The IRS recently issued final regulations regarding user fees for its oversight of the enrolled agent (EA) three-part Special Enrollment Examination (SEE) and issued proposed regulations for EA renewals and initial application. The former increased SEE oversight user fees to $99 from $81 per exam part. The latter proposes to increase both enrollment and renewal user fees to $140 from $67.
While this article focuses on the proposed regs, the critique here applies to both and suggests a larger issue with the IRS’ approach to user fees.
First, some background. A prospective EA must submit an application to become an enrolled agent to the IRS’ Return Preparer Office (RPO). EAs must triennially earn 72 hours of continuing education (CE) and submit an online form requesting renewal. The IRS also charges CE providers a user fee and a portal to which they upload course attendees. EAs may access online accounts and track their CE.
This author, who has been following EA user fees since 2006, would argue that EA user fees ought to be considered with a fresh eye. They are inconsistent at best, and arbitrary and counterproductive at worst. More specifically:
- They are difficult to defend from a policy perspective.
- An opaque process results in fees unmoored from real world costs.
Let’s unpack these issues separately.
Why Charge EA User Fees?
The agency asserts OMB Circular A-25 requires it to assess these fees. It rests its case on Section 6(a)(1), which states, “When a service offered by an agency provides special benefits to identifiable recipients beyond those accruing to the general public, the agency is to charge a user fee.”
In the proposed regs, the IRS concludes: “The IRS confers benefits on individuals who are enrolled agents…beyond those that accrue to the general public by allowing them to practice before the IRS. Because the ability to practice before the IRS is a special benefit, the IRS charges a user fee.”
Although the agency has been challenged on the assertion EAs receive special benefit, it has yet to provide a thoughtful rationale or to consider alternatives.
The IRS essentially says, “We gots to do this.”
But is that true?
Let’s consider two Circular A-25 exceptions:
- At 6(a)(4): “No charge should be made for a service when the identification of the beneficiary is obscure, and the service can be considered primarily as benefiting broadly the general public.”
- At 6(c)(2)(a): “Agency heads…may recommend…that exceptions to the general policy be made when…any other condition exists that, in the opinion of the agency head…justifies an exception.”
These are noteworthy given that both the Biden and Trump administrations (which agreed on next to nothing) issued budgets including a request to increase oversight of paid tax professionals. Additionally, the IRS has for years supported return preparer standards and has created an annual filing season program “to recognize the efforts of non-credentialed return preparers.”
Why not assert either exception? Nobody knows, though one hopes an agency with a $14 billion budget finds the $10 million in receipts (see Table 2) over three years a tear in a proverbial salted sea.
What About the Agency’s Broader User Fee Program?
A review of the IRS’ complete list of 20 user fees raises more questions than it answers. Two of the 20 are EA related. Three others are familiar to tax pros and assessed for PTINs, installment agreements, and offers in compromise.
Why does IRS charge user fees for EAs but not for annual filing season program participants? Administratively, the two are similar. And why does it charge for installment agreements but not for currently not collectible status? In each case, how is the first, but not the second, a “special benefit?”
Echoing the proposed regs language, why doesn’t the IRS assert: “IRS confers benefits on individuals who [are annual filing season participants]…beyond those that accrue to the general public by [granting them special status]. Because [this status] is a special benefit, the IRS charges a user fee.”
Following this pattern, has the agency considered charging user fees for compliance services? For CP-2000 notices? For the costs of auctioning seized property? For the practitioner priority hotline? Each of those is a service narrowly provided.
The simple answer is that we don’t know.
No one has suggested the tax pro standards the agency and administration favor will generate user fees. If the IRS isn’t going to charge user fees when all return preparers will be required to demonstrate minimum competency, doesn’t charge those annual filing season program participants, and doesn’t charge CPAs and attorneys, each of whom benefits from practice before the agency, then why charge EAs?
The point here isn’t to encourage more user fees. The point is to suggest its current approach is inconsistent and to ask the IRS to develop fully every decision to levy or increase a user fee.
Should It Cost This Much?
As recently as mid-2019, EA renewal fees were $30. In June 2019, the IRS increased the application and renewal fee to $67 after estimating labor, benefit, and overhead costs at $4.55 million.
This 123% increase was, in part, because THE RPO “determined costs associated with Federal tax-compliance checks and suitability checks…should be recovered” and “costs of operating a dedicated toll-free helpline…for enrollment and renewal matters.” (Section B5, p. 1252.)
The IRS now proposes a 109% fee increase, to $140 from $67. According to the proposed regs, “the increase took into account additional staffing that allows RPO to provide a higher quality of service to individuals seeking to enroll or renew enrollment.” (Section C, p. 900.)
That’s rather thin gruel, typical of the vagueness of the entire production, and certainly not substantial enough to justify redoubling fees. Peeling the onion, it gets worse. Compare costs in Table 2 (below) with those of only three years ago (Table 1):
The program’s direct costs (labor and benefits) have increased an astounding 142%. Yet a grade 9, step 5 employee in Detroit, where the IRS has historically staffed this function, in 2019 earned $63,911 and a grade 9. A step 5 employee in Detroit today earns 6.8% more, $68,248. And the IRS nowhere suggests it is more than doubling staffing.
One gets the distinct impression the agency is unconcerned about costs, managing them, providing transparency on them, determining whether its operations are effective or efficient.
Why that impression? The IRS neither defends the increase nor acknowledges its magnitude. Imagine yourself a private sector manager saying, “Hey boss, I’m gonna need a 142% increase to cover labor and benefits for the next three years to do the same thing I’ve been doing for the past three years, plus an undefined higher quality of service.” She’d laugh you out of her office. Or imagine yourself a business owner doubling your prices without a clear and compelling narrative on why and what precisely will improve.
With these two increases, to $140 from $30, the agency blesses a 367% hike. In three years. Notwithstanding page after page of proposed regulations, EAs are left asking themselves why, for what, and how am I better off? They don’t have particularly satisfactory answers at hand.
Sidebar: Transparency > Opacity
One cannot study IRS EA user fee assessments without noticing the opacity of the entire process. The IRS provides sparse details on its current and future operations and hides behind a bizarre assertion that cost calculations are sensitive and subject to disclosure rules. The IRS reasonably wouldn’t disclose the DIF score calculation and would deny requests for costs of programs it doesn’t expect individuals to absorb personally.
Its refusal to provide transparency when it comes to costs it demands beneficiaries of “special benefits” absorb is, with all due respect, highhanded and disrespectful.
Two issues present themselves.
That the IRS has authority to assess user fees is not sufficient to the conclusion it must assess them on EAs. OMB provides exceptions in its user fee directions. The IRS could—and in this author’s opinion, should—decline to charge user fees for enrolled agent application and renewal requests. Even if assessing the user fees were reasonable and not contrary to other agency goals, costs have exploded indefensibly, while services appear largely unchanged. EAs do not know what steps the IRS is taking to control costs, increase efficiency, or provide wanted services. The agency should consider the optics of on the one hand its larger (and laudable) goal of promoting professionalism in the tax profession, predicated on the notion that better tax pros create better returns to the benefit of all, while on the other hand insisting it is conferring special benefits to EAs.
At the very least, the IRS should be consistent in assessing user fees on preparers and practitioners.
Notice and comment is designed to protect those who are regulated. The EA user fee process fails to provide enough information for the regulated to offer meaningful feedback within a relatively short comment period.
Coda: What Happens Next?
The intent is not to offend a beleaguered agency but to call tax professionals to action and, possibly, to challenge the IRS to think differently about how and when it assesses user fees.
While it was difficult to get exercised on principle about a fee that had been stable and did not exceed the cost of Chipotle lunch for two, we are on a trend line that if left unchecked will yield a $300 user fee the next time the IRS revisits this—and revisit it will—and a $625 user fee by 2028.
You can help the agency make a better decision. The comment period closes May 11. Click the hyperlink. Ask questions. Let your voice be heard. Make a difference.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Bob Kerr, EA is principal of Kerr Consulting, LLC, where he consults with individual firms on tax administration, tax policy, and public policy and pursues a long-held interest in education and public speaking. During his three-decade career in tax, he held a variety of positions at IRS, served as professional staff on the Senate Finance Committee, and held senior leadership positions at a national tax practitioner association.
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