USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 1 of 11 DECLARATION OF CAROL A. CAMPBELL I, Carol A. Campbell, pursuant to the provisions of 28 U.S.C. 1746, declare as follows: I am the Director of the Return Preparer Office within the Internal Revenue Service ("Service"). My responsibilities include the executive management and oversight of one of the offices that administers the regulations governing practice before the Service (reprinted as "Treasury Department Circular No. 230"), including acting on applications to practice before the Service and administering competency testing and continuing education. These aspects of my duties require knowledge and an understanding of the registered tax return preparer program covered by the district court's Order dated January 18, 2013 ("the Order"), as modified on February 1, 2013. After being notified of the Order, I directed that all reasonable efforts be undertaken to comply with the terms of the Order. I consulted with other Service executives and employees who are involved in the registered tax return preparer program, as well as with the attorneys in the Department of Justice and the Service's Office of Chief Counsel, about the Order's consequences for the Service. I also consulted with the Service's government contract specialists and attorneys after being notified of the modification to the Order.
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 2 of 11 I conclude that the Service will be irreparably injured absent a stay of the Order pending final resolution of this lawsuit because of the financial harm to the government, as well as the harm to tax administration and the public. The basis for my conclusion is set forth in paragraphs 6-21 of this declaration. FINANCIAL HARM Irreparable financial harm will result from the Service's obligation under the Order to halt the registered tax return preparer program pending final resolution of the appeal. The Service's implementation of the registered tax return preparer program started in 2010. Since that time, the Service has invested an enormous amount of time, money, and other resources to establish a registration system, and a minimum competency examination and continuing education program, along with accompanying enforcement measures. If the Order is not stayed, but ultimately overturned on appeal, the Service will incur substantial costs to restart the program. The Service estimates that, absent a stay, the contract costs alone for the next year associated with any such restarting will be, at a minimum, $20 million, not including additional non-contract costs such as labor, travel, outreach, and other related expenses. 7. In 2010, with the assistance of a contractual vendor, the Service replaced its voluntary process for issuing preparer tax identification numbers ("PTIN") with a new mandatory PTIN process. The Service began implementing the new PTIN application process for all tax return preparers, including attorneys, certified public accountants, enrolled agents, and registered tax return preparers. In 2012, over 744,000 tax return preparers registered with the Service. Although 2
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 3 of 11 the Order as modified stated that the PTIN application process falls outside the scope of the Order, the Order will nevertheless require the Service to modify its online PTIN application process and paper forms. The application system and form were designed and implemented in a manner that integrates the mandatory testing and continuing education requirements with the PTIN application and renewal process. For example, continuing education requirements are reported on the PTIN renewal application. Every change to the PTIN application process or system that is not specifically covered by the Service's current contract with its vendor requires a contract modification. Each new requirement can result in a new cost to the Service. The Service will therefore incur additional costs in shutting down the PTIN application system, changing the system requirements through reprogramming, and restarting the system because these actions are not covered by the existing vendor contract. 8. There are similar costs associated with shutting down and reopening call center operations supporting the PTIN application process, as well as costs associated with increasing call volumes over a previously specified number. The Order, moreover, has created confusion in the return preparer community. This confusion has caused an increase in the number of calls to the call center, and the increased call volume will result in additional costs to the Service. The costs and time involved in securing any necessary modifications to existing contracts with vendors for the PTIN application process are expected to be significant. 3
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 4 of 11 Although the specific costs to date are undetermined, as precise vendor costs have yet to be submitted to the Service, the Service is currently negotiating a modification to its existing call center contract to accommodate an additional 150,000 calls. This will likely result in an increased cost to the Service in the range of $2.6-2.85 million (and perhaps more, depending on call volume). Although the Service was in the process of renegotiating its call center contract even before the Order was issued, the increase in calls attributable to the Order will increase the costs the Service will incur. The Service began implementing the registered tax return preparer competency examination with the assistance of a contractual vendor in 2011. Since November 2011, (i) almost 101,000 tests were scheduled by preparers for the examination, and (ii) more than 62,300 preparers have passed the examination. There are 260 testing centers across the United States and its territories. Up to the date of the Order, ongoing activities in implementing the examination included drafting and reviewing the examination questions, setting up additional test sites, developing a Spanish language version of the test, scheduling and proctoring examinations, running a call center to answer questions, providing communications and customer support, and collecting the user fee to take the competency examination. 11. The Service began developing and implementing the continuing education program in 2011. In 2012, the Service approved 642 continuing education providers, who offered 18,000 courses for purposes of the continuing education program. Up to the date of the Order, ongoing activities in 4
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 5 of 11 implementing the continuing education program included approving continuing education providers who are authorized to offer continuing education, modifying the PTIN system to allow providers to upload courses completed by preparers, allowing preparers to check their own accounts for completed courses, and providing a referral process. There are 167 Return Preparer Office employees, including 119 user-fee-funded positions, supporting the return preparer program. These employees also provide preparer assistance, complaint processing, compliance and enforcement oversight, and a multitude of other services in support of tax practitioners. The total monetary cost spent by the Service on the return preparer program through the end of calendar year 2012 was more than $54 million. The total monetary cost spent by the Service on the return preparer program during January 2013 until the date of the Order was approximately $897,000. On average, the Service received each month approximately $3.7 million in PTIN user fees (beginning September 2010) and $190,000 in competency testing user fees (beginning December 2011). The combined PTIN and competency testing user fees received by the Service through the end of calendar year 2012 exceeded $105 million, which sum may only be spent on the registered tax return preparer program in accordance with the government's budget, appropriation, and spending rules. After the modification to the Order, I was advised that the Service's existing contract with the vendor that implements the registered tax return preparer competency examination cannot be modified to offer examinations to 5
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 6 of 11 only those individuals who would be willing to voluntarily take the examination. Voluntary testing thus would require an entirely new contract. Accordingly, the district court's observation (in denying a stay) that the Service was free to continue with its return preparer registration program on a voluntary basis is not correct, as the existing contract does not allow voluntary testing. During the course of this litigation the Service expects to receive thousands of requests for refunds and/or reimbursements by preparers who paid for testing and continuing education that the Order states the Service has no authority to impose. Moreover, during the pendency of the appeal, the Service will have to allocate resources and expend funds to address requests for refunds of user fees for tests scheduled prior to the date of the Order that were to be administered after the date of the Order. There are approximately 12,000 preparers who scheduled and paid the $116 user fee for a competency examination they are no longer required to take under the Order and cannot voluntarily take under the existing vendor contract. The amount of such fees is approximately $1.3 million. HARM TO TAX ADMINISTRATION AND PUBLIC The Service will be irreparably harmed by the adverse impact the Order will have on its ongoing compliance and enforcement efforts regarding the registered tax return preparer program. The 2013 filing season for 2012 individual income tax returns began on January 30, 2013. The Service has made considerable efforts, has expended significant resources, and has made substantial progress in explaining to the tax return preparer community the new 6
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 7 of 11 registered tax return preparer program requirements and applicable time frames through published guidance, consistent messaging, and outreach efforts. Many tax return preparers have already made arrangements to take the competency examination, which can include making travel arrangements and taking preparatory classes. Many tax return preparers have also already made arrangements to comply with continuing education requirements. Similarly, continuing education providers have spent considerable resources creating and setting up in-person and on-line courses. The Service, for example, offered a number of free on-line courses that allowed tax return preparers to meet all their continuing education requirements for 2012 through web-based programming. The court's modified Order issued on February 1, 2013, has caused confusion and uncertainty among tax return preparers regarding their responsibilities and obligations. For testing alone, during the past 18 months the Service created 5 videos, and initiated 30 outreach efforts across the country, to address testing and the other requirements. These efforts were undertaken to ensure widespread understanding and engagement of the preparer community. In the absence of a stay, the long term cost to tax administration and the public fisc by a failure to provide some minimal standard of competency for unregulated preparers is unquantifiable. The registered tax return preparer regulatory program at issue in this case was established after a comprehensive review (the Return Preparer Review). The Return Preparer Review solicited substantial input from the tax 7
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 8 of 11 return preparer community. The results of the Return Preparer Review demonstrated the necessity to address the problem of inaccurate returns prepared by tax return preparers. A principal objective of the registered tax return preparer program is to protect the public from the injury caused by incompetent or disreputable tax return preparers. The Service estimates that fraud, abuse, and error relating to the earned income tax credit alone costs the taxpaying public about $13 billion annually, and almost two-thirds of all returns claiming the earned income tax credit are prepared by tax return preparers. Furthermore, since the beginning of fiscal year 2010, over 500 tax return preparers have been criminally prosecuted by the Department of Justice based on referrals made by the Service. 18. Identity theft, which also includes theft by unauthorized tax return preparers, is a major national problem, and it also seriously impacts the Service and tax administration generally. The registered tax return preparer program assists in preventing, combating, and resolving the adverse effects resulting from identify theft perpetrated by unscrupulous individuals who file unauthorized returns for others with stolen information, or information from former clients. The registered tax return preparer program also requires registered tax return preparers to pass a suitability check (including a criminal record check), preventing criminals from legally filing tax returns for others. The regulations permit the Service to discipline a registered tax return preparer who has engaged in fraudulent conduct, including identity theft. Without a stay of the Order, the 8
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 9 of 11 protections afforded by the registered tax return preparer program will be substantially impaired and in some instances lost. Beyond the confusion and harm for tax return preparers and the public for the current filing season created by the Order, the Order will detrimentally affect the 2014 filing season (for 2013 individual income tax returns) that will begin in January 2014, as well as future filing seasons. The current requirements for regulating unregulated paid tax return preparers were expected to be fully implemented for the 2014 filing season, allowing the Service to direct taxpayers to preparers with a minimum level of competency to complete their returns. As indicated above, regulation of unregulated preparers is a significant step in improving overall taxpayer and return preparer compliance by reducing the number of errors in prepared returns, identifying preparers who need additional education and outreach, identifying preparers filing fraudulent returns, and developing processes to identify "ghost preparers" (preparers who do not sign tax returns that they prepare). The Order has effectively precluded the Service from rolling out this program at the beginning of 2014. The longer the program is in suspension, the more daunting that task becomes because of the cost, confusion, and loss of engagement among the unregulated preparer community. The 2014 filing season will also be adversely impacted because the Service will not be permitted to take important steps to administratively bar persons it knows are improperly preparing tax returns for others from preparing tax returns during the 2014 filing season, which was one of the principal 9
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 10 of 11 objectives of the registered tax return preparer program. Penalties, which generally must undergo an investigation and audit process before assessment against tax return preparers, do not always accomplish the registered tax return preparer program's primary objective of stopping unscrupulous preparers. In addition, the government does not have the resources to bring an injunction lawsuit against all tax return preparers who have improperly prepared tax returns. In the absence of a stay, individuals who were deterred from preparing tax returns because they did not want to undergo a suitability check, pass an examination, or take relevant continuing education, will be able to prepare tax returns for clients during the 2014 filing season. Once again, there will be no regulatory program to provide competency or ethical standards for those who are paid to assist most Americans with their largest financial transaction of the year, their tax return. 21. Absent a stay of the Order, the competency and education standards for tax return preparers will be significantly delayed even if the regulations are ultimately upheld on appeal. The Service, for example, may be obliged to provide additional transition relief if the requirements are now 10
USCA Case #13-5061 Document #1422217 Filed: 02/25/2013 Page 11 of 11 suspended but later upheld on appeal. This will simply add additional delay to the program which is designed to ensure competent tax return preparation for the taxpaying public. I declare under penalty of perjury that the foregoing is true and correct. Executed on the 25th day of February 2013, in Washington, D.C. 2A0e Carol A. Campbell Director, Return Preparer Office Internal Revenue Service Washington, D.C. 20224 11