PTIN System Back Up, And It's Free For Now

June 22, 2017


Update: On May 11, 2018, oral arguments were held regarding the government's appeal of the district court's order. A decision from the United States Court of Appeals for the District of Columbia will issue in the coming months.

Update: On June 21, 2017, IRS reopened the PTIN system. Tax professionals are still required to have a PTIN to complete a federal tax return for compensation. For now at least, however, there will be no fee for the issuance or renewal of these PTINs.

 

On June 1, 2017, the United States District Court for the District of Columbia entered summary judgment in a class action seeking to end IRS’s use of the mandatory preparer tax identification number (PTIN). Although the court ruled that the IRS does have authority to require the use of PTINs, it found that IRS does not have authority to charge fees for issuing those PTINs. The court thus enjoined IRS from charging PTIN fees in the future and ordered that Treasury provide each class member with a full refund of all PTIN fees paid.

Background

The current PTIN system, including the user fee, was announced in 2010 as part of a larger set of regulations that IRS created to regulate both credentialed and uncredentialed tax preparers.[1] The term "tax preparer" includes anyone who prepares tax returns for others in exchange for compensation. Tax preparers who were not CPAs, EAs, or attorneys were required by the new regulations to become “registered tax return preparers,” which involved passing a competency test, passing a suitability check, and keeping up with continuing education. Beginning after December 31, 2010, all tax return preparers, including CPAs, EAs, and attorneys, were required to obtain a PTIN and pay the required user fee.

In 2014, the United States Court of Appeals for the District of Columbia Circuit ruled that IRS did not have the statutory authority to regulate tax return preparers. In Loving v. I.R.S.,[2] the court struck down the portion of the new regulations requiring competency testing and continuing education for uncredentialed preparers. The court ruled that preparing a tax return is not representing a person before the U.S. Treasury. The PTIN requirement was not challenged and thus was not addressed by the Loving court. In response to the ruling, IRS dropped its registered tax return preparer program. The agency did not seek a review of the case by the United States Supreme Court, and Congress did not act to grant IRS statutory authority to regulate preparers.

Steele v. U.S.

Shortly after the Loving case was issued, two CPAs filed an action against IRS in the United States District Court for the District of Columbia, primarily asking the court to declare that it is unlawful for IRS to charge a user or renewal fee for the issuance and renewal of a PTIN number. The plaintiffs asked the court to stop the IRS from continuing to charge this fee and to direct the Treasury to issue refunds for fees previously collected. The plaintiffs asked the court to certify a class of tax return preparers who had paid PTIN fees. On August 8, 2016, the court certified a class of plaintiffs consisting of “all individuals and entities who have paid an initial and/or renewal fee for a PTIN.” The class was certified for the class representatives' claims of both declaratory relief and restitution.

On June 1, 2017, the court granted the class its requested relief. The court found that although IRS has the authority to issue PTINs to tax return preparers, it does not have the authority to charge a user or renewal fee. The court ordered that "all fees that the [IRS] has charged to class members to issue and renew a PTIN...are hereby declared unlawful, and the [IRS] is enjoined from charging those fees in the future." The order also directed the Treasury to "provide each class member with a full refund of all PTIN fees paid."

Despite the sweeping order, class members should not yet sit by the mailbox waiting for a full refund of their $63-$64 yearly PTIN fees. Although they may get relief down the road, any money distributed to the more than 700,000 preparers in the class would likely be reduced by class counsel fees. The parties could also enter into a settlement agreement, which might further reduce the amount of any refund. IRS has the opportunity to appeal the decision to the same circuit court that issued the Loving opinion. As of today, the IRS website is issuing this notice:

PTIN System Down

On June 1, 2017, the United States District Court for the District of Columbia upheld the Internal Revenue Service’s authority to require the use of a Preparer Tax Identification Number (PTIN), but enjoined the IRS from charging a user fee for the issuance and renewal of PTINs. As a result of this order, PTIN registration and renewal is currently suspended.

The IRS, working with the Department of Justice, is considering how to proceed. As additional information becomes available, it will be posted on our Tax Pros page.

We’ll keep you posted.

The case is Steele v. U.S., No. 14-cv-1523 (June 1, 2017).

 

[1] Regulations Governing Practice Before the Internal Revenue Service, 76 Fed. Reg. 32286, 32287.

[2] 742 F.3d 1013 (D.C. Cir. 2014).

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