A federal district court has ruled in favor of tax preparers who filed a class-action lawsuit against the Internal Revenue Service over its right to charge fees for Preparer Tax Identification Numbers, and the IRS may need to refund hundreds of millions of dollars in fees collected each year. In response the IRS has temporarily suspended the system.
The U.S. District Court for the District of Columbia ruled last Thursday that although the IRS has the authority to require the use of PTINs, it does not have the authority to charge user fees. The 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 court, under Judge James Boasberg, ruled in 2013 in the case of Loving v. IRS that the IRS’s regulations requiring testing and continuing education of tax preparers overstepped the IRS’s statutory authority, but it left in place the PTIN requirements for registering tax preparers. The ruling was upheld in 2014 on appeal.
In September 2014, a pair of CPAs, Adam Steele and Brittany Montrois, filed suit against the IRS over the PTIN fees (see CPAs sue over PTIN fees). They sued on behalf of more than 700,000 individual practitioners who are forced to pay for a PTIN every year. The lawsuit sought an injunction barring collection of the fee and recovery of the more than $150 million in fees the IRS had collected since 2010, now estimated to have risen to as high as $245 million. The lawsuit received class-action certification last year (see Lawsuit against IRS over PTIN fees gains class-action status).
“I think justice has been served,” said Allen Buckley, an Atlanta attorney who represented the plaintiffs. “The judge had the courage to do the right thing despite the fact that the federal government has serious financial problems. If appealed, I feel good about the odds of the opinion holding up on appeal.”
An IRS spokesperson declined to comment on the ruling, saying, “We generally don’t comment on litigation.” He also had no further comment on whether the IRS plans to appeal the ruling. Later on Monday, the IRS issued a statement saying it was shutting down the PTIN system for now.
“On June 1, 2017, the United States District Court for the District of Columbia upheld the Internal Revenue Service’s authority to require the use of a Preparer Tax Identification Number (PTIN), but enjoined the IRS from charging a user fee for the issuance and renewal of PTINs,” said the IRS. “As a result of this order, PTIN registration and renewal is currently suspended. The IRS, working with the Department of Justice, is considering how to proceed. As additional information becomes available, it will be posted on our Tax Pros page.”
The lead attorney in the case of Loving v. IRS, Dan Alban of the Institute for Justice, believes it is likely the IRS will appeal. “This is an opinion of the U.S. District Court, and they can appeal the decision,” he said. “The opinion seems very sound, so I think the IRS ultimately is going to have to disgorge seven years’ worth of unlawful fees that it charged tax preparers. For the first five years that was either $64.25 per year, or $63 if you were renewing, and for the past two years it’s been $50 per year. And in each of those years, there’s been over 700,000 preparers registered with a PTIN. So you do the math, it’s at least $35 million per year in illegally collected fees, and the IRS is going to be forced to refund that money to preparers, assuming the opinion is upheld on appeal.”