H&R Block Seeks Reasonable PTIN User Fee, Appropriate Enforcement

Monday, May 18, 2020

Internal Revenue Service
ATTN: Michael A. Franklin
PO Box 7604
Ben Franklin Station
Washington, DC 20044

Dear Mr. Franklin:

H&R Block appreciates the opportunity to comment on the Internal Revenue Service's proposed amendments to 26 CFR part 300 regarding Preparer Tax Identification Number (PTIN) user fees. H&R Block supports the IRS's efforts to collect a reasonable fee for the application for or renewal of a PTIN, but only if the IRS combines the existence of the PTIN with utilization of existing IRS authority to protect taxpayers.

We believe implementing a fee must be coupled with the use of the authority the IRS has to effectively manage the PTIN system and take appropriate enforcement action against tax professionals who do not comply with the existing PTIN requirements. Taking enforcement action against noncompliant tax professionals will ultimately save IRS resources and serve to protect taxpayers.

Comments regarding the proposed PTIN fee

For many taxpayers, the tax filing process is the most significant financial transaction of the year, and getting it right is crucial to their overall financial wellbeing. Each year more than half of American taxpayers rely upon the expertise and credibility of paid preparers to file their returns.

As noted in the proposed rule, “Regulations require a tax return preparer who prepares all or substantially all of a tax return or claim for refund to provide a PTIN as their identifying number on any tax return or claim for refund prepared for compensation.” PTINs help to protect taxpayers and the integrity of the tax system by identifying the people who prepare tax returns for compensation. At the same time, PTINs protect preparers' privacy by giving them a means to self-identify without using their own social security numbers on tax returns.

In addition to personal and business identifying information, the PTIN issuance process requires the applicant to self-attest about felony convictions within the last 10 years, federal tax compliance, and understanding of data security obligations. PTINs must be renewed each filing season.

The proposed fee includes a detailed explanation of overhead costs and the methods used to calculate the fees for covering the costs. While these calculations appear reasonable and GAAP compliant, any PTIN fee calculation must also take into account the IRS's ability to enforce existing statutory safeguards related to the PTIN system and the savings that would flow from appropriate enforcement action against noncompliant tax preparers.

For example, per IRC §6695(c), the IRS is authorized to impose a penalty of $50 for failure to provide a PTIN on a tax return or claim for refund to a maximum of $27,000 (adjusted annually for inflation) against a single tax preparer in a given calendar year. This penalty may apply as well to a tax return preparer that uses an expired or invalid PTIN on a tax return or claim for refund. Despite having these legislated taxpayer safeguards in place, the IRS does not consistently or reliably assess these penalties, claiming a lack of sufficient resources.

The IRS currently processes tax returns in which the return preparer does not include their PTIN or includes an invalid or expired PTIN. Early in the filing season, the Return Preparer Office (RPO) sends “soft” letters to tax preparers who complete returns using an expired PTIN. The letters remind them that they may not prepare returns for the current season without renewing their PTINs, but no action is taken overall, let alone in a timely and efficient manner, if the recipients do not comply

As examples:

• Infrastructure could be put in place to hold or reject returns at the time of electronic filing when the PTIN is missing or is incorrect, invalid, or expired.

• Alternatively, assuming a diagnostic now exists to flag returns for soft letters, the soft letter process could be revised to caution preparers of impending holds or rejections as well as the consequences of non-compliance.

• The letter process could be combined with improved infrastructure to immediately hold returns pending the preparer's supplying a valid PTIN.

• After providing a reasonable grace period for preparers to rectify errors, the IRS should use its authority to apply §6695 penalties against noncompliant preparers.

Currently, the IRS is not enforcing the safeguard provisions of the PTIN regime, and tax return preparers often do not incur consequences for their noncompliance with the existing PTIN requirements. Ultimately, this approach of nonenforcement drives higher overall costs and harms taxpayers. We believe the short-term negative impact to taxpayer experience would be far exceeded by the long-term gain for the ecosystem as preparers acclimate to the new procedure.

H&R Block encourages the IRS to ensure they are figuring savings that would flow from enforcing the existing rules into the direct cost calculation of the proper amount of the PTIN user fee.

Conclusion

H&R Block supports the IRS's efforts to collect a reasonable fee for the application for or renewal of a PTIN, but implementing a fee must be coupled with the use of the authority the IRS has to effectively manage the PTIN system and take appropriate enforcement action against tax professionals who do not comply with the existing PTIN requirements. This approach would pay for itself and protect taxpayers consistent with the purpose of requiring PTINs in the first place.

These are anything but normal times as tax preparers and the IRS work to deal with the massive disruptions and costs of the COVID-19 crisis and related extended tax season. With this in mind, we ask the IRS to delay the implementation of any fee by one year to allow preparers to recover from the disruption of the pandemic.

Respectfully submitted,

Dan Turrentine
Chief Government Relations Officer
H&R Block
1401 Eye Street, NW
Suite 240
Washington, DC 20005