IRS Challenged On Legality Of PTIN Fees

John Stancil

PTIN stands for Preparer Tax Identification Number. This was originated by the IRS in 1999 to protect the identity of professional tax return preparers. Prior to that time, preparers were required to list their social security number on the prepared return. This, obviously, was a good move that preparers readily accepted as it helped protect their identity. It was simple. You applied for the PTIN, paid no fee, and it was presumably good for life.

Then the IRS decided to regulate tax return preparers by requiring them to be a CPA, Attorney, Enrolled Agent, or pass their Registered Tax Return Preparer (RTRP) exam with continuing education requirements. All preparers were now required to have a PTIN. Obviously, this cost money to oversee, so the IRS imposed an annual fee of $63 to maintain the PTIN. In 2016, they dropped the fee to $50, $33 designated as a user fee to support program costs with the remainder being used to operate the PTIN program.

Subsequently, the IRS’s program of regulating preparers was challenged in court in the now-famous Loving case and the IRS lost. The courts stated that the IRS did not have the legislative authority to regulate tax return preparers in that manner. So the required certification, RTRP program, and required continuing education fell by the wayside. In order to salvage something from the effort, the IRS began the Annual Filing Season Program (AFSP), a voluntary designation that otherwise uncertified preparers could pass an exam and use the designation.

While all this was going on, the IRS continued to collect PTIN fees from preparers, an estimated $175 million in fees to this point. Three preparers have filed a class-action suit for recovery of the fees. The challenge was based on three points:

  • The legal authority of the IRS to collect the fee to obtain a PTIN.
  • The legal authority of the IRS to charge a renewal fee.
  • The excessive amount of the fee.

Two arguments were set forth by the plaintiffs. First, they said there is no authority to collect the fees as tax return preparers receive no special benefit in return for the fees, only an identifying number. At one time, it was stated that a portion of these fees would be used to help combat tax-related identity theft, establish a data-base of registered tax preparers, and other “benefits.” Even if these fees were used for that purpose, why should the preparers bear the burden of that cost, which benefits all taxpayers?

Second, the plaintiffs maintained that if the fees are legal, they are excessive. The $50 fee is far in excess of the cost incurred by the IRS to issue a PTIN. Obtaining a PTIN is easier than getting a social security card, may be done online, and incurs little cost for the IRS.

Preparers who possess a PTIN may opt-out of the suit but must do so by December 7, 2016. If a preparer does not opt out, he or she loses the right to challenge the fees independently, even if the IRS loses the case.

There is no question that the IRS has a problem with tax-related identify theft and with unscrupulous preparers. However, there is little in their current efforts to successfully deal with either problem. The IRS needs to step back and evaluate the most effective means of dealing with these issues.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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