By Kevin Drawbaugh
WASHINGTON, July 15 (Reuters) - A U.S. group that represents accountants said on Tuesday it has sued the Internal Revenue Service, challenging its new voluntary program for educating and testing tax return preparers.
"The IRS's new rule regulating tax return preparers is an unlawful exercise of government power," Barry Melancon, president of the American Institute of Certified Public Accountants (AICPA), said in a statement.
The AICPA said it brought its federal lawsuit in the U.S. District Court for the District of Columbia, seeking to block the IRS from moving ahead with its program.
"The IRS should withdraw the new rule, consult with stakeholders, and use the tools and data already at its disposal to monitor unethical tax return preparers," Melancon said.
The IRS said last month that it would launch the program, a step back from an earlier mandatory program of testing and regulation that had been halted by the courts.
The U.S. Court of Appeals for the District of Columbia ruled in February that the IRS did not have the authority on its own to impose rules on up to 700,000 tax return preparers not already licensed as attorneys, accountants or "enrolled agents."
The IRS had to mothball its mandatory program and ask Congress for authority to reinstate it. Unless and until that happens, a voluntary program would be run, the IRS said.
The agency has estimated that 60 percent of paid U.S. tax return preparers operate without oversight, with some doing a poor or even dishonest job of preparing returns.
Under the voluntary program, participating preparers would register with the IRS, take 18 hours of continuing education each year and take a test. Passing the test would earn preparers a record of completion good for the filing season.
About a third of the $9.4 billion tax return business is controlled by H&R Block Inc and three other large companies. The remaining two-thirds is divided among licensed and unlicensed preparers, many of them mom-and-pop operations.
The IRS took steps starting in 2011 to regulate unlicensed return preparers for the first time, with a program requiring thousands of them to meet testing and education requirements.
But independent preparers complained. Then in 2012, a libertarian activist group called the Institute for Justice sued the IRS, arguing that Congress never gave the agency authority to regulate preparers.
(Editing by Jonathan Oatis)