[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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