The IRS must be one of the most frequently sued agencies in the federal government, and now it’s facing a challenge over whether it has the right to charge tax preparers for the annual cost of a Preparer Tax Identification Number.
A pair of CPAs, Adam Steele of Bemidji, Minn., and Brittany Montrois of McDonough, Ga., filed a class-action lawsuit against the IRS on Monday, seeking to stop the annual $63 renewal fee and first-time registration fee of $64.25 (see CPAs Sue IRS over PTIN Fee). The class-action could affect more than 700,000 tax preparers who are required to pay for a PTIN every year. Their attorneys claim the IRS has collected more than $150 million since 2010, when the IRS began an effort to regulate tax preparers.
That effort involved registration, competency testing and continuing education. Last year, a federal district court ruled that the IRS had overstepped its statutory authority in imposing the mandatory testing and education requirements and put a stop to them in response to a lawsuit from three non-CPA tax preparers. The case, known as Loving v. IRS, named after one of the plaintiffs, Sabina Loving, was upheld on appeal earlier this year.
However, the district court judge explicitly allowed the IRS to continue with its mandatory PTIN registration program. The new lawsuit could make even that requirement tenuous, or make it harder for the IRS to charge tax preparers money for it. At the very least, the plaintiffs want the IRS to lower the fee to about $13, which is the actual cost that the IRS pays to an outside vendor for administering each PTIN.
The Treasury Department approved the fees charged by the IRS, anticipating additional costs such as the forms, instructions and other guidance provided to tax practitioners, the tax compliance and suitability checks that the IRS performs with some preparers, as well as the registration cards and certificates that the IRS was supposed to provide to preparers. While the IRS does not actually provide those cards and certificates, it does maintain a database of PTINs and uses the numbers to track the compliance of tax practitioners, both good and bad.
The PTIN is also supposed to function as an alternative to the Social Security number, allowing tax preparers to avoid exposing their SSNs to every single one of their tax clients, which has become a greater danger in the age of rampant identity theft, especially in the area of tax refunds. There’s a good case for preserving the PTIN, but there’s also a good case to be made for lowering the annual cost.
While $63 is not a lot of money to be paid, it’s less than the cost of an annual renewal of a consumer tax software package (unless a taxpayer is eligible to use a free program, that is). Professional tax practitioners are accustomed to paying to renew their professional tax preparation software every year for at least several hundred dollars, and the $63 annual fee to the IRS can easily be made up with the fees charged to one or two clients.
If anything, the cost can be deducted as a legitimate business expense.
Do you think the IRS should charge a $63 annual fee for a PTIN?