IRS Can Resume Charging PTIN User Fees—But Final Cost Still to Be Determined

Frank G. Colella, Esq., LL.M, CPA
Published Date:
Jun 1, 2019

According to the IRS 26 C.F.R. § 1.6109-2(d), “Beginning after December 31, 2010, all tax return preparers must have a preparer tax identification number or other prescribed identifying number that was applied for and received at the time and in the manner, including the payment of a user fee, as may be prescribed by the Internal Revenue Service.” However, since June 2017, the IRS has suspended this fee charged for a “practitioner tax identification number” or PTIN.

Tax return preparers must still obtain a PTIN, or renew their existing PTIN, but Steele v. United States in 2017, held that the IRS did not have the authority to charge a user fee for their issuance or renewal, stating, “In sum, the Court finds that although the IRS may require the use of PTINs, it may not charge fees for issuing PTINs.” That decision has now been reversed on appeal by Montrois v. United States in 2019, which held that the IRS can require tax preparers to pay a PTIN user fee. Notably, however, Montrois did not determine whether the current PTIN fee is reasonable in relation to the service provided to, or benefit received by, the tax return preparer in exchange for the payment. Instead, that question was remanded back to the district court for determination. Thus, the formal resumption of the PTIN user fee must still await the outcome of that proceeding.

 Montrois was the third court decision to consider the scope of the IRS’s authority to regulate the tax preparation industry. In Loving v. IRS,[1] the D.C. Circuit Court of Appeals held that the IRS lacked authority to regulate tax preparers and invalidated regulations that imposed mandatory conditions on an individual’s right to prepare and file tax returns for compensation. Subsequently, AICPA v. IRS,[2] limited the scope of Loving and held that the IRS could implement a voluntary program to regulate tax preparers. Montrois, the third case in the tax preparer trilogy, further limited the scope of Loving by holding that, even without the authority to regulate tax preparers, the IRS can still require them to obtain, and pay for, a PTIN. 

Montrois, reversed the Steele decision that held, while the IRS could mandate the use of PTINs, it could not impose a fee for their issuance. Steele had concluded that the Loving decision was dispositive because Loving had held the IRS lacked authority to regulate tax preparers; therefore, it reasoned, the IRS could not charge a fee for what was, in essence, an impermissible regulatory scheme. While both courts concluded the IRS could mandate the use of PTINs, they sharply disagreed over whether it could rightfully impose the PTIN user fee. In rejecting Steele’s analysis, the Montrois court chose, instead, to follow the reasoning in Brannen v. United States.[3] Brannen held that, in exchange for the PTIN fee, the IRS “confers a special benefit upon tax return preparers (i.e., they are thus privileged to prepare returns for others for compensation).”

Montrois disagreed on Loving’s impact on the PTIN question.[4] In its view, if the IRS satisfied the requirements of Independent Offices Appropriations Act (IOAA)[5] the fee would be justified. Montrois sidestepped the IRS’s lack of authority over tax preparers and, instead, focused on the confidentiality and some measure of protection against identity theft provided by the PTIN.  According to Montrois, those benefits independently justified a PTIN user fee under the IOAA statute. 

While Loving had held the IRS could not impose mandatory regulations on tax preparers, AICPA then held that the IRS could, instead, create a voluntary program, the Annual Filing Season Program (AFSP), which could regulate participating tax preparers. The Montrois decision is bolstered by the AICPA v. IRS holding in August, 2018, because AICPA approved and enlarged the role of the IRS, albeit in a voluntary manner, in overseeing the tax return preparation industry. That voluntary role would, by its terms, employ PTINs as part of its administration.

Courts that considered the PTIN requirement, including Steele, all concluded the IRS could require tax preparers to obtain a PTIN. However, since the PTIN fee was not traceable to specific statutory authority that permitted its imposition, the IRS had to justify the fee[6] on the more general authority contained in the IOAA, which, in Montrois, 916F3d at 1058, provided that agencies can charge fees in connection with the provision of a “service or thing of value.” Steele was the only court which concluded that the IRS had failed to satisfy the IOAA requirements.

Prior to the Steele decision, and in response to Loving, the IRS had reduced the PTIN fee from $50.00 to $33.00. The lower fee reflected the IRS’s reduced role after Loving held it could not implement the mandatory tax preparer regulations.[7] Thus, because a substantial amount of the expected administrative work was no longer necessary, the fee was correspondingly reduced. The plaintiffs had argued that even the reduced PTIN fee was still impermissible—and that IRS should refund the fees that had already been paid. Apart from the IRS’s sua sponte reduction of the fee in 2015, the only court that considered the reasonableness issue was Buckley v. United State, which held the original ($50) PTIN fee was reasonable and not excessive.[8]

Steele had discussed what items the PTIN fee should include and, more importantly, should exclude from cost structure. Steele held that the IRS may only consider the fees it incurs in providing the PTIN service: “the measure of fees is the cost of the government of providing the service, not the intrinsic value of the service to the recipients.” In other words, the IRS could not charge different fees to various classes of tax preparers. The fee must be uniform for all tax return preparers. “[T]he IRS has stated time and again that the cost of issuing a PTIN is the same regardless of whether the pin number is issued to an attorney, CPA, or uncertified tax return preparer. As plaintiffs note [in Montrois 916 F.3d at 1060], that is why the IRS decided in the first place to impose a uniform fee for every PTIN it issued—regardless of the recipient's professional status.”

Finally, the court observed that the fee charged cannot include costs that are not associated with the PTIN program. The plaintiffs had alleged that, even after the fee reduction in 2015, the user fee still incorporated impermissible charges. “The IRS has also continued to use the fees to fund activities related to tax compliance, background checks, the voluntary certification program established after Loving, and many other things unrelated to issuing a number.”[9] Montrois [Section 916 F.3d at 1068] agreed that any costs associated with activities found invalid pursuant to Loving could be reviewed during remand.

Thus, on remand, the court must consider whether the current fee appropriately reflects the cost to administer the PTIN program. It must also consider the separate fee, paid directly to third-party administrators,[10] imposed on the tax preparers. The original fee was not $50, but rather $64.25, when the processing charge was included. The present fee is not $33.00, but rather $50, with the addition of the processing charge. As argued by plaintiffs: “[I]f Accenture [the third-party vendor] does everything necessary to issue a PTIN, then what benefit is the government providing to tax-return preparers?”

[1]  Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). For a fuller discussion of Loving v. IRS, see Frank G. Colella, Loving is Affirmed: IRS Lacked Authority to Regulate Preparers, 143 Tax Notes 371 (2014)

[2]  AICPA v. IRS, No. 15-5256, 2018 WL 3893768 (D.C. Cir. 2018). For a fuller discussion of AICPA v. IRS, see Frank G. Colella, D.C. Circuit Upholds IRS’s Voluntary Regulation of Tax Preparers – Majority Holds APA’s Statutory Notice & Comment Not Required: AICPA v. IRS, 15 N.Y.U. J. L. & Bus. 229 (Spring 2019).

[3]  Brannen v. United States, 682 F.3d 1316 (11th Cir.), cert. denied, 568 U.S. 999, 133 S.Ct. 587, 81 USLW 3212 (2012).

[4]  Montrois was in accord with Buckley v. United States, No. 1:13-CV-1701, 2013 WL 7121182 (N.D. Ga. 2013). “However … Loving has no applicability here because [it] did not examine the PTIN user fees … at issue in this case.” Id.

[5]  31 U.S.C. section 9710(a)-(b).

[6]  “[T]he IRS decided it would charge tax-return preparers a fee of roughly $50 (plus a vendor fee) to obtain and renew a PTIN. The agency explained the fee would cover the costs of ‘the development and maintenance of the IRS information technology system’ associated with the PTINs, as well as the costs of ‘the personnel, administrative, and management support needed to evaluate and address tax compliance issues, investigate and address conduct and suitability issues, and otherwise support and enforce the programs that require individuals to apply for or renew a PTIN.’” Montrois, 916 F.3d at 1059 (citations omitted).

[7]  “The IRS adjusted the PTIN fee in the wake of our decision in Loving. A portion of the original PTIN fee was to have been used to pay the costs of the registered tax-return preparer program invalidated in Loving, and the IRS reduced the amount of the PTIN fee to cover the costs of those portions of the PTIN program that remained in effect after Loving.” Montrois, 916 F.3d at 1060

[8]  Buckley v. United States, Slip Op. at 8-9. Buckley held: “Given this evidence, the Court concludes that the $50 annual fee was not arrived at in an arbitrary and capricious manner.”  Nor, the court continued, was there any evidence presented that there was a “material fact in dispute regarding whether the $50.00 annual renewal fee is excessive.” Id.

Brannen did not consider the reasonableness of the fee. “We note that Brannen has not challenged the amount or excessiveness of the user fee.  Indeed, Brannen expressly disclaimed any such argument in the district court.” Brannen v. United States, 682 F.3d at 1317-18 n. 1 (emphasis added).

[9]  Brief of Plaintiff-Appellees (March 30, 2018) at 16, n. 4 (citations omitted).

[10]  Plaintiff’s Motion for Summary Judgment, 8 (Sept. 7, 2016). “As for the vendor’s fee, that would go to Accenture [third-party vendor], whose contract with the government requires it to do (and who has in fact done) all the things necessary to issue and renew PTINs.” Id. (citation omitted).

Frank G. Colella, Esq., LL.M, CPA, is a clinical assistant professor in legal studies & taxation at Pace University’s Lubin School of Business and a practicing attorney.  His law practice is focused primarily on federal taxation, estate planning and administration, and corporate transactions.  He teaches courses in tax practice & procedure, business law, and constitutional law.  Mr. Colella has published and lectured extensively on tax-related matters, including testimony before the Internal Revenue Service.

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