A federal appeals court has upheld a lower court ruling dismissing the complaint of a tax preparer who argued that the Treasury Department and the Internal Revenue Service did not have the right to charge an annual fee for a Preparer Tax Identification Number.
The case involved Jesse Brannen III, a tax attorney and CPA in White, Ga. Brannen sued the Treasury Department, claiming that it exceeded its statutory authority when it began charging a $64.25 fees for issuing a PTIN and an annual renewal fee of $63.
“In 2010, in accordance with the new Treasury regulation, Brannen filed for and paid $64.25 to receive a PTIN,” said the court. “He then filed for a refund with the IRS, but it was rejected. Brannen then filed this lawsuit as a purported class action. Brannen’s complaint asserted that the Department’s implementation of the fee exceeded its statutory authorization. Brannen argues that, while 26 U.S.C. Section 6109 authorizes the issuance of an identifying number, it does not authorize a fee. The Government moved for dismissal of the complaint, and the court below granted its motion, holding that Brannen failed to set forth a viable claim.”
Brannen contended that no statute enacted by Congress provided the Treasury Department with the power to charge a fee for PTINs. While the law provides for PTINs to help the Treasury Department identify taxpayers and tax preparers, and thus helps the Treasury in its tax collection efforts, Brannen insisted that merely issuing a PTIN to a tax preparer is not enough to justify charging a user fee.
“This is not about the money,” said Brannen in an interview. “This is about principles. This is about trying to get the Internal Revenue Service to only pass regulations and enforce rules that have been approved by Congress. They’ve done such an end run around the statute that we felt like we had to file suit.”
However, the district court noted that under the Independent Offices Authorities Act, agencies are permitted to promulgate regulations that establish a charge for a service or thing of value that the agency provides. In addition, since 1976, the Treasury Department has had the power to require tax preparers to include an identifying number on the returns they prepare. Before the 2010 IRS regulations on tax preparation, tax preparers were permitted to either use their Social Security numbers or obtain a free PTIN. But Congress expressly permitted the Treasury Secretary to write regulations requiring that a number other than the Social Security number be used, the court noted.
The Treasury Department promulgated regulations in 2010 exercising that authority and requiring that tax preparers obtain and use a PTIN, rather than using a Social Security number. The same regulation exercised for the first time the Treasury’s authority to charge an annual user fee to tax return preparers in exchange for issuing the PTIN.
The Eleventh Circuit Court of Appeals agreed with the lower court last Thursday, and in an opinion written by Judge R. Lanier Anderson, affirmed the dismissal of Brannen’s lawsuit, noting that the PTIN is issued to tax preparers for a special benefit—the privilege of preparing tax returns for others for compensation. “The user fee here clearly confers a benefit which is not received by the general public,” the court wrote.
However, Brannen’s Atlanta-based attorney, Allen Buckley, said he and his client hope to appeal the case, either to the full appeals court or perhaps all the way to the U.S. Supreme Court. “We’re going to take some sort of action one way or another,” he said. “In my opinion, a tremendous injustice has been done so far in the case.”
He noted that the standard for a case to be dismissed is that either bogus facts must have been alleged or the law does not permit a suit for the thing alleged. “In our case the facts are pretty simple,” he said. “Jesse Brannen paid the fee and filed for a refund. The refund request was denied, so there are no bogus facts. The Administrative Procedure Act allows people to sue to challenge regulations. The fee was issued through regulations, so there was no basis to dismiss the case. When it went to the Eleventh Circuit, the dismissal should have been reversed. It wasn’t reversed, so now we’re trying to decide what our next action is going to be, either going to the Supreme Court or filing for a rehearing in the Eleventh Circuit ‘en banc,’ which means in front of the full court. There might be another action brought because we feel very strongly about our case, but we also feel we have been treated unfairly by the federal court system so far. A lot of lawyers will say that the federal government is favored in court, and my opinion is that is generally true, with the exception of the Tax Court. We’re trying to overcome that general favoritism.”
He disagrees with the court order ruling that the Treasury Department should have the right to impose annual fees for registering and renewing a PTIN. “What they said is ludicrous,” said Buckley. “If that court order is correct, that means the Treasury Department can make individuals get new ID numbers to put on their tax returns and can charge them annually to give them a number and renew the number to put on their tax returns instead of their Social Security number.”
Buckley argued that there are a number of requirements that must be met for a user fee to be charged by the federal government for licensing, including that it must be paid voluntarily. “In this case, it’s not paid voluntarily,” he said. “The only reason people do it is because they’ll be subject to penalties by the IRS if they don’t do it.”
He contended that the IRS does not have licensing power for tax preparation. “In 2010 and 2011, they issued sets of regulations to try to give them the power to regulate the tax preparation industry, including granting them licensing power,” said Buckley. “But Congress is the only entity with the power to grant licensing powers in any agency or any part of the government.”
So far, there is only one named plaintiff on the lawsuit, Brannen. Buckley said he and his client have not yet motioned for class-action certification as they still need to get the case back before the District Court. “The class certification should not be difficult to get since there is one common issue,” said Buckley. “Everybody paid this fee and nobody wants to pay it.”
Earlier this year, an advocacy group called the Institute for Justice filed suit against the IRS on behalf of three other tax preparers challenging the IRS’s licensing requirements (see Tax Preparers Sue IRS over New Requirements). Buckley said he had been in talks with the Institute for Justice, and he would like to see his case consolidated with the others before the Supreme Court, even though his client is challenging a separate requirement from the testing and continuing education requirements in the other lawsuit.
“We’ve talked to them and they’ve talked to us,” he said “I’m hoping somehow our cases will be consolidated and go to the U.S. Supreme Court at some point because what’s happened here needs to be stopped. Basically an agency created a law and then charged fees to help it help itself fund its new self-created power. We’re going to fight on, no matter what. We’re going to do whatever we can to get this injustice reversed, and the Institute for Justice has some sharp people working on their case. They are simply working on the testing and continuing education requirements relating to people who are not attorneys, CPAs or Enrolled Agents. I think their case is very strong and I think our case is very strong. I know all the issues of their case, so if we get justice they should win their case and we should win our case, which means you just go back to the way things used to be. They could still make you get a PTIN, but they couldn’t charge you for it. One you get a PTIN, the number doesn’t change, so there’s no legitimate reason for any charge after the first year.”
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