United States

Court ruled that IRS is authorized to charge a PTIN fee

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The IRS may charge a fee for issuing and renewing a Preparer Tax Identification Number (PTIN), the U.S. Court of Appeals for the District of Columbia Circuit ruled in Montrois v. US.

Background

In 1976, Congress authorized the IRS to require a preparer to list an identifying number, initially the preparer’s social security number in 1976. Due to concerns that inappropriate use might be made of a return preparers’ social security number, in 1998 Congress authorized the IRS to permit or require return preparers to list a different identifying number on returns. The IRS issued regulations allowing return preparers to obtain from a Preparer Tax Identification Number, commonly referred to as a PTIN. Return preparers could then list their own unique PTIN rather than their social security number.

Following concern that taxpayers were being poorly served by some return preparers, in 2009 the IRS issued regulations to regulate tax return preparation. Under the 2009 regulations the IRS required credentialing and registration for otherwise uncredentialed tax return preparers (neither CPAs nor attorneys), the PTIN requirement with yearly renewal, and a fee to obtain or renew a PTIN.

Return preparers challenged the registration and credentialing system and argued that the IRS exceeded its authority under the Internal Revenue Code to establish a licensing system for return preparers. In Loving v. IRS, the U.S. Court of Appeals for the District of Columbia Circuit agreed and invalidated the regulations credentialing return preparers. It did not rule on the validity of the PTIN requirements. Due to the Loving decision, the IRS reduced the PTIN fee from $50 to $33 (not including the vendor fee) as a portion of the fee was used to pay the costs of the then invalid credentialing system for return preparers.

Return preparers then filed a lawsuit to prohibit the IRS from requiring that a return preparer obtain a PTIN. The District Court for the District of Columbia held that the Internal Revenue Service (IRS) was authorized by statute to require the use of preparer tax identification numbers (PTINs) for return preparers, but could not charge a user fee for registration and renewal. The IRS appealed the decision that it could not charge a fee for PTIN registration and renewal.    

Outcome of the appeal

The Appeals Court determined that the IRS was authorized and justified to charge a PTIN fee. Under federal law, The Independent Offices Appropriations Act, the head of a federal agency may prescribe regulations establishing the charge for a service or thing of value provided by the agency. The court determined that the IRS does provide a service in exchange for the PTIN fee.

The IRS generates a unique identifying number to each return preparer and maintains a database of those PTINs. The PTIN program enables return preparers to use their own unique number in place of their social security number on tax returns. The court determined that a PTIN does provide a specific benefit by helping to protect return preparers’ identities by allowing them to list a number on returns other than their social security number.

The IRS argued that a PTIN provides two potential specific benefits. The IRS regulations required preparers to obtain a PTIN in order to prepare tax returns for compensation and the ability to prepare tax returns for compensation is a special benefit. The IRS also argued that a PTIN provides a specific benefit because a PTIN provides protection of a return preparer’s social security number. The court found second reason alone to be sufficient to provide a specific benefit, and did not analyze whether the benefit of preparing returns for compensation was itself a specific benefit.

The court remanded the case back to the district court to determine whether the amount of the fees charged by the IRS for a PTIN were appropriate. While the court never outright stated that the fees were too high, it seemed to imply that the fee to renew a PTIN should be less than the fee to register for a PTIN. Nonetheless, the court left that determination to the district court.

Takeaway

Since 2017, the IRS has not charged a fee related to obtaining or renewing a PTIN. The Appeals Court decision allows the IRS to now charge a fee, although the amount of the fee is still to be determined. Tax practitioners who prepare tax returns for individuals should have already renewed their PTIN for the 2019 calendar year. Those individuals will not be immediately affected by this decision. However, it is likely that the IRS will soon begin again to charge a fee for registering for or renewing a PTIN with the amount is still to be determined. 

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