In today’s guest post Stu Bassin discusses the IRS’s recent decision to increase user fees on enrolled agents. Stu, a practitioner based in DC with an extensive controversy practice, recently took the lead on updating and revising the confidentiality and disclosure material in the Thomson Reuters Saltzman and Book IRS Practice & Procedure treatise that has just been released in print and on Checkpoint. Les
“Enrolled agents” are tax specialists authorized by the IRS to represent taxpayers in tax disputes in many of the same ways as tax attorneys and CPAs. To obtain an “enrolled agent” designation, an applicant must pass an IRS competency examination. Earlier this month, the IRS issued a regulation massively increasing the user fee applicants must pay to take the examination. Under the new regulation, applicants must pay two fees for each portion of the three-part examination–(1) an $81 fee imposed by the IRS for each portion of the examination, and (2) a $100+ fee for each portion imposed by the contractor retained by the IRS to administer the examination. Combined, applicants will now be required to pay fees of $243 (previous fee was $33) to the IRS and over $300 to the contractor to take the required exams.
read more...Not surprisingly, enrolled agents have opposed the proposed increase throughout the rulemaking process and must now decide whether to challenge the new regulation in the courts—the route successfully pursued by tax return preparers opposed to an IRS registration and licensing scheme. See Steele v. United States (discussed in PT here; note that this week the DOJ filed a motion for a stay of the court’s order that had enjoined IRS from charging any fee to issue or renew PTINs; the government’s memo in support of that motion is here) and Loving v. United States. A challenge by enrolled agents to the regulation could follow two primary paths. They can argue that the IRS does not have legal authority to license and regulate enrolled agents under 31 U.S.C. Sec. 330—an avenue that enrolled agents have not previously pursued. Alternatively, they can argue that the amount of the user fee imposed by the IRS upon applicants is unlawfully excessive.
The legality of a “user fee” like the IRS examination fee is governed by 31 U.S.C. Sec. 9701. That statute authorizes agencies to impose user fees to recover the cost of services they provide which confer special benefits on identifiable recipients which are not available to the general public. The case law authorizes agencies like the IRS to impose fees tied to the agency’s actual costs, but prohibits larger fees which can be used to fund other agency activity like public education or consumer protection. (The theory underlying these cases is that a larger fee employed to fund other agency activities would constitute a “tax” imposed by an agency—a violation of the constitutional limitation of the taxing power to Congress.) Were enrolled agents to pursue this avenue, the legal issue which would be presented is whether the IRS can demonstrate that its fee is not excessive.
During the rulemaking process, the IRS attempted to justify the fee increase by reference to its internal cost estimates for the enrolled agent examination. The IRS identified three principal components to the cost estimates—(1) an estimate of the IRS employee time which was devoted to the enrolled agent examination, (2) the direct cost of the employee labor, employee benefits, and a 68% overhead factor, and (3) the cost of conducting background checks on the contractor hired by IRS to administer the examination. The reasonableness of the IRS cost estimates, like most cost accounting estimates, can be debated. And, past experience leads this blogger to suspect that elements of these estimates could be inflated to include costs not directly related to the enrolled agent examination and that these estimates would provide fertile ground for judicial review of the new regulation.
The question is whether enrolled agents will pursue such a challenge.
Hi Stu,
If the NAEA doesn’t challenge, it is a sign of the organization’s weakness, unlike the strength of the Nat’l. Assoc. of CPA’s. I spoke about this with Bob Kerr once. If the NAEA needs the capital to form a PAC, then do so, otherwise remain the weak organization it is. Disagree if you want to, but in the end, there it is. The NAEA is a weak body unable to challenge with political might, and in my opinion, an example of this was Loving. It’s possible I’m not giving credit for any roll played in PTIN fees, however I don’t feel they represent me well at all. Incidentally, we should speak regarding representation matters, of which I have some issues we may be able to present to other EA’s.
Thanks for your insight.
G
By comparison, the Tax Court charged $75 for the 119 applicants who took the 2016 exam to practice there as non-attorneys. If they passed – only 16 did – there was an additional $25 admission fee and $10 “periodic registration fee.”
IRS still allows revenue officers and settlement officers with five years’ IRS experience a free pass to EA status. In one way, this makes sense, because they are more likely to end up actually representing taxpayers before IRS. Most EA’s seek the credential mostly to establish their competence in tax law. I think many former RO’s and SO’s would be the first to admit they could not pass Parts 1 and 2 of the EA exam, on Individual and Business tax law. Their forte is Part 3, “Representation, Practice and Procedures.”
By creating one more barrier to entry to tax practice, IRS does another favor for its buddies at the major tax-preparation companies, which need only one EA to cover cases arising from dozens of untested part-timers they employ.
NAEA does have a PAC and is extremely active on The Hill campaigning for EAs and taxpayers in general. In fact if I am correct they were the only professional organization who actively objected to the proposed fee increase.