Government Seeks Reversal of District Court Decision That Invalidated PTIN User Fees

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One of the more interesting cases from last year was Steele v US, where a DC district court upheld regulations imposing a PTIN requirement for preparers but held that the IRS did not have authority to require preparers to pay a user fee for obtaining or renewing a PTIN. In Steele, the District Court in invalidating the fees largely relied on the reasoning in Loving, and applied the Independent Offices Appropriations Act (IOAA) which authorizes agencies to charge fees for “a service or thing of value provided by the agency.” The lower court essentially held that the IRS’s fees were a backdoor attempt at regulating return preparers, stating that IRS “may not charge fees for PTINs because this would be equivalent to imposing a regulatory licensing scheme and the IRS does not have such regulatory authority” after Loving.

The government appealed, and it just filed its opening brief.

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The main argument that the government makes on appeal is that the district court failed to appreciate the service and value associated with obtaining a PTIN:

The PTIN provides a special benefit to tax return preparers because, as even the District Court held, it is required by statute and regulation to lawfully prepare returns for compensation. If a return preparer does not obtain a PTIN and provide it on returns he or she prepares, the preparer is subject to penalties of up to $25,000 per year, I.R.C. § 6695(c), as well as to being enjoined from preparing returns, I.R.C. § 7407. Return preparers comprise only a tiny fraction of the U.S. population, and the members of the general public who are not preparers have no occasion to request PTINs and receive no direct benefit from their issuance to those individuals who are return preparers. The issuance of PTINs thus provides a special benefit to the recipients of the PTINs, and therefore the IOAA authorizes the IRS to charge a user fee for PTINs.

In addition the government emphasized that the PTIN program helps “to protect preparers’ SSNs, which was Congress’s purpose in authorizing the IRS to create and mandate the use of the PTIN.”

The government on appeal attempts to separate the PTIN requirement from the regulation regime that Loving struck down. In so doing, the government emphasizes that while PTINs played a key role in that ill-fated regulatory regime (essentially only registered or licensed return preparers were eligible for a PTIN in the pre-Loving world) PTINs have a value and role that is distinct from regulating preparers.

As readers may recall, the district court’s conclusion mooted the alternative argument that the user fees IRS charged were excessive. If the government prevails on appeal, that issue will resurface.

Stay tuned.

For a prior post on Steele see here

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Jeanne Tatum says:

    Good grief! Give it up already! Frankly, in my mind, there has always been a regulatory scheme in place – by state, CPA licensure, by federal, EA certification. If the IRS was serious about regulating tax preparation, all they had to do was mandate the EA certification for tax return preparers. However, it is frankly all moot as long as there is a human factor. There are fraudulent returns filed by licensed CPA’s and EA’s; by tax return preparers with PTIN’s and fraud by the taxpayers themselves. Fighting a court battle to make tax preparers pay for PTIN’s is not an efficient use of IRS time or resources. They lost the Loving case…get over it. As the saying goes, do the deed or get off the pot. Either make EA certification mandatory for non-CPA’s or give it up entirely.

  2. Ted Leibowitz says:

    Seem that every other agency of the Federal Government is authorized to set up regulations and costs for the regulated except for the IRS. But we do entrust them to interpret what Congress and the POTUS meant by their ofttimes ambiguous tax laws passed.

    And to require all to either be a CPA or EA, while the intent is good, the requirements to do rather basic tax returns would be over kill and costly to the taxpayers. The simpler exam that was required for the initial designation which was what the Loving decision was about, was a good start, and along with the PTIN annual fee to continue to regulate the PTIN registrants. Alright, perhaps a smaller fee.

    And we do know that “accountants” quibble over nickels and dimes, ofttimes “estimating” mileage and other expenses, to however small a degree. And/or accepting the taxpayers “estimates.”

    Just one persons, experienced, opinion.

  3. I’m busy doing tax returns so could someone show me the part of the government’s brief that explains why the PTIN must be renewed every year?

    There is certainly a much greater benefit to having a Social Security number, than to having a PTIN. Yet SSN’s are issued for free and don’t have to be renewed. They can even be changed without a fee — my clients just changed the SSN for their adopted child, because the biological parents whose rights were terminated also knew the old one. Yet milions of people don’t need an SSN because they are not employed and not collecting benefits. Reportedly some people are still collecting benefits well past the age of 100.

    In 2015, Social Security records showed that 6.5 million people in the US have reached the ripe old age of 112. In reality, only few could possibly be alive. But Social Security did not have death records for millions of people, with the oldest born in 1869, according to a report by the agency’s inspector general. Only 13 of the people are still getting Social Security benefits, the report said. But for others Social Security numbers are still active, so a number could be used to report wages, open bank accounts, obtain credit cards or claim fraudulent tax refunds.

    Clearly, we should require annual renewals of SSN’s. That would cost money, probably $50 apiece the way the government figures these costs. But we can never be too safe, or too overfunded.

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