[Federal Register Volume 85, Number 138 (Friday, July 17, 2020)]
[Rules and Regulations]
[Pages 43433-43436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15446]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[TD 9903]
RIN 1545-BP43


Preparer Tax Identification Number (PTIN) User Fee Update

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: These final regulations amend existing regulations relating to 
the imposition of certain user fees on tax return preparers. The final 
regulations reduce the amount of the user fee to apply for or renew a 
preparer tax identification number (PTIN) and affect individuals who 
apply for or renew a PTIN. The Independent Offices Appropriations Act 
of 1952 authorizes the charging of user fees.

DATES: 
    Effective date: These regulations are effective August 17, 2020.
    Applicability date: For the date of applicability, see Sec.  
300.13(d).

FOR FURTHER INFORMATION CONTACT: Michael Franklin at (202) 317-6844 
(not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to 26 CFR part 300 regarding user 
fees. On April 16, 2020, a notice of proposed rulemaking (REG-117138-
17) proposing to amend the regulations relating to

[[Page 43434]]

imposing a user fee to apply for or renew a PTIN was published in the 
Federal Register (85 FR 21126). The notice proposed decreasing the 
amount of the user fee to apply for or renew a PTIN from $33, plus $17 
payable to a third-party contractor, to $21, plus $14.95 payable to a 
third-party contractor. The notice contains a detailed explanation 
regarding the amendments to these regulations.
    Eighteen comments responding to the notice and two requests for a 
public hearing were received. A public hearing on the notice was held 
on May 26, 2020. Two commenters testified at the public hearing. After 
consideration of the written comments and testimony, the Department of 
the Treasury (Treasury Department) and the IRS have decided to adopt 
without modification the regulations proposed by the notice.

Summary of Comments

    The eighteen comments submitted in response to the notice of 
proposed rulemaking are available at www.regulations.gov or upon 
request.
    Some of the comments that were submitted did not seek modification 
or clarification of the user fee as set forth in the proposed 
regulations. Two made no reference to the proposed regulations and 
their content was unrelated to a PTIN user fee. Another comment 
supported a fee but encouraged the IRS to take enforcement actions 
against return preparers who do not comply with PTIN requirements. The 
summary of comments below addresses those comments that seek 
modification or clarification of the user fee as set forth in the 
proposed regulations.

A. Charging a User Fee and the Amount of the User Fee

    Some commenters objected to the IRS imposing a user fee at all or 
in the amount charged by the IRS. Some supported the imposition of a 
fee, while others stated that the user fee was too high or too low. The 
IRS also received comments that requested lower user fees for certain 
classes of return preparers. Two comments stated that individuals with 
credentials should pay a reduced fee for obtaining or renewing a PTIN 
and two comments stated that low-volume return preparers should pay a 
reduced fee or no fee for obtaining or renewing a PTIN. Similarly, some 
commenters requested the renewal fee be lower than the amount of the 
initial application fee or that the IRS adopt a longer renewal period. 
One commenter suggested that certain return preparers with existing 
PTINs should not be charged for PTIN renewal.
    The United States Court of Appeals for the District of Columbia 
Circuit has ruled that the IRS is authorized to charge a PTIN user fee 
because providing a PTIN (and the ``associated functions'') is a 
service that provides a specific benefit to identifiable recipients. 
Montrois v. United States, 916 F.3d 1056 (D.C. Cir. 2019).
    Under Office of Management and Budget (OMB) Circular A-25, 58 FR 
38142 (July 15, 1993) (OMB Circular A-25), Federal agencies that 
provide services that confer benefits on identifiable recipients are to 
establish user fees that recover for the government the full cost of 
providing the service. An agency that seeks to impose a user fee for 
government-provided services must calculate the full cost of providing 
those services. Under OMB Circular A-25, a user fee should be set at an 
amount that recovers the full cost of providing a service, unless the 
OMB grants an exception. The full cost of providing a service includes 
both the direct and indirect costs of providing the service.
    As required by OMB Circular A-25, the IRS conducted a biennial 
review of the PTIN user fee and determined that the full cost to the 
IRS to administer the PTIN program going forward was reduced to $21 per 
application or renewal. These costs include all costs related to 
administering the PTIN program, including costs relating to PTIN misuse 
and maintaining the integrity of the PTIN program. A description of the 
categories of activities included in the PTIN user fee and specific 
examples of the activities included within those categories is 
discussed below in section E. Costing Methodology. The user fee to 
apply for or renew a PTIN does not recover costs associated with other 
programs.
    The IRS does not incur lower costs to provide PTINs to credentialed 
preparers or low-volume preparers than it incurs to provide PTINs to 
uncredentialed preparers or high-volume preparers. Similarly, the costs 
to the IRS to renew a PTIN are the same as the costs to issue a new 
PTIN. Accordingly, the amount of the user fee should be the same 
regardless of the return preparer's status and regardless of whether 
the application is an original or a renewal. The Treasury Department 
and the IRS have determined that the annual renewal of a PTIN is the 
most effective renewal period. An annual renewal period ensures the IRS 
has up-to-date identifying information about each return preparer, 
which benefits return preparers, their clients, and the IRS in ensuring 
the timely communication of important information. Further, the annual 
renewal period allows the IRS to better administer the PTIN program, 
effectively identify and contact return preparers, and prevent the 
unauthorized use of PTINs, thereby benefiting return preparers and 
protecting taxpayers.

B. Use of a Third-Party Contractor

    Several commenters objected to paying a separate fee to the third-
party contractor, and some objected to the amount of the fee paid to 
the third-party contractor.
    The third-party contractor was chosen through a competitive bidding 
process, and the amount of the third-party contractor's fee is reviewed 
and approved by the IRS. The third-party contractor's costs include 
more than the discrete costs of generating a number and are separate 
from the costs to the IRS for administering the PTIN application and 
renewal program. The two portions of the fee pay for different aspects 
of administering the PTIN program, each of which is essential to 
providing PTINs to tax return preparers. As discussed in the preamble 
to the proposed regulations, the third-party contractor performs a 
number of valuable functions, including processing applications to 
obtain or renew a PTIN and operating a call center. The IRS has 
determined that it is appropriate to use a third-party contractor to 
perform these functions.

C. Re-Instituting User Fee During Steele Litigation

    Three commenters objected to re-instituting the PTIN user fee 
during the pendency of the Steele v. United States litigation in the 
United States District Court for the District of Columbia.
    In Steele v. United States, 260 F. Supp. 3d 52 (D.D.C. 2017), the 
United States District Court for the District of Columbia concluded 
that the Treasury Department and the IRS lacked the statutory authority 
to charge a PTIN user fee and enjoined the IRS from charging a PTIN 
user fee. On March 1, 2019, the United States Court of Appeals for the 
District of Columbia Circuit reversed the district court's decision and 
lifted the injunction against charging the PTIN user fee. See Montrois 
v. United States, 916 F.3d 1056 (D.C. Cir. 2019) (holding that a PTIN 
provides tax return preparers a specific benefit by allowing them to 
provide an identifying number that is not a social security number on 
returns they prepare and stating that the permissible amount of the fee 
would be the same regardless of whether the specific benefit was 
instead the ability to prepare tax returns for compensation). In 
accordance with the opinion of the United States Court of

[[Page 43435]]

Appeals for the District of Columbia Circuit, the IRS is authorized to 
charge a PTIN user fee for the service of providing return preparers a 
PTIN. Despite the ongoing litigation with respect to the amount of the 
user fee, the IRS is authorized to resume charging a fee because the 
district court's injunction was vacated. After the injunction was 
lifted, and in accordance with the biennial review requirement in OMB 
Circular A-25, the IRS has re-determined costs that the government 
continues to incur for providing PTINs and administering the PTIN 
program and re-calculated the amount of the user fee. OMB Circular A-25 
states that user fees should be collected in advance of or 
simultaneously with the provision of a service. The PTIN user fee is 
collected when return preparers apply for or renew their PTINs during 
the application season, which begins annually in October.

D. COVID-19 Pandemic

    Two commenters objected to re-instituting the fee during the COVID-
19 pandemic. The demand and need for tax return preparation services 
should continue despite the pandemic. As return preparers continue to 
prepare returns, they must continue to use current PTINs to do so, and 
the government continues to incur costs for providing PTINs and 
administering the PTIN program, which should be recovered by charging a 
fee. In the absence of charging a fee to return preparers, taxpayers 
would bear the costs the IRS incurs of providing PTINs and associated 
functions.

E. Costing Methodology

    One commenter made a number of other objections broadly relating to 
the IRS's costing methodology detailed in the proposed regulations. The 
same commenter and one other commenter questioned the direct costs 
incurred by the IRS in administering the PTIN program. The IRS properly 
follows generally accepted accounting principles (GAAP) in calculating 
the full cost of administering the PTIN program in accordance with 
Statement of Federal Financial Accounting Standards (SFFAS) No. 4, 
which establishes internal costing standards to accurately measure and 
manage the full cost of Federal programs. The preamble to the proposed 
regulations provides the methodology by which the IRS determined the 
full cost of the PTIN program. It details the use of cost centers, 
which are the lowest organizational unit in the IRS's cost-accounting 
system, the implementation of various cost-measurement techniques to 
estimate the direct costs attributable to the PTIN program, and 
overhead allocation.
    As described in the preamble to the proposed regulations, the IRS 
uses various cost-measurement techniques to estimate the direct costs 
attributable to the program. These techniques include using various 
timekeeping systems to measure the time required to accomplish 
activities, or using information provided by subject-matter experts on 
the time devoted to a program. To determine the labor and benefits cost 
incurred to administer the PTIN program, the IRS estimated the number 
of full-time employees required to conduct activities related to the 
PTIN program. The number of full-time employees is based on both 
current employment numbers and future hiring estimates. Other direct 
costs associated with administering the PTIN program include contract 
costs and travel, training, supplies, printing, and other miscellaneous 
costs.
    The preamble to the proposed regulations also describes the 
staffing and other costs incurred in administering the PTIN program. 
Staffing costs are incurred by the Return Preparer Office (RPO) in the 
IRS and relate to conducting certain suitability checks, foreign 
preparer processing, handling compliance and complaint activities, 
information technology and contract-related support, communications, 
budgeting and finance, and program oversight and support. Examples of 
the specific activities that are included within those categories 
include, but are not limited to, the following activities. Suitability 
checks include work involving specially designated nationals,\1\ 
incarcerated return preparers, enjoined return preparers, and 
professional designation checks on certain individuals. Foreign 
preparer processing includes the IRS processing of PTIN applications 
for foreign persons who are not eligible to obtain a social security 
number and have a permanent non-U.S. address. Compliance and complaint 
activities include work involving compromised and misused PTINs and 
identity theft related PTINs, expired PTINs, legacy PTINs, ghost return 
preparers (returns prepared without a PTIN), processing complaints, and 
penalty referrals. Information technology and contract-related support 
activities include contract oversight, background investigations and 
training for contractor personnel, contractor performance reviews, 
records management, peak season planning and implementation, off-season 
system enhancements, program metrics reporting and data extracts, 
managing system changes, addressing system defects and data anomalies, 
system training materials, cloud service provider hosting, customer 
contact center hosting, system capacity monitoring and performance, IT 
coordination and remote server platform issues for e-authentication, 
registration system and database refinements, enterprise life cycle 
documentation, site visits and contractor assessments, specialized IT 
security training, identity theft protection, and work related to the 
PTIN call center. Communications activities include correspondence with 
return preparers, including renewal notifications, development of 
system generated messaging, website messaging, FOIA posting of PTIN 
holder list, and stakeholder communications. Budget and finance 
activities include user fee review and cost modeling, payment tracking 
and accountability, requisitions and obligations of funds, operational 
budgeting and funding based on actual and projected PTIN user fee 
receipts, third-party contacts related to PTIN matters (requests from 
Congress, Treasury Inspector General for Tax Administration, and 
Government Accountability Office), developing and updating Internal 
Revenue Manual content, and certain human resources activities. Program 
oversight and support includes oversight and support in the RPO over 
these PTIN functions.
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    \1\ https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.
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    OMB Circular A-25 does not require the IRS to account for and 
describe activities unrelated to providing PTINs and administering the 
PTIN program that are not included in the costs recovered in the PTIN 
user fee. The IRS has accounted for all activities properly included in 
the PTIN user fee.
    The preamble to the proposed regulations also describes how the IRS 
calculated the overhead rate and overhead costs. Overhead is an 
indirect cost of operating an organization that is not specifically 
identifiable with an activity. Overhead includes costs of resources 
that are jointly or commonly consumed by one or more organizational 
unit's activities but are not specifically identifiable to a single 
activity.
    Accordingly, the proposed regulations are adopted without change.

Special Analyses

    The OMB's Office of Information and Regulatory Analysis has 
determined that these regulations are significant and subject to review 
under section 6(b) of Executive Order 12866.

[[Page 43436]]

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these final regulations will not have a 
significant economic impact on a substantial number of small entities. 
The final regulations affect all individuals who prepare or assist in 
preparing all or substantially all of a tax return or claim for refund 
for compensation. Only individuals, not businesses, can have a PTIN. 
Thus, the economic impact of these regulations on any small entity 
generally will be a result of an individual tax return preparer who is 
required to have a PTIN owning a small business or a small business 
otherwise employing an individual tax return preparer who is required 
to have a PTIN. The Treasury Department and the IRS estimate that 
approximately 800,000 individuals will apply annually for an initial or 
renewal PTIN. Although the final regulations will likely affect a 
substantial number of small entities, the economic impact on those 
entities is not significant. The final regulations will establish a $21 
fee per application or renewal (plus $14.95 payable to the contractor), 
which is a reduction from the previously established fee of $33 (plus 
$17 payable to the contractor) per application or renewal and will not 
have a significant economic impact on a small entity. Accordingly, the 
Secretary certifies that the rule will not have a significant economic 
impact on a substantial number of small entities.
    Pursuant to section 7805(f), the notice of proposed rulemaking was 
submitted to the Chief Counsel for the Office of Advocacy of the Small 
Business Administration for comment on its impact on small business (85 
FR 21126). No comments on the notice were received from the Chief 
Counsel for the Office of Advocacy of the Small Business 
Administration.

Drafting Information

    The principal author of these regulations is Michael A. Franklin, 
Office of the Associate Chief Counsel (Procedure and Administration). 
Other personnel from the Treasury Department and the IRS participated 
in the development of the regulations.

List of Subjects in 26 CFR Part 300

    Reporting and recordkeeping requirements, User fees.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 300 is amended as follows:

PART 300--USER FEES

    Paragraph 1. The authority citation for part 300 continues to read 
as follows:

    Authority:  31 U.S.C. 9701.

    Par. 2. Section 300.12 is amended by revising paragraphs (b) and 
(d) to read as follows:


Sec.  300.13  Fee for obtaining a preparer tax identification number.

* * * * *
    (b) Fee. The fee to apply for or renew a preparer tax 
identification number is $21 per year and is in addition to the fee 
charged by the contractor.
* * * * *
    (d) Applicability date. This section applies to applications for or 
renewal of a preparer tax identification number filed on or after 
August 17, 2020.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
    Approved:
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-15446 Filed 7-15-20; 4:15 pm]
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