IRS Asked to Show Its Work in Calculating PTIN User Fee

May 18, 2020

Internal Revenue Service
Attn: CC:PA:LPD:RP (REG-117138-17), Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Re: Preparer Tax Identification Number (PTIN) User Fee Update (REG-117138-17)

The National Association of Enrolled Agents (NAEA) appreciates the opportunity to comment on the Proposed Rule relating to the imposition of user fees on tax return preparers.

As the organization representing the interests of 47,000 enrolled agents (EAs), the only practitioners for whom IRS directly attests competency and ethical behavior, NAEA is committed to increasing the professionalism of our industry, increasing the integrity of the nation's tax administration system, and protecting the representation rights of taxpayers. Because our membership is comprised solely of enrolled agents, NAEA is well positioned to offer an informed perspective about the practical impact of the Proposed Rule on enrolled agents.

As always, we thank the agency for publishing proposed regulations, which allow for comment before the agency charges fees, rather than temporary regulations, which would have imposed the fees and then asked for comment.

That said, for at least the third time in the past 14 years, we find ourselves commenting on user fees assessed either on enrolled agents in specific or on the larger return preparer community. Our questions will be similar because the issues have not changed and because we have never received satisfactory answers:

• We question the size of the user fees, how the agency calculated the user fees, and the efforts, if any, the agency has taken to minimize costs.

• Further, we question the applicability to PTINs of the Office of Management and Budget Circular A-25 (OMB Circular A-25).

Without access to the costing models or methodology used to derive the user fees, we can neither speak knowledgably to the magnitude of the adjustments (i.e., are they reasonable, too high, or too low) nor face the challenge of helping our members understand and support the fee.

We respectfully offer these comments on the Proposed Rule:

• User Fee Size. The total cost for PTIN renewal, if IRS proceeds as planned, will be $35.95, the sum of two charges, $14.95 to a third party vendor and $21 to IRS.

  While IRS' portion of the user fee assessed has been trending downward, we still do not understand how the cost of administering the program is greater, by nearly 50 percent, than the cost of actually processing the applications. IRS, according to the proposed rule, “provides a service by issuing and maintaining PTINs.” What that actually entails, we don't know. The opacity of that statement is helped, somewhat, by the explanation of the third-party contractor's functions, which include “processing applications to obtain or renew a PTIN and operating a call center.”

  Running the numbers is enlightening, even if it requires some assumptions. IRS calculates $49.3 million of fully loaded costs over three years. Dividing by three, we arrive at $16.4 million per year in fully loaded costs IRS asserts are necessary to issue and maintain PTINs.

  This begs the question of how many staff $16.4 million will support. If we assume the average staffer is a GS-12 with DC locality pay, roughly $86,000, and then use IRS' overhead costs of 57.58 percent, we arrive at roughly $136,000 per staffer.

  Dividing $16.4 million by $136,000, we arrive at our answer, 120 staff. IRS requires 120 full-time staff to issue and maintain PTINs? How could this possibly be true, particularly given that the third party, and not IRS, is processing the applications and operating a call center — for roughly two-thirds of the cost?

  Before IRS imposes its administrative fee, we ask the agency to show its math to help us, and all return preparers, understand why the agency needs $16.4 million and 120 staff (or however many staff its own calculations reveal) to issue and maintain PTINs, and what, precisely is involved in issuing and maintaining PTINs.

• Applicability of OMB Circular A-25. User fees are authorized by the Independent Offices Appropriations Act of 1952, codified at 31 U.S.C. 9701, and set forth in Office of Management and Budget Circular A-25. OMB Circular A-25 establishes federal policy regarding fees assessed for government services. First and foremost, OMB Circular A-25 requires the agency in question to determine when special benefits exist. We do not know how IRS concluded that special benefits exist, particularly given that it charges user fees inconsistently. It doesn't charge for the annual filing season program record of completion, it doesn't charge for IP PINs, it doesn't charge for processing powers of attorney. (For the record, we're not suggesting it should charge for any or all of these.)

  Further, OMB Circular A-25 clearly states, “No charge should be made for a service when the identification of the specific beneficiary is obscure, and the service can be considered primarily as benefiting broadly the general public.” We aren't suggesting that tax administration doesn't benefit from paid preparers. To the contrary, we believe it does, and handsomely. But who is the beneficiary? The return preparer? Clients of the return preparer? The tax administration system? The general public? Clearly, all of these groups benefit from tax preparers.

  Finally, OMB Circular A-25 allows for exceptions to the user fee requirement. Prior to PTINs, a return preparer placed his or her own Social Security Number on a tax return, and returning to that state of affairs would be a non-starter given identity theft and refund fraud. During a time in which protecting personally identifiable information (PII) is paramount, should the agency be charging for a service necessary to prevent PII from appearing on 80 million tax returns annually? We suggest the fee is bad for the profession and bad for the tax administration system.

NAEA appreciates the opportunity to respond in writing to the PTIN user fee Notice of Proposed Rulemaking and does not intend to request public hearings on this matter. If you seek further clarification or explanation of any of our positions, please contact NAEA's Executive Vice President, Robert Kerr, EA, at (202) 822-6232 or rkerr@naea.org.

Sincerely,

Donald Rosenberg, EA
President
National Association of Enrolled Agents
Washington, DC