The IRS issued proposed regulations (REG-117138-17) that would lower the user fee it charges for new and renewal preparer tax identification numbers (PTINs). The new fee would be $21 plus a $14.95 fee paid directly to a third party for processing applications and renewals. The fee was $33 before a district court held in 2017 that the Service was not authorized to charge a fee for PTINs and issued an injunction to bar it from doing so (see Steele, 260 F. Supp. 3d 52 (D.D.C. 2017)).
A valid PTIN must be obtained by anyone who prepares or assists in preparing a federal tax return for compensation. The PTIN system provides tax return preparers an identifying number that is not a Social Security number to include on tax returns.
When the government appealed the Steele case to the D.C. Circuit, the appeals court held that the IRS has authority to charge a user fee for PTINs, paving the way for the agency to reinstate a fee for obtaining and renewing a PTIN (Montrois, 916 F.3d 1056 (D.C. Cir. 2019)). However, the D.C. Circuit remanded the case to the District Court for the District of Columbia to determine if the amount of the fee unreasonably exceeded the costs to the IRS to issue and maintain PTINs. The case is still on remand, and the IRS has not been charging a fee in the interim.
In the preamble to the proposed regulations, the IRS explained that is has recalculated its cost of providing PTINs. The Service proposes reducing the fee to $21 per application or renewal, plus $14.95 payable directly to a third-party contractor. The government says it is authorized to charge a PTIN user fee because, in exchange for the fee, it provides a service by issuing and maintaining PTINs, which provide tax return preparers the specific benefit of allowing them to provide an identifying number that is not a Social Security number on returns and to prepare returns for compensation.
The IRS calculated the proposed fee by projecting the direct costs of the cost center that operates the program within the IRS and adding indirect costs (a percentage allocation of the projected direct costs) for the years 2020–2022. That total was divided by about 2.4 million, the number of PTINs that would be issued in a three-year period, to reach the $21 figure. The processing fee for the third-party contractor is $14.95. However, because the case is still pending before the district court, it is not known what fee the court will allow the IRS to charge.
The IRS is accepting comments on the proposed regulations until 30 days after April 16, the date the proposed regulations are scheduled to be published in the Federal Register. It is recommending any comments be sent electronically because the coronavirus pandemic has caused a reduction in staff available to process mail. The regulations are proposed to apply to applications for or renewals of PTINs filed on or after 30 days after the date the regulations are published as final in the Federal Register.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.