A federal court has issued an order requiring the IRS to return fees it charged tax return preparers starting in 2011.
In 2014, a class action lawsuit was filed on behalf of thousands of professional tax preparers alleging that the 2010 IRS regulation requiring them to pay for a preparer tax identification number (PTIN) was outside the bounds of the federal agency’s authority.
In a court opinion filed on June 1, U.S. District Judge Royce Lamberth agreed and found that the IRS does not have authority over tax return preparers and must refund PTIN fees.
“It appears to this court that the IRS is attempting to grant a benefit that it is not allowed to grant, and charge fees for granting such a benefit,” the judge wrote.
In 2010, the IRS promulgated a new regulation requiring all non-attorney and non-CPA tax preparers to register for a PTIN and pass a competency exam and suitability check, as well as imposed continuing education requirements. The plaintiffs argued that they should not have to register, but Judge Lamberth rejected that claim, noting that it was within IRS authority to require the registration, but they could not charge those who registered.
“[T]he decision to require the use of PTINs was not arbitrary or capricious,” noted the option. “There is a rational connection between the regulations—requiring the use of PTINs—and the stated rationales—effective administration and oversight.”
Further, said the order, “there is no indication that the IRS entirely failed to consider an important aspect of the problem, or that its rationales ran counter to the evidence before it, or that its reasoning is completely implausible.” “In addition, this was not an unexplained change in policy,” continued the opinion.
The IRS reduced the fee from $64.25 and $63 to $50 in 2015 and to $33 in 2016. The plaintiffs argued that the fee did not confer any special value to those who applied, and the federal judge agreed, rejecting the IRS argument that use of the PTINs provided additional security for tax preparers’ social security numbers.
The proposed Class was certified by the federal court in 2016 and includes “all individuals and entities who have paid an initial and/or renewal fee for a PTIN.” In their motion to certify the Class, the plaintiffs alleged that there are up to 1.2 million potential Class Members who paid the $50 fee for a PTIN by 2016.
In addition to refunding all PTIN fees to Class Members, the federal court also declared charging for issuance and renewal of PTIN to be unlawful and enjoined the IRS from charging PTIN fees in the future.