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No More PTIN Fees, Long Live PTINs

The IRS may not charge preparer tax identification numbers (PTIN) fees based on a summary judgment ruling by Judge Royce Lamberth in U.S. District Court of Washington D.C. on June 1 because a PTIN is not a “service or thing of value.” Tax return preparers brought a class action suit against the IRS claiming the IRS lacks legal authority to require tax preparers to obtain PTINs and to charge a fee for issuing them. The court did not grant summary judgment on whether the IRS has the authority to require tax return preparers to obtain PTINs. See Steele, No: 14-cv-1523-RCL (D.D.C. 6/1/17) for the 22-page ruling.

The user fee for issuing a PTIN began with the IRS tax return preparer registration program which was invalidated in Loving v. Internal Revenue Service, 742 F.3d 1013 (D.C. Cir. 2014). The IRS tax return preparer registration program required tax return preparers who were not CPAs, attorneys or enrolled agents to pass an exam and register with the IRS. The court found a government agency did not have the legal authority to require such a program. It would require an act of Congress which may be on its way. On May 23, the president released his budget blueprint which would explicitly provide that the Secretary of the Treasury the authority to regulate all paid tax return preparers.

The district court in Washington D.C. applied the standard of review of agency action found in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), to conclude the IRS had the authority to require PTINs because Code Sec. 6109(d) specifically and unambiguously gives the IRS the power. The court said, “The IRS has articulated satisfactory explanations for its actions.” The IRS' decision to use PTINs was not arbitrary or capricious.

A Supreme Court had determined a government agency may impose fees for bestowing on individuals special benefits not shared by the general public. The tax preparers argued and prevailed that “a service or thing of value” is required for agencies to validly impose fees (31 U.S.C. §9701) and therefore, the IRS could not charge PTIN fees because a PTIN is not.

Since the Loving case found Congress did not authorize a license requirement for tax return preparers, there are no restrictions on who may obtain a PTIN. Hence, no “special benefit” exists to being able to prepare tax returns.

Tax return preparer regulation has been a hot topic of discussion since the RTRP program was suspended in January 2013. The recent budget blueprint maintains a proposal from the Obama administration to give the Treasury Secretary the authority to regulate paid tax return preparers. The budget proposal specifically mandates an increased oversight of paid tax return preparers. Paid tax return preparers have an important role in tax administration because they assist taxpayers in complying with their obligations under the tax laws. Incompetent and dishonest tax return preparers increase collection costs, reduce revenues, disadvantage taxpayers by potentially subjecting them to penalties and interest as a result of incorrect returns, and undermine confidence in the tax system.

Taxpayer Advocate Nina E. Olson prepared a written statement before the Committee on Finance US Senate in April 2014, stating, “taxpayers must be confident that federal ​tax preparers meet basic standards of expertise and competence, and that these standards are maintained over time.”