[Federal Register Volume 86, Number 186 (Wednesday, September 29, 2021)]
[Proposed Rules]
[Pages 53893-53897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21242]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[REG-100718-21]
RIN 1545-BQ06


User Fees Relating to the Enrolled Agent Special Enrollment 
Examination and the Enrolled Retirement Plan Agent Special Enrollment 
Examination

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed amendments to the regulations 
relating to the user fees for the special enrollment examinations for 
enrolled agents and enrolled retirement plan agents. This document also 
contains a notice of public hearing on the proposed regulations. The 
proposed regulations increase the amount of the user fee for each part 
of the special enrollment examination for enrolled agents (EA SEE). The 
proposed regulations also remove the user fee for the special 
enrollment examination for enrolled retirement plan agents (ERPA SEE) 
because the IRS no longer offers the ERPA SEE or new enrollment as an 
enrolled retirement plan agent. The proposed regulations affect 
individuals taking the EA SEE. The Independent Offices Appropriation 
Act of 1952 authorizes charging user fees.

DATES: Electronic or written comments must be received by November 15, 
2021. The public hearing is being held by teleconference on November 
23, 2021 at 10 a.m. EST. Requests to speak and outlines of topics to be 
discussed at the public hearing must be received by November 15, 2021. 
If no outlines are received by November 15, 2021, the public hearing 
will be cancelled. Requests to attend the public hearing must be 
received by 5:00 p.m. EST on November 19, 2021. The telephonic hearing 
will be made accessible to people with disabilities. Requests for 
special assistance during the telephonic hearing must be received by 
November 18, 2021.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-100718-
21) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The IRS expects to have limited personnel available to 
process public comments that are submitted on paper through the mail. 
Any comments submitted on paper will be considered to the extent 
practicable. The IRS will publish any comments submitted 
electronically, and to the extent practicable comments submitted on 
paper, to the public docket. Send paper submissions to: CC:PA:LPD:PR 
(REG-100718-21), Room 5203, Internal Revenue Service, P.O. Box 7604, 
Ben Franklin Station, Washington, DC 20044.
    For those requesting to speak during the hearing, send an outline 
of topic submissions electronically via the Federal eRulemaking Portal 
at www.regulations.gov (indicate IRS and REG-100718-21).
    Individuals who want to testify (by telephone) at the public 
hearing must send an email to [email protected] to receive the 
telephone number and access code for the hearing. The subject line of 
the email must contain the regulation number REG-100718-21 and the word 
TESTIFY. For example, the subject line may say: Request to TESTIFY at 
Hearing for REG-100718-21. The email should include a copy of the 
speaker's public comments and outline of topics. Individuals who want 
to attend (by telephone) the public hearing must also send an email to 
[email protected] to receive the telephone number and access code 
for the hearing. The subject line of the email must contain the 
regulation number REG-100718-21 and the word ATTEND. For example, the 
subject line may say: Request to ATTEND Hearing for REG-100718-21. To 
request special assistance during the telephonic hearing, contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-5177 
(not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Karen Wozniak at (202) 317-5129; concerning cost methodology, Michael 
A. Weber at (202) 803-9738; concerning submission of comments, the 
hearing, and the access code to attend the hearing by telephone, Regina 
Johnson at (202) 317-5177 (not toll-free numbers) or 
[email protected].

SUPPLEMENTARY INFORMATION:

[[Page 53894]]

Background and Explanation of Provisions

    This document contains proposed amendments to 26 CFR part 300 
regarding user fees.

A. Enrolled Agents, Enrolled Retirement Plan Agents, and the Special 
Enrollment Examinations

    Section 330 of Title 31 of the United States Code authorizes the 
Secretary of the Treasury to regulate the practice of representatives 
before the Department of the Treasury (Treasury Department) and require 
that an individual seeking to practice demonstrate the necessary 
qualifications, competency, and good character, and reputation. The 
rules governing practice before the IRS are published in 31 CFR, 
Subtitle A, part 10, and reprinted as Treasury Department Circular No. 
230 (Circular 230).
    Section 10.4(a) of Circular 230 authorizes the IRS to grant status 
as enrolled agents to individuals who demonstrate special competence in 
tax matters by passing a written examination, the EA SEE, and who have 
not engaged in any conduct that would justify suspension or disbarment 
under Circular 230.
    The EA SEE is comprised of three parts and an applicant generally 
must pass all three parts within two years to be granted enrolled agent 
status through written examination. The EA SEE testing period generally 
begins on May 1 each year and ends the last day of the following 
February. The EA SEE is not offered during March and April when it is 
updated to reflect recent changes in the relevant law. More information 
on the EA SEE, including content, scoring, and how to register, can be 
found on the IRS website at www.irs.gov/tax-professionals/enrolled-agents. Since 2006, the IRS has engaged the services of a third-party 
contractor to develop and administer the EA SEE. The IRS Return 
Preparer Office (RPO) oversees the development and administration of 
the EA SEE. As of August 30, 2021, there were 62,686 enrolled agents.
    Section 10.4(b) of Circular 230 authorizes the IRS to grant status 
as enrolled retirement plan agents to individuals who demonstrate 
special competence in qualified retirement plan matters by passing a 
written examination, the ERPA SEE, and who have not engaged in any 
conduct that would justify suspension or disbarment under Circular 230. 
The IRS stopped offering the ERPA SEE as of February 12, 2016, and no 
longer accepts applications for new enrollment as an enrolled 
retirement plan agent. Accordingly, the proposed regulations remove the 
user fee for the ERPA SEE. Individuals currently enrolled as retirement 
plan agents can maintain their status as enrolled retirement plan 
agents. As of August 30, 2021, there were 743 enrolled retirement plan 
agents.

B. User Fee Authority

    The Independent Offices Appropriation Act of 1952 (IOAA) (31 U.S.C. 
9701) authorizes each agency to promulgate regulations establishing the 
charge for services provided by the agency. The IOAA states that the 
services provided by an agency should be self-sustaining to the extent 
possible. 31 U.S.C. 9701(a). The IOAA provides that user fees are 
subject to policies prescribed by the President, which are currently 
set forth in the Office of Management and Budget (OMB) Circular A-25 
(OMB Circular A-25), 58 FR 38142 (July 15, 1993).
    Section 6a(1) of OMB Circular A-25 states that when a service 
offered by an agency provides special benefits to identifiable 
recipients beyond those accruing to the general public, the agency is 
to charge a user fee to recover the full cost of providing the service. 
Section 8e of OMB Circular A-25 requires agencies to review user fees 
biennially and update the fees as necessary to reflect changes in the 
cost of providing the underlying services. During the biennial review, 
an agency must calculate the full cost of providing each service, 
taking into account all direct and indirect costs to any part of the 
U.S. government. Under section 6d(1) of OMB Circular A-25, the full 
cost of providing a service includes, but is not limited to, an 
appropriate share of salaries, medical insurance and retirement 
benefits, management costs, and physical overhead and other indirect 
costs, including rents, utilities, and travel, associated with 
providing the service.
    An agency should set the user fee at an amount that recovers the 
full cost of providing the service unless the agency requests, and the 
OMB grants, an exception to the full-cost requirement. Under section 
6c(2) of OMB Circular A-25, the OMB may grant exceptions when the cost 
of collecting the fees would represent an unduly large part of the fee 
for the activity or when any other condition exists that, in the 
opinion of the agency head, justifies an exception. When the OMB grants 
an exception, the agency does not collect the full cost of providing 
the service and must fund the remaining cost of providing the service 
from other available funding sources. Consequently, the agency 
subsidizes the cost of the service to the recipients of reduced-fee 
services even though the service confers a special benefit on those 
recipients who would otherwise be required to pay the full cost of 
receiving the benefit as provided for by the IOAA and OMB Circular A-
25.

C. The EA SEE User Fee

    Section 10.4(a) of Circular 230 provides that the IRS will grant 
enrolled agent status to an applicant who, among other things, 
demonstrates special competence in tax matters by written examination. 
The EA SEE is the written examination by which applicants can 
demonstrate special competence in tax matters, and an applicant must 
pass all three parts of the EA SEE to be granted enrolled agent status 
through written examination. The IRS confers a benefit on individuals 
who take the EA SEE beyond those that accrue to the general public by 
providing them with an opportunity to demonstrate special competence in 
tax matters by passing a written examination and thereby satisfy one of 
the requirements for becoming an enrolled agent under section 10.4(a) 
of Circular 230. Because the EA SEE is a service that provides a 
special benefit to test takers, the IRS charges a user fee to take the 
examination.
    Final regulations (TD 9820) published in the Federal Register (82 
FR 33009-01) on July 19, 2017, established the current $81 user fee per 
part of the EA SEE. At that time the Treasury Department and the IRS 
determined that a $81 user fee per part would recover the full direct 
and indirect costs the government would incur to oversee the EA SEE. 
The contractor who administers the EA SEE also charges individuals 
taking the EA SEE an additional fee for its services. For the May 2021 
to February 2022 testing period, the contractor's fee is $104 for each 
part of the EA SEE.
    As required by OMB Circular A-25, in 2021 the IRS conducted a 
biennial review of the EA SEE user fee and calculated its costs for 
overseeing the examination. As a result of the review, the IRS 
determined that its full cost for overseeing the EA SEE is $99 per 
part, plus an amount payable directly to a third-party contractor for 
its services. The proposed regulations increase the amount of the user 
fee for taking the EA SEE from $81 per part to $99 per part. This 
amount is in addition to an amount payable directly to the third-party 
contractor for each part. The IRS does not intend to subsidize any of 
the cost of making the EA SEE available to examinees and is not 
applying for an exception to the full-cost requirement in OMB Circular 
A-25.

[[Page 53895]]

    The increase in the user fee is primarily attributable to increases 
in salary and benefits for employees conducting activities related to 
the EA SEE program. The proposed user fee accounts for the time and 
personnel necessary to oversee the development and administration of 
the EA SEE and to ensure the contractor complies with the terms of its 
contract. The IRS's oversight costs include costs associated with: (1) 
Review and approval of materials used by the contractor in developing 
the EA SEE; (2) review of surveys of existing enrolled agents, which 
help to determine the topics to be covered in the EA SEE; (3) 
composition of potential EA SEE questions in coordination with the 
contractor's external tax law experts; and (4) analysis of the answers 
and raw scores of a testing population to determine a passing score.
    In addition, IRS personnel ensure the contractor's compliance with 
its contract by reviewing the work of the contractor using an annual 
Work Breakdown Structure--a project management tool--and reviewing and 
verifying that the contractor is in compliance with a Quality Assurance 
Plan measuring customer satisfaction and accuracy. The IRS incurs 
additional costs associated with enforcing compliance with the Treasury 
contractor personnel security and training policies, Federal 
Information Security Modernization Act (FISMA), Section 508 of the 
Rehabilitation Act of 1973 and other laws, regulations and policies in 
the scope of the EA SEE contract; monitoring the contractor's help 
desk; and the resolution of test-related issues such as cheating 
incidents, appeals regarding test scores, refund requests, and customer 
service complaints that are not resolved by the contractor.

D. Calculation of User Fees Generally

    The IRS follows generally accepted accounting principles (GAAP) in 
calculating the full cost of overseeing the EA SEE. The Federal 
Accounting Standards Advisory Board (FASAB) is the body that 
establishes GAAP that apply for Federal reporting entities, such as the 
IRS. FASAB publishes the FASAB Handbook of Accounting Standards and 
Other Pronouncements, as Amended (Current Handbook), which is available 
at https://files.fasab.gov/pdffiles/2020_fasab_handbook.pdf. The 
Current Handbook includes the Statement of Federal Financial Accounting 
Standards (SFFAS) No. 4: Managerial Cost Accounting Standards and 
Concepts. SFFAS No. 4 establishes internal costing standards under GAAP 
to accurately measure and manage the full cost of Federal programs, and 
the methodology below is in accordance with SFFAS No. 4.
1. Cost Center Allocation
    The IRS determines the cost of its services and the activities 
involved in producing them through a cost accounting system that tracks 
costs to organizational units. The lowest organizational unit in the 
IRS's cost accounting system is called a cost center. Cost centers are 
usually separate offices that are distinguished by subject matter area 
of responsibility or geographic region. All costs of operating a cost 
center are recorded in the IRS's cost accounting system. The costs 
charged to a cost center are the direct costs for the cost center's 
activities in addition to allocated overhead. Some cost centers work on 
different services across the IRS and are not fully devoted to the 
services for which the IRS charges user fees.
2. Cost Estimation of Direct Costs
    The IRS uses various cost measurement techniques to estimate the 
costs attributable to oversight of the EA SEE. 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 service or activity. To determine the 
labor and benefits costs incurred to provide the service of providing 
the EA SEE, the IRS estimated the number of full-time employees 
required to conduct activities related to the costs of overseeing the 
EA SEE. The number of full-time employees is based on both current 
employment numbers and future hiring estimates. Other direct costs 
associated with overseeing the EA SEE include travel, training, and 
supplies.
3. Overhead
    When the indirect cost of a service or activity is not specifically 
identified from the cost accounting system, an overhead rate is added 
to the identifiable direct cost to arrive at full cost. Overhead is an 
indirect cost of operating an organization that is not specifically 
identified 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.
    These costs can include:
     General management and administrative services of 
sustaining and supporting organizations.
     Facilities management and ground maintenance services 
(security, rent, utilities, and building maintenance).
     Procurement and contracting services.
     Financial management and accounting services.
     Information technology services.
     Services to acquire and operate property, plants, and 
equipment.
     Publication, reproduction, and graphics and video 
services.
     Research, analytical, and statistical services.
     Human resources/personnel services.
     Library and legal services.
    To calculate the overhead allocable to a service, the IRS 
multiplies an overhead rate by the estimated direct costs. The IRS 
calculates the overhead rate annually based on the Statement of Net 
Cost included in the IRS annual financial statements. The financial 
statements are audited by the Government Accountability Office. The 
overhead rate is the ratio of the IRS's indirect costs divided by the 
direct costs of its organizational units. Indirect costs are labor, 
benefits, and non-labor costs (excluding IT related to taxpayer 
services, enforcement, and business system modernization) from the 
supporting and sustaining organizational units. Direct costs are the 
labor, benefits, and non-labor costs for the IRS's organizational units 
that interact directly with taxpayers.
    For the EA SEE user fee review, the Fiscal Year (FY) 2021 overhead 
rate of 58.83 percent was used. The rate was calculated based on the FY 
2020 Statement of Net Cost as follows:

Total Indirect Costs                                      $4,274,512,375
Total Direct Costs                                   /    $7,265,460,800
Overhead Rate                                                     58.83%
 

E. Calculation of the EA SEE User Fee

1. Cost Estimate
    The IRS projected the estimated costs of direct labor and benefits 
based on the actual salary and benefits of employees who devote time to 
oversee the administration of the EA SEE program, reduced to reflect 
the percentage of time each individual spends overseeing the EA SEE 
program. RPO's managers estimated the percentage of time these 
employees devote to overseeing the EA SEE based on their knowledge of 
actual program assignments. Six employees devote seventy-five percent 
of their time to EA SEE-related activities. Two employees who are 
contracting officer representatives devote 90 percent and 80 percent of 
their time, respectively, to EA SEE-related activities. Additional

[[Page 53896]]

staffing costs include oversight and support associated with these 
functions.
    The baseline for the labor and benefits estimate was the actual 
salary and benefits for FY 2021. From this baseline, the IRS estimated 
the direct labor and benefits costs over the next three years using an 
inflation factor for FYs 2022, 2023, and 2024. The IRS used a three-
year projection because the increase in future labor and benefits costs 
are reliably predictable representations of the actual costs that will 
be incurred by the RPO. These estimated direct labor and benefits costs 
were then reduced to reflect the percentage of time each individual 
devoted to the EA SEE program and are set out in the following table:

------------------------------------------------------------------------
                                                            Estimated
                                                           direct labor
                          Year                             and benefit
                                                              costs
------------------------------------------------------------------------
2022...................................................    $1,346,086.00
2023...................................................     1,376,656.00
2024...................................................     1,407,937.00
                                                        ----------------
    Total..............................................     4,130,679.00
------------------------------------------------------------------------

    The IRS estimated $12,000 in additional direct costs for each year 
for travel, training, and supplies.
    The total estimated direct costs for the three years is $4,166,679. 
After estimating the total direct costs, the IRS applied the FY 2021 
overhead rate of 58.83 percent to the estimated direct costs to 
calculate indirect costs of $2,451,257, for a total cost for the three-
year period of $6,617,936.
    The calculation of the total cost of the EA SEE program for 2022 
through 2024 is below:

Direct Costs                                                  $4,166,679
Overhead at 58.83%                                       +    $2,451,257
                                                            ------------
Total EA SEE Cost                                             $6,617,936
 

2. Volume of Examinations
    The number of examination parts provided during FYs 2018, 2019, and 
2020 were 23,286; 23,945; and 19,913, respectively. The total number of 
examination parts provided during the three years was 67,144. The IRS 
used this historical three-year volume to estimate the number of 
examination parts it expects to provide in FYs 2022, 2023, and 2024.
3. Unit Cost Per Exam
    To arrive at the total cost per examination part, the IRS divided 
the estimated three-year total of EA SEE costs by the total volume of 
examination parts expected over the same three-year period to determine 
a unit cost per examination part of $99, as shown below:

Total EA SEE Cost                                             $6,617,936
                                                            ------------
Volume                                                   /        67,144
Unit Cost per exam part                                              $99
 

    As noted in section C, the contractor who administers the EA SEE 
also charges individuals taking the EA SEE an additional fee for its 
services. For the May 2022 to February 2023 and May 2023 to February 
2024 testing periods, the contractor's fee is $104 and $107, 
respectively, for each part of the EA SEE. The fee charged by the 
contractor is fixed by the current contract terms and therefore cannot 
be reduced or renegotiated at this time. The contract was subject to 
public procurement procedures, and there were no tenders that were more 
competitive. The contract will expire on February 28, 2024. The fee 
charged by the contractor may change when the contract expires. Any 
future contract will be subject to the public procurement procedures.

Special Analyses

    This regulation is not significant and is not subject to review 
under section 6(b) of Executive Order 12866 pursuant to the Memorandum 
of Agreement (April 11, 2018) between the Treasury Department and the 
Office of Management and Budget regarding review of tax regulations. 
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is 
hereby certified that these proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
The proposed regulations remove the ERPA SEE user fee as the IRS no 
longer offers the examination or new enrollment as an enrolled 
retirement plan agent. The EA SEE user fee primarily affects 
individuals who take the EA SEE. Only individuals, not businesses, can 
be enrolled agents. Thus, the economic impact of these regulations on 
any small entity would be a result of an individual enrolled agent 
owning a small entity or a small entity employing an enrolled agent and 
reimbursing the individual for the fee. The Treasury Department and the 
IRS estimate that an average of 22,381 EA SEE examination parts will be 
taken by individuals annually. Therefore, a substantial number of small 
entities is not likely to be affected. Further, the economic impact on 
any small entities affected would be limited to paying the $18 
difference in cost between the $99 user fee and the previous $81 user 
fee per part (for each enrolled agent that a small entity employs and 
pays for), which is unlikely to present a significant economic impact. 
The total economic impact of this regulation is thus approximately 
$402,858 annually, which is the product of the approximately 22,381 
examination parts and the $18 increase in the fee per part. 
Accordingly, the rule is not expected to have a significant economic 
impact on a substantial number of small entities, and a regulatory 
flexibility analysis is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking has been submitted to the Chief Counsel 
of the Office of Advocacy of the Small Business Administration for 
comment on its impact on small business.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in the preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Any electronic comments 
submitted, and to the extent practicable any paper comments submitted, 
will be made available at www.regulations.gov or upon request.
    A public hearing is being held by teleconference on November 23, 
2021 beginning at 10:00 a.m. EST unless no outlines are received by 
November 15, 2021. The rules of 26 CFR 601.601(a)(3) apply to the 
hearing. Persons who wish to present oral comments by telephone at the 
hearing must submit written or electronic comments and an outline of 
the topics to be addressed and the time to be devoted to each topic by 
November 15, 2021 as prescribed in the preamble under the ADDRESSES 
section.
    A period of 10 minutes will be allocated to each person for making 
comments. After the deadline for receiving outlines has passed, the IRS 
will prepare an agenda containing the schedule of speakers. Copies of 
the agenda will be made available at www.regulations.gov, search IRS 
and REG-100718-21. Copies of the agenda will also be available by 
emailing a request to [email protected]. Please put ``REG-100718-
21 Agenda Request'' in the subject line of the email.

Drafting Information

    The principal author of these regulations is Karen Wozniak, 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.

[[Page 53897]]

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 300 is proposed to be amended as follows:

PART 300--USER FEES

0
Paragraph 1.The authority citation for part 300 continues to read as 
follows:

    Authority:  31 U.S.C. 9701.


Sec.  300.0   [Amended]

0
Par. 2. Section 300.0 is amended by removing paragraph (b)(9) and 
redesignating paragraphs (b)(10) through (12) as paragraphs (b)(9) 
through (11).
0
Par. 3. Section 300.4 is amended by revising paragraphs (b) and (d) to 
read as follows:


Sec.  300.4   Enrolled agent special enrollment examination fee.

* * * * *
    (b) Fee. The fee for taking the enrolled agent special enrollment 
examination is $99 per part, which is the cost to the government for 
overseeing the development and administration of the examination and is 
in addition to the fees charged by the administrator of the 
examination.
* * * * *
    (d) Applicability date. This section applies to registrations for 
the enrolled agent special enrollment examination that occur on or 
after [DATE 30 DAYS AFTER PUBLICATION OF THE FINAL RULE IN THE Federal 
Register].


Sec.  300.9   [Removed]

0
Par. 4. Section 300.9 is removed.


Sec. Sec.  300.10 through 300.12   [Redesignated as Sec. Sec.  300.09 
through 300.11]

0
Par. 5. Redesignate Sec. Sec.  300.10 through 300.12 as Sec. Sec.  
300.09 through 300.11.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2021-21242 Filed 9-27-21; 4:15 pm]
BILLING CODE 4830-01-P