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IRS Opens PTIN Season as Supreme Court Passes on Fees Case

Oct. 17, 2019, 8:45 AM

This is a weekly column from Kelly Phillips Erb, the TaxGirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl

The Internal Revenue Service has announced that preparer tax identification number (PTIN) applications and renewals are now being processed. That’s good news for tax professionals who are gearing up for next season—but there could be some changes on the horizon.

Currently, anyone who receives compensation in exchange for preparing or assisting in preparing all or substantially all of any U.S. federal tax return, claim for refund, or other tax form other than those specifically exempted (you can find a list here) must have a valid PTIN. That includes attorneys, certified public accountants, and enrolled agents. If you don’t have a current PTIN and you prepare returns for compensation, you could be on the receiving end of Section 6695 penalties, injunction, and disciplinary action by the IRS Office of Professional Responsibility.

It’s easy to obtain a PTIN. You can apply for a new PTIN or renew an existing PTIN on the IRS website. It’s also free: There is currently no annual fee for a PTIN, but that may be changing. A series of court challenges has ended with a win for the IRS—and that likely means a return of PTIN fees.

A PTIN acts like a substitute Social Security Number for tax preparers. Years ago, tax preparers actually used their SSNs on tax returns, but as the potential for fraud grew, preparers grew wary of using their personal information on tax returns. In response, the IRS made PTINs available in 1999 as an alternative, allowing tax preparers to sign returns with their SSN or a PTIN. To encourage the use of the PTIN, the IRS issued the numbers to tax preparers for free.

In 2010, the IRS made the use of PTINs mandatory. That same year, the IRS required tax preparers to pay an initial fee of $64.25 to obtain a PTIN, with a renewal fee of $63 for each subsequent year. The IRS justified the fee under 31 U.S.C. § 9701, which permits federal agencies to “charge for a service or thing of value provided by the agency.”

The IRS also tried to further regulate tax preparers. In 2012, three independent tax preparers, Sabina Loving of Chicago, Ill.; John Gambino of Hoboken, N.J.; and Elmer Kilian of Eagle, Wis., filed suit, accusing the IRS of lacking the authority to license tax preparers. The courts agreed. The courts ruled in that case, Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), that the IRS did not have the right to license tax preparers, but the PTIN rules stuck.

Fees Disallowed, Then Restored

Following the Loving ruling, a set of new plaintiffs, including Adam Steele and Brittany Montrois, filed a class action alleging that the IRS was not allowed to require PTINs or charge PTIN fees. The plaintiffs claimed that PTIN fees were not issued in exchange for a “service or thing of value.” And, the plaintiffs argued, even if the IRS did have the authority to charge preparers PTIN fees, the fees charged were excessive.

The court held that the IRS could require the use of PTINs, but could not charge fees for them “because this would be equivalent to imposing a regulatory licensing scheme and the IRS does not have such regulatory authority.” Under the ruling, the IRS was barred from charging PTIN fees and was further ordered to provide a full refund of all PTIN fees paid—well over $175 million.

The IRS appealed and the matter went back to court. In March of 2019, the U.S. Court of Appeals for the District of Columbia Circuit overruled the lower court, finding that the IRS did have the authority to charge PTIN fees. Specifically, the appeals court found that the IRS did provide a service in exchange for the fee. Further, the court held that the service—the provision of the PTIN—has value because it allows tax preparers to use those numbers instead of their SSN on tax returns.

The win at the appellate level opened the door for the IRS to reinstate PTIN fees, but not without another legal challenge. The plaintiffs next appealed to the Supreme Court.

The Supreme Court has original jurisdiction over certain kinds of cases. Those cases, which are defined by statute (28 U.S.C. §1251), go straight to the Supreme Court. However, most cases don’t have original jurisdiction—including this one. To be heard at the Supreme Court without having original jurisdiction, the losing party must file a petition seeking a review of the case. If the Supreme Court grants the request and decides to hear the matter, it’s called a writ of certiorari. If the Supreme Court turns the petition down, it’s referred to as certiorari denied. A denial does not necessarily mean that the Supreme Court agrees with the appellate court; it merely means that the appellate decision will stand.

The matter appeared on the Supreme Court order list (589 U.S.) dated Monday, Oct. 7, 2019, and certiorari was denied. That means the appellate court ruling affirming the IRS’ authority to charge fees for PTINs remains in place. The IRS did not issue a public comment, but many tax preparers expect to see fees return to the PTIN application in 2020.

The case is Montrois v. United States, No. 18-1493 (S. Ct. Oct. 7, 2019).

To contact the reporter on this column: Kelly Phillips Erb at kelly.erb@taxgirl.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com