Posts Tagged ‘PTINs’

Court Rules IRS Cannot Charge for PTINs

Friday, June 2nd, 2017

Back in 2010 to 2011 the IRS ordered all tax professionals to obtain a PTIN–a Preparer Tax Identification Number. The IRS stated this was necessary to track tax professionals, and would help in regulating the tax professional community. There is a fee to obtain a PTIN (now $50 initially, with a renewal costing the same $50). A group of tax professionals challenged the PTIN regulation and the fee in a class action suit. Can the IRS force tax professionals to obtain a PTIN? And can the IRS charge for PTINs?

The PTIN regulations came about at the same time as the IRS’s ill-fated efforts to regulate tax professionals. The IRS was challenged on the ability to regulate tax preparation professionals (see Loving v. IRS); the IRS lost the ability to regulate tax preparers. These regulations happen to also contain the IRS’s justification for charging a user fee to obtain a PTIN: As the Court yesterday noted,

As authority for requiring these fees, the IRS relied on the Independent Offices Appropriations Act of 1952 (“IOAA”). The IOAA provides that agencies “may prescribe regulations establishing the charge for a service or thing of value provided by the agency.” The IRS stated that a PTIN is a “service or thing of value” because without a PTIN “a tax return preparer could not receive compensation for preparing all or substantially all of a federal tax return or claim for refund,” and “[b]ecause only attorneys, certified public accountants, enrolled agents, and registered tax return preparers are eligible to obtain a PTIN, only a subset of the general public is entitled to a PTIN and the special benefit of receiving compensation for the preparation of a return that it confers.” [citations omitted]

The first part of the case was whether the IRS can mandate tax preparers use a PTIN. The Court ruled that the IRS can do so.

[P]laintiffs’ arguments fail step one of Chevron. Chevron states that “if Congress has directly spoken to the precise question at issue … that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” The statute specifically says that the Secretary has the authority to specify the required identifying number to be used on prepared tax returns. (“The social security account number issued to an individual for purposes of section 205(c)(2)(A) of the Social Security Act shall, except as shall otherwise be specified under regulations of the Secretary, be used as the identifying number for such individual for purposes of this title.” (emphasis added)). The Court must give effect to the unambiguous intent of Congress that the Secretary may require the use of such a number. [citations omitted]

The second part of the case is whether the IRS has justification for charging a fee for obtaining PTINs. The plaintiffs had two arguments: That because of the decision in Loving the IRS no longer had a rationale for charging PTIN fees, and thus charging such fees was arbitrary and capricious. Second, because Congress did not grant the IRS licensing authority (confirmed by Loving), tax return preparers don’t receive a benefit in exchange for the fees; thus, they are unlawful under the IOAA. The government disagreed:

The government argues that the PTIN and user fee regulations are separate from the regulations imposing eligibility requirements on registered tax return preparers. It argues that the PTIN requirements are not arbitrary and capricious because they make it easier to identify tax return preparers and the returns they prepare, which is a critical step in tax administration, and because PTINs protect social security numbers from disclosure. In support of its position that it may charge fees for PTINs, the IRS states that PTINs are a service or thing of value because the ability to prepare tax returns for compensation is a special benefit provided only to those people who obtain PTINs, who are distinct from the general public. Individuals without PTINs cannot prepare tax returns for compensation. In addition, the IRS argues that PTINs protect the confidentiality of tax return preparers’ social security numbers, and that protection itself is a service or thing of value.

The court found that PTINs are not a “service or thing of value.”

First, the argument that the registered tax return preparer regulations regarding testing and eligibility requirements and the PTIN regulations are completely separate and distinct is a stretch at best. While it is true that they were issued separately and at different times, they are clearly interrelated. The RTRP regulations specifically mention the PTIN requirements and state that PTINs are part of the eligibility requirements for becoming a registered tax return preparer…Furthermore, the overarching objectives named in the PTIN regulations indicate a connection to the RTRP regulations. They were 1) “to provide some assurance to taxpayers that a tax return was prepared by an individual who has passed a minimum competency examination to practice before the IRS as a tax return preparer, has undergone certain suitability checks, and is subject to enforceable rules of practice;” and 2) “to further the interests of tax administration by improving the accuracy of tax returns and claims for refund and by increasing overall tax compliance.” The first objective clearly relates to the RTRP regulations regarding eligibility requirements for tax return preparers. The second objective is less explicit, but it does not stretch common sense to conclude that the accuracy of tax returns would be improved by requiring tax return preparers to meet certain education requirements. [citation omitted]

This results in a problem: What’s justifying the user fee?

The Loving court concluded that the IRS does not have the authority to regulate tax return preparers. It cannot impose a licensing regime with eligibility requirements on such people as it tried to do in the regulations at issue. Although the IRS may require the use of PTINs, it 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. Granting the ability to prepare tax return for others for compensation—the IRS’s proposed special benefit—is functionally equivalent to ranting the ability to practice before the IRS. The D.C. Circuit has already held, however, that the IRS does not have the authority to regulate the practice of tax return preparers. In coming to its conclusion, the Circuit considered the statutory language that the Secretary may “regulate the practice of representatives of persons before the Department of the Treasury.” The court found that the IRS improperly expanded the definition of “practice . . . before the Department of Treasury” to include “preparing and signing tax returns” because to “practice before” an agency “ordinarily refers to practice during an investigation, adversarial hearing, or other adjudicative proceeding.” The Loving court concluded that “[t]hat is quite different from the process of filing a tax return” in which “the tax-return preparer is not invited to present any arguments or advocacy in support of the taxpayer’s position . . . [and] the IRS conducts its own ex parte, non-adversarial assessment of the taxpayer’s liability.” The ability to prepare tax returns is the “practice” identified by the IRS in Loving, but the court found that such an activity does not qualify as practicing before the IRS. Therefore, it appears to this Court that the IRS is attempting to grant a benefit that it is not allowed to grant, and charge fees for granting such a benefit.

This ruling disagrees with another case (Brannen v United States), but that was pre-Loving (as the Court notes). The Court also noted that if the IRS were allowed to regulate tax professionals, the ruling might be quite different. Additionally,

The Court is unaware of similar cases in which an agency has been allowed to charge fees under the IOAA for issuing some sort of identifier when that agency is not allowed to regulate those to whom the identifier is issued, and the government has not pointed to any.

Thus, the Court ruled that the IRS can require PTINs but cannot charge for them. I do expect the ruling to be appealed, so it’s likely nothing will change for several months.

Case: Steele v United States

UPDATE: The court also ordered that the IRS refund all PTIN fees to all class members.

Again, I expect this ruling to be appealed, so any refunds are many months in the future.

PTIN Follies, Year 4

Thursday, October 31st, 2013

This is the fourth year I’ve had to pay for my PTIN (my third year to renew it). A PTIN is a Preparer Tax Identification Number–it’s a number I use when I prepare a tax return. It’s a means for the IRS to identify which returns are prepared by which tax professionals.

The IRS announced that renewals are open. Seeing no reason to wait I decided to log into the system. I did remember that my user name is all caps (the IRS converted it back for my first renewal, 2011).

Again, my password doesn’t work so I request a new one. I get into the system fine, and enter my information, hit “next” and…I’m logged out. I re-enter the system…and am immediately logged out again.

I try calling the help number for the system…and after hitting the correct combination of digits on my phone, hear the helpful message, “There is no one available to help you at the present time. Your call will now be disconnected.” CLICK!

I remain underwhelmed. (I’ll try again in a week.)

IRS Loses Again to Institute for Justice

Saturday, February 2nd, 2013

Two weeks ago, a court ruled that the IRS had no legal grounds to regulate unenrolled tax preparers. The IRS filed a motion seeking a stay of the court’s injunction against the IRS. Late yesterday, Judge James Boasberg (the same judge who made the ruling two weeks ago) denied the IRS’s motion.

The IRS argued in its motion that the IRS would be irreparably harmed if a stay were not granted. The Court disagreed, and agreed with the Institute for Justice’s argument that most of the money that the IRS has received has been for PTIN registration, not the registration of unenrolled tax preparers. (PTINs–Preparer Tax Identification Numbers–are issued to tax professionals and are noted on every return filed. This identifies the preparer, and helps the IRS search for unscrupulous preparers.) But the PTIN program was never challenged (indeed, such a challenge would likely fail as the PTIN program is specifically authorized by statute), just the RTRP (Registered Tax Return Preparer) program. “As Plaintiffs point out, the IRS’s expenses and staff cover both the registered-tax-return-preparer program and the PTIN program, and Plaintiffs do not challenge the latter.”

The Court then throws cold water on the IRS’s argument of harm to the agency:

The IRS’s liability, moreover, turns on the case’s merits, not on the stay. If the Court issues a stay and its merits decision is affirmed above, then the IRS will be on the hook for even more money in refunds. In any event, why should tax-return preparers continue to pay into a system the Court has found unlawful?

The IRS further argues that there would not be harm to others if the injunction were lifted; one of the points the IRS makes is that Dan Alban’s interview with Kelly Erb in Forbes said that one of the three plaintiffs would prepare returns for this year. (Mr. Alban is the lead attorney for the plaintiffs.) But two plaintiffs would be out of business (at least; the other plaintiff might be going out of business after this tax season). The Court summarized it well:

[I]f the injunction is stayed, then all preparers are faced with a Hobson’s choice: they must decide whether (1) to skip the registration requirements, gambling on an affirmance by the Court of Appeals or a reversal that is issued early enough that they could still fulfill their requirements by the end of the year, or (2) to satisfy the testing and continuing-education requirements, knowing that this might well be wasted time, effort, and expense. The harm is thus considerable.

The IRS also lost on its argument that there would be a harm to the public interest by the injunction; “the granting of the injunction effects far less a change in the landscape of tax preparation than does implementation of the regulations.”

The next step for the IRS is to file an appeal to the Court of Appeals for the District of Columbia. The IRS can ask that court to stay the injunction. However, I suspect the DC Circuit will let the injunction stand until the decision is reached. I think Judge Boasberg’s decision makes sense. In any case, expect the IRS to ask the DC Circuit for a stay of the injunction within the next two weeks, and then expect the case to be argued there (regardless of whether the stay is granted or not) this summer or fall.

UPDATE: I just saw that the IRS has restarted the PTIN registration. Tax professionals do need a PTIN (so do those who are going to take the Special Enrollment Examination to become an Enrolled Agent). It appears that the Institute for Justice’s argument that the PTIN system and the RTRP program were easily separated was dead-on accurate.

PTIN Follies, Year 2

Thursday, October 20th, 2011

The IRS announced today that tax professionals can renew their PTIN, an identification number used on tax returns. Seeing no reason to delay spending $63.00 I went headfirst into the process.

What a kludge. And yes, I’m being derisive. The IRS converted my user ID to all capital letters from all lowercase. I had to have the IRS email me my user ID (which is how I discovered this). Next, the password I set up last year didn’t work. I don’t know if they converted that, too, to all caps but I had a temporary password emailed to me.

Then I went to the application itself (after resetting the temporary password). I went through it, and it said there was a problem. The software didn’t take me to the problem — that would be too easy. Instead, it took me back to the beginning of the application. I figured out that I needed to enter the expiration date of my credential (Enrolled Agent), and had to edit the line where my EA number showed up. (There is nothing on this line to note there is missing information, btw.) It then allowed me to conclude and give the IRS $63.00. (The cost if you are a first-time PTIN registrant is $64.25.)

I’m underwhelmed.

Russ’ PTIN Adventure, Part 2

Thursday, September 30th, 2010

This morning, I attempted again to re-register my PTIN. I used an email address that didn’t go through my server and, voila, success. I was able to re-enter all my information (except for my PTIN) on the IRS PTIN registration page, the IRS system found my existing PTIN, and for $64.25 I am now re-registered through 2011.

My IRS liaison told me that others were having problems with the emails yesterday, so it could have been my server or it could have been an IRS issue.

As for getting $50 of value from this process, that remains to be seen.

Online PTIN Application Now Available, But…

Tuesday, September 28th, 2010

The IRS released the final regulations for the new PTIN process for tax professionals. There’s an FAQ available, too.

The first step of the process is too sign up for an account with the PTIN system. If my experience is typical, there are bugs to be worked out of the system. I signed up, and waited for the confirming email.

And I waited.

And I waited.

Maybe I entered my email address wrong, so I did it again (using a different email address).

And I waited.

And I waited.

Needless to say, I advise you wait, too, before applying for the new PTIN. My IRS Liaison has forwarded my issue on, but it may be a day (or two or three) before I move forward. There’s no rush; after all, I have to spend $64.25 for this. The deadline is year-end.

The Answer: $64.25

Thursday, August 19th, 2010

As part of the IRS announcement today on the new PTIN regulations, we now what it will cost tax professionals to either re-register their PTINs or to obtain a new PTIN: $64.25.

Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

As I noted in the previous post, there is opposition to the new regulation, so it may be a month or two before we have to start paying the $64.25.

Additionally, the IRS announced changes to Circular 230, the means that the IRS regulates tax professionals.

The proposed regulations (REG-138637-07) would clarify the definition of practice, establish a new registered tax return preparer designation and the eligibility requirements for becoming a registered tax return preparer, repropose standards with respect to the preparation of tax returns, revise rules regarding continuing education providers, and amend multiple other sections of Circular 230.

Tax professionals and other interested parties have until Oct. 7, 2010, to submit comments regarding the proposed regulations.

I haven’t found the new proposed regulations online (yet); I’ll likely post about them once I read the proposal.

PTINs and the SEE: Unintended Consequences

Thursday, August 19th, 2010

The IRS announced today that as part of the new PTIN procedure the IRS will temporarily stop issuing new PTINs on Monday, August 23rd. No big deal, right? After all, in a month or two you will be able to apply for a PTIN.

For most individuals, that’s the case. However, if you’re going to take the Special Enrollment Examination (SEE)–the test to become an Enrolled Agent–you need a PTIN. Let’s say you were unaware of this, and you haven’t applied for a PTIN. Let’s further assume next Tuesday you are ready to take Part 1 of the exam, and the testing company tells you of this requirement. Well, if you don’t have a PTIN, you can’t take the exam. Prometrics, the company that administers the exam, can’t issue PTINs. You’re stuck until the IRS resumes issuing PTINs. Given that there is some opposition to the new PTIN regulations (the AICPA has complained about them), it’s possible that it could be November before you can obtain the PTIN. That’s a nice Catch-22.

I strongly recommend anyone who is planning on taking the SEE to apply for a PTIN today. Go online to the IRS’ website and download Form W-7P. Print it out and fax it to the number noted on the application. You’ll receive your PTIN in the mail in a couple of weeks. This is a case where it’s far better to be safe than sorry.

$50 Here, $50 There: $50 From Me and Every Other EA, CPA, and Tax Preparer

Friday, July 23rd, 2010

I received an email yesterday from my local IRS liaison:

IRS Issues Proposed Rules Setting Fee for Tax Preparers to Get Unique ID Numbers
By Diane Freda

The Internal Revenue Service July 21 issued proposed rules (REG-139343-08) establishing a new annual $50 user fee for individuals who apply for or renew a preparer tax identification number (PTIN).

The much-anticipated guidance is the first step in setting up a regime of registration with the IRS that will in essence create a new profession of government-sanctioned tax preparers, IRS officials have said in recent forums.

IRS is anticipating that the number of individuals requesting PTINs will increase to as many as 1.2 million under the new registration program, and all individuals who receive or have received PTINs will be required to renew them in the future, the guidance said.

In March, IRS proposed rules requiring tax return preparers who prepare all, or substantially all, of a tax return or claim for refund after Dec. 31 to obtain a PTIN. Further, those rules specified that the PTIN would be the only allowable identifier going forward, as part of a multiprong approach to new and sweeping oversight of the tax preparation industry.

Attorneys, certified public accountants, and enrolled agents have had to obtain a PTIN from the IRS Office of Professional Responsibility and to adhere to that office’s standards of competency and conduct. But IRS officials said that hundreds of thousands of other practicing tax preparers have never before been required to have a PTIN and have been unregulated by any agency at the national level.

The $50 fee to apply for or renew a PTIN is based on an annual renewal period, and the procedures for renewing a PTIN will be provided in other guidance, IRS said, including forms and instructions. The user fee is nonrefundable, regardless of whether the applicant receives a PTIN or not, IRS said.

This is the first step in the IRS’ plan to force every tax preparer to register. The idea is that the IRS will have a database of PTINs covering everyone. Additionally, electronic filing is being mandated on all preparers (100 or more returns by a preparer mandates electronic filing next year; 10 or more returns in 2011). The combination will, in the view of the Office of Professional Responsibility, allow them to stop unscrupulous tax preparers by shutting them down. (No valid PTIN, no ability to prepare a return).

A question that’s obvious is what about the unscrupulous preparers who buy a copy of TurboTax and then prepare returns for fees and just print out copies that say “self-prepared”? The IRS plans on using some of the money raised to have an advertising campaign. In the ads the IRS will tell the public that a preparer is required to put down his or her PTIN (if you pay to have a return prepared).

If you already have a PTIN, you will be required to re-register your PTIN and pay the $50.

The IRS justification for the fee is:

The user fee also will recover costs for personnel, administrative, and management support needed to evaluate and address tax compliance issues of individuals applying for and renewing a PTIN, to investigate and address conduct and suitability issues, and otherwise support and enforce the programs that require an individual to apply for and renew a PTIN.

There will be a public hearing on August 24th, and comments can be made until that date on the rules.

The official regulation is here. Comments can be made:

Via mail: CC:PA:LPD:PR (REG-139343-08), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044; or
Electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-139343-08).