A recent ruling striking down the fees charged by the Internal Revenue Service for the ID numbers it requires tax preparers to have has some practitioners rejoicing — and others wondering about its ramifications.
In early June a federal district court — the same that ruled four years ago in Loving v. IRS — ruled in favor of preparers who filed a class-action lawsuit over the PTIN. The IRS may need to refund hundreds of millions of dollars in fees collected.
Key to the decision: Federal agencies such as the IRS can only charge if the individual paying the fee receives special benefits not shared by the general public under the “service or thing of value” requirement. Since Loving determined that there is no restriction on who can obtain a PTIN, it is not a “service or thing of value,” according to Enrolled Agent Anthony Santullo of Santullo Tax and Financial Planning Services, in Berkeley Heights, N.J. “The recent PTIN ruling … is 100 percent correct!” he added.
“The ruling is fair and that we should be refunded our initial and renewal fees from 2010 to 2016,” said CPA Brian Stoner in Burbank, Calif.
Millions in refunds
In 2014, two CPAs filed against the IRS over PTIN fees, suing on behalf of more than 700,000 individual practitioners who are forced to pay for a PTIN every year. The lawsuit sought an injunction barring collection of the fee and recovery of the more than $150 million in fees the IRS had collected since 2010, now estimated to have risen to as high as $245 million.
“While I agree with the PTIN ruling, I think it is, by and large, much ado about nothing,” said John Stancil, a CPA in Lakeland Fla. “Even for those of us who have had PTINs from the beginning, the amount of [individual] refund is not more than a few hundred dollars. I’m not going to turn any refund down,” he added, but “it might be simpler just to grant credits toward future PTIN fees (which are certain to come about), with refunds available for those requesting them.”
EA Terri Ryman, of Southwest Tax & Accounting, in Elkhart, Kan., thinks the fee has always been excessive. “I can’t imagine that it takes anywhere from $50 to $64.25 per PTIN to administer the program,” she said, “so I am hoping for a refund. I’ve been paying for four preparers for 17 years now.”
“If they were issued for free before 2010, the IRS shouldn’t be allowed to charge for them now,” Stoner said, “especially as the PTIN is more for the IRS’s benefit than the preparers’ and it costs them the same amount to issue a PTIN as an EFIN. It’s true that the PTIN keeps my Social Security number off the returns, but an EFIN for the preparer would accomplish the same thing and would be free.”
“Most of what I’ve read about the ruling centers around getting reimbursed for the fees paid,” said Jeff Gentner, an EA in Amherst, N.Y. “Where is that money going to come from? Didn’t preparers already get a deduction for this expense when they paid it? The refunds will be taxable, as I see it. I also think the larger issue here is the need for increased oversight of preparers.”
“Administration of this PTIN system does have a cost,” added Phyllis Jo Kubey, an EA in New York, “and without the user fees the funding will have to come from somewhere. With an IRS budget that is already inadequate, this will hurt.”
Security, oversight and CE
Balanced against a refund in the pocket: the overall benefits of the PTIN system, including information security.
“While I see why some feel this suit was necessary, I think it is a small price to pay,” Gentner said. “In the past, preparers had to include their Social Security number on every return they filed. Even before the days of widespread identity theft, I didn’t feel comfortable printing my Social Security number on every return. I took the fee as a cost of doing business.”
“Congress needs to give the IRS statutory oversight on tax practitioners,” added Carolyn Richardson, an EA in Costa Mesa, Calif., who favored the IRS’s old Registered Tax Return Preparer program. “The industry needs to be regulated, particularly with the huge amount of identity theft and tax fraud going on.” The amount of current fraud, Richardson maintains, means “it’d be much cheaper to the government in the long run to give the IRS that oversight and the funding for personnel to manage it.”
“It’s an absolute shame that someone can hang their shingle as a tax practitioner for hire with next to no oversight,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colo. “We all know that oversight protects consumers from fraud. Those of us who care about the Tax Code enough to become licensed practitioners will now be forced to be extra diligent … I see a future of increased fraud, conspiracy to fraud, and litigation.”
New York EA Kubey is “struck by the continuing reverberation from the Loving case. We have an urgent and real need for congressional action to provide authority for oversight of or minimum standards for paid preparers, as well as for adequate funding for the IRS. I’m pleased that the IRS authority to issue and require the use of PTINs is no longer in question.”
She’s also concerned about tax professionals’ continuing education credit information being tied to the PTIN system. “CE providers can still upload data for attendees who already have PTINs,” Kubey said, “but if there are attendees that don’t yet have PTINs, the instruction is for the CE providers to hold onto this information until further guidance is issued. Also, tax pros applying to take the SEE exam have to have a PTIN. As of this date, I don’t believe there’s a mechanism in place for them to obtain one.”
Richardson also believes the IRS overreacted to the latest ruling by shutting down the PTIN system.
“While they certainly could have de-activated the renewal and sign-up section, they shut down everything — and I found the system to be useful for verifying my required education credits earned for each year,” she said. (The IRS has since re-opened the PTIN system, without the charge.)
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