Preparer Regulation NewsPTIN Fees Ruled Illegal
Should Latest Blow to IRS Preparer Regulation
Efforts Signal a "Restart" to This Program?
by Jon A. Hayes, Executive Director
June 9, 2017 -- The IRS has lost another court battle in its efforts to regulate commercial tax preparers, and this one could be more than just costly.
The U.S. District Court for the District of Columbia issued a ruling late last week that the IRS does have the authority to require the use of Preparer Tax Identification Numbers (PTINs) but DOES NOT have the authority to charge the annual user fees it has required.
The court case revolves around a set of regulations that the IRS and the Treasury Department issued in 2010 for registering tax preparers with PTINs. “In sum, the Court finds that although the IRS may require the use of PTINs, it may not charge fees for issuing PTINs,” wrote U.S. District Judge Royce C. Lamberth.
The same federal court ruled in 2013 that the IRS’s regulations requiring testing and continuing education of tax preparers overstepped the IRS’s statutory authority (Loving vs. IRS). In that case the court also left in place the PTIN requirements for registering tax preparers. The ruling was upheld in 2014 on appeal.
Since this was a class action suit, any tax preparer who has paid PTIN fees could receive refunds unless that individual specifically opted out of participating in the suit. The IRS is weighing its appeals options and no decision has been made as to how the agency will proceed. That decision will undoubtedly dictate whether the agency will be issuing PTIN fee refunds to practitioners and when that process may begin.
The IRS is still litigating another lawsuit brought by the AICPA that challenges the agency's legal right to offer an annual filing season certification program (AFSP) for non-credentialed tax preparers. No date has been targeted for a decision in that case, but based on these two court decisions it wouldn't be surprising if the court rules against the IRS.
It's Time to Start Over . . .
and Include Preparers in the Process
As we have maintained from very early in this effort to regulate preparers, the IRS' failure to set up an oversight system that includes the preparer community in that oversight -- rather than a system arbitrarily regulated by the same agency that enforces, litigates and penalizes preparers and their clients -- creates a system vulnerable to many abuses. The Taxpayer Advocate Office has made reference to these issues in nearly every annual report to Congress since the IRS implemented regulation of preparers.
Isn't it time for the IRS to admit it handled this issue poorly? Isn't it time they approached tax preparer regulation in the same manner as they did the growing threat of identity theft -- an effort that included active participation by the preparer community that, in its first year, resulted in outstanding reduction in thefts this past tax season?
Every survey or poll done in the past twenty years on whether we need regulation has shown strong support by the tax preparer community. We have all recognized and admitted that there are abusers and incompetents who need to be closed down. We also agree that credentialing and compulsory continuing education is a vital part of insuring professional competence.
But establishing and effectively administering these objectives is where the problem lies. MTAP does not believe compulsory testing of non-credentialed preparers is the best way to establish competence, adherence to annual CPE, or their pursuit of a recognized credential. The vast majority of non-credentialed preparers are over the age of 55, haven't taken tests in over 20 years, and are afraid of taking them at this stage in their careers (who can blame them). The vast majority of these practitioners have also been in business for well over 10 years or have worked in a legitimate accounting and/or tax practice for well over 10 years.
In our opinion, the IRS made a fundamental mistake in not offering these practitioners an exemption from testing. In all likelihood, the Loving case would have been avoided had that option been available.
PTIN Fees Were Offering Benefits
The issue of PTIN fees has been a testy subject within MTAP ranks. Many members rightfully argued that it was an illegal tax arbitrarily enforced without legislative approval. This latest court decision affirms that contention. Others, including myself, have felt a reasonable PTIN fee has provided preparers with some good benefits, like the creation of an online PTIN account and profile that provides helpful information like CPEs earned, tax returns filed with that PTIN number, and establishment of a directory of approved tax preparers.
The IRS had also begun the process of expanding services available via a PTIN account to help preparers better navigate the IRS online system and track returns filed with a proper PTIN.
Whether or not those services will continue should the IRS either not contest the court decision or lose subsequent appeals, remains to be seen. However, based on recent budget reductions coming from Congress, it appears unlikely the funds will be there to effectively and efficiently maintain the PTIN service without user fees.
In light of this most recent court loss, MTAP urges the IRS not to appeal and to voluntarily withdraw the Annual Filing Season Program so that lawsuit can also be dropped.
It's time to start over, and to include ALL accounting and tax organizations in the establishment, development, and administration of an independently-run tax preparer regulation program. Only through ongoing collaboration and independent administration can such a program garner the kind of support needed to insure competence and protect the public from abuses.