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Individual Asks for Withdrawal or Suspension of Proposed PTIN Regs

MAY 18, 2020

Individual Asks for Withdrawal or Suspension of Proposed PTIN Regs

DATED MAY 18, 2020
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Comments of Frank G. Colella

Notice of Proposed Rulemaking
Preparer Tax Identification Number (PTIN) User Fee Update
REG-117138-17 (April 16, 2020)

I write to urge that the proposed regulation, REG-117138-17 (April 16, 2020), to reinstate the PTIN user fee be withdrawn, or temporarily suspended, until the District Court of the District of Columbia rules on the issue currently before it — namely, what an appropriate PTIN fee should be given the factors articulated by the Court of Appeals for the D.C. Circuit. While the Court of Appeals has ruled that the IRS may properly impose a PTIN user fee, it remanded the determination of the fee to the district court.1

Accordingly, specific issue — the PTIN user fee to be charged to tax return preparers, including what costs are properly recoverable (and those that are not) as part of the fee structure — is currently before the D.C. District Court on remand.2 The parties are in the midst of protracted discovery, which is expected to last until November, 2020 (and may be extended).3 Even if all discovery is concluded on schedule, it is unlikely that a decision would be rendered by the court before year-end. While reestablishing the user fee in advance of the 2020 tax filing season seems reasonable, the unilateral imposition is bound to open up a Pandora's Box of uncertainly. The proposed regulation, promulgated without direction from the court, will likely result in additional litigation to challenge the Service's decision to set the fee at $21 rather than the one ultimately determined at the conclusion of the remand proceeding.

Moreover, there is no reason to short-circuit the judicial process. In 2017 the district court held against the IRS4 and in its subsequent order not only suspended the collection of PTIN user fees altogether,5 but also ordered the immediate refund of all PTIN fees that had previously been collected.6 In its motion to stay that order during the pendency of the appeal, the IRS argued that it should not be prohibited from continuing to impose the fees because, (a) it would suffer irreparable harm if prohibited from collecting the fees and (b) it would need to cut taxpayer services if it were forced to forgo those monies. Neither argument was persuasive:

the Court is not convinced that the government will be unable to recoup uncollected fees should they ultimately prevail. While it might not be easy, the government is unable to say with absolute certainty that a restitution claim would not be viable. Additionally, it is not clear to the Court why if the government, by its own admission, can refund PTIN holders, . . . it cannot also retroactively charge PTIN holders who were not required to pay a fee during the pendency of the appeal.7

Nor was the court persuaded that a denial of the stay would result in the reduction of taxpayer services.8 Accordingly, while the case was under appeal, the IRS continued to issue (and renew) PTINs but did not impose a user fee for the service.

The situation is no different today after the court of appeals upheld the IRS's authority to impose a PTIN fee but left open the question of how much could be charged, than it was in 2017 when the district court held the IRS could mandate the use of PTINs but not charge for them. In 2017 the court was reluctant to stay its decision that prohibited the collection PTIN fees (and, significantly, also ordered a refund of PTIN fees paid). In 2019 the court held the IRS could impose a PTIN fee, but remanded to the district court the question of “how much” could be charged. It would simply not be appropriate to ignore the role of the judiciary in the determination of a “reasonable” PTIN fee.

If the IRS insists, and collects the proposed fee (and third-party charge) before the issue is judicially resolved, in addition to extending the duration of the current litigation, that decision could result in a situation that requires the Service to issue partial refunds. Even if the currently proposed fee is deemed appropriate by the district court, separate refunds may still be required. The original district court decision in Steele had ordered refunds of all previously paid PTIN fees. That order was vacated by the Court of Appeals in Montrois, but the issue of refunding the previously paid PTIN fees in excess of a “reasonable” PTIN charge could be revisited on the remand.

Respectfully Submitted

May 18, 2020

Frank G. Colella, Esq.
217 Broadway, Suite 307
New York, New York 10007
fcolella@pace.edu

FOOTNOTES

1Montrois v. United States, 916 F.3d 1056 (D.C. 2019), cert. denied, 140 S. Ct. 39, 205 L. Ed. 2d 37, 2019 U.S. LEXIS 5277.

2Id. at 1068. [C]oncerns that the justifications for the PTIN fee might encompass functions deemed in Loving to fall outside the IRS's regulatory authority can be addressed on remand, when the district court examines whether the amount of the fee is reasonable and consistent with the {IOAA]. But aside from questions to be considered on remand about whether the amount of the PTIN fee impermissibly encompasses functions falling outside the IRS's statutory authority, the IRS's decision to charge a fee at all was adequately grounded in services lying within its authority, and thus was not arbitrary and capricious. Id. (emphasis in original).

3The Court, on April 27, 2020, approved a joint stipulation that provided for fact depositions to be concluded by November 30 and, by October 30, for the parties to submit a proposed schedule for the remaining discovery issues.

4Steele v. United States, 260 F. Supp. 3d 52 (D.D.C. June 1, 2017), 2017 U.S. Dist. LEXIS 84117.

5Steele v. United States, No. 1:14-cv-01523-RCL (July 7, 2017), 2017 U.S. Dist. LEXIS 127421. “ORDERED that the defendant is permanently enjoined from charging PTIN fees.”

6Id. “ORDERED that the defendant provide each class member with a full refund of all PTIN fees paid from September 1, 2010 to present.”

7287 F. Supp. 3d 1, 5; 2017 U.S. Dist. LEXIS 207585 (citation omitted).

8Id. “the Court finds the government's second argument for irreparable harm — that it will have to transfer funds from other programs and services to pay for the PTIN program — similarly unavailing.”

END FOOTNOTES

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