The Preparer Taxpayer Identification Number (PTIN) was originated by the IRS in 1999 as a measure to protect the Social Security number identity of tax preparers. At that time, the IRS stated that preparers could use their SSN or apply for the free PTIN. The PTIN was apparently permanent, as it did not need to be renewed. And this was the status quo for 12 years.
Fast forward to 2010. The IRS made an attempt to regulate tax return preparers. As a part of this regulation effort the IRS established the Registered Tax Return Preparer (RTRP) designation, required continuing education, required use of the PTIN on returns, and a $64.25 annual fee for the PTIN. The fee was to be used for administration of the program to regulate preparers and for taxpayer education.
In 2014, the program of return preparer regulation was challenged in court (Loving v. IRS) and the result went against the IRS. The RTRP program died and any IRS efforts to regulate preparers were null and void. However, the mandatory PTIN and fee remain to this day.
Subsequently, a suit was filed (Steele v. United States) that challenged the IRS on two counts. The case was given class action status. The first issue was “could the IRS mandate that preparers use a PTIN?” The second issue questioned if the IRS had justification for charging a fee for the PTIN. Based on the Loving case, the IRS justification for the fee was termed “arbitrary and capricious.” Furthermore, tax return preparers were characterized as receiving no benefit from the fee.
The court recently ruled on this case. On the first issue, the court stated that it was the “unambiguous intent of Congress that the Secretary of Treasury could require the use of a number such as the PTIN.” IRS 1, Preparers 0.
However, on the second issue, the IRS argued that regulation and the PTIN fee are unrelated issues and the fee serves a legitimate purpose in helping protect the public display of tax preparer social security numbers. The court disagreed with the IRS, stating that the PTIN is not a service or thing of value. IRS 1, Preparers 1.
Furthermore, the court instructed the IRS to refund to tax preparer all PTIN fees that have been collected. IRS 1, Preparers 2.
So what?
First, we aren’t talking about huge sums of money from an individual perspective. Somewhere in the neighborhood of $400 for someone who has paid in from the beginning. While I would certainly not refuse the refund, the amount is not one that will make or break most preparers.
But the second point would look to the future. What is on the horizon for tax preparer regulation? More than likely, it will happen by an act of Congress since the IRS presently lacks the authority. President Trump’s budget proposal calls for giving the IRS “statutory authority to increase its oversight of paid tax return preparers.” Details are not known, but I feel confident that some form of tax preparer regulation is definitely coming. There are approximately one million PTIN holders. It would be expensive to determine who is owed how much and send them a check. If regulation is in the future, would it not make sense to use those funds to “kick start” the new regulation program, perhaps giving existing holders of the PTIN a credit rather than issuing refunds?
Let’s move forward and deal with the significant issues of tax identity theft and unscrupulous preparers. Stay tuned. There will be more to come.
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.
2 comments on “Much Ado About Nothing? Court Rules On PTIN Lawsuit”
We are still paying a yearly PTIN fee and IRS has said nothing about stopping that. That is a slap in the face to any preparer that is trying to stay educated and willing to pay fees to legitimize all preparers out there. Crack down – somebody – on people who fraudulently prepare tax returns and use someone else’s PTIN number or social security number. At least make the money I am paying worth it or give it back to me. By the time all this bureaucratic red tape is processed, I may not be able to use a credit on my account.
As of this point, the IRS has suspended PTIN registration, so they are no longer collecting the fee. Obviously, any system of credits should contain a provision for refunds to those not taking advantage of the credits.
As far as cracking down on the fraudulent preparers, I am all for it. But “how?” is the question. I am also deeply concerned about the lack of knowledge exhibited by many “legitimate” preparers. I am in a position where I see a great deal of incorrectly prepared returns just because the preparer does not know how to handle the issue properly.
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