional circumstances”—and 

there are certainly no such circumstances here. Earle v. 

District of Columbia, 707 F.3d 299, 308 (D.C. Cir. 2012). The 

IRS insists its zone of interests argument is jurisdictional, a

surprising argument given that in a case the IRS itself cites, 

the Supreme Court squarely ruled to the contrary. Lexmark 

International, Inc. v. Static Control Components, Inc., 134 S. 

Ct. 1377, 1387 n.4 (2014); see Crossroads Grassroots Policy 

Strategies v. FEC, 788 F.3d 312, 319 (D.C. Cir. 2015) 

(recognizing that Lexmark made clear that the zone of 

interests test is not jurisdictional). And although the IRS is 

correct that in Mendoza v. Perez, we addressed a zone of 

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interests argument after finding Article III standing, 754 F.3d 

at 1016, in that case the argument had been presented to the 

district court, see Mendoza v. Solis, 924 F. Supp. 2d 307, 321 

(D.D.C. 2013).

III.

For the foregoing reasons, we reverse.

So ordered.

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