[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Rules and Regulations]
[Pages 68456-68459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22103]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[TD 9980]
RIN 1545-BQ78


Preparer Tax Identification Number (PTIN) User Fee Update

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Interim final rule.

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SUMMARY: This document contains interim final regulations relating to 
the imposition of certain user fees on tax return preparers. These 
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 Appropriation Act of 
1952 authorizes the charging of user fees. The text of the interim 
final regulations also serves as the text of the proposed regulations 
set forth in the notice of proposed rulemaking on this subject in this 
issue in the Proposed Rules section of this edition of the Federal 
Register.

DATES: 
    Effective date: These regulations are effective on October 19, 
2023.
    Applicability date: For date of applicability, see paragraph (d) of 
these interim final regulations.

FOR FURTHER INFORMATION CONTACT: Concerning the interim final 
regulations, Jamie Song at (202) 317-6845; concerning cost methodology, 
Michael A. Weber at (202) 803-9738 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

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

A. User Fee Authority

    The Independent Offices Appropriation Act of 1952 (IOAA), which is 
codified at 31 U.S.C. 9701, authorizes agencies to prescribe 
regulations that establish user fees for services provided by the 
agency. The IOAA provides that regulations implementing user fees are 
subject to policies prescribed by the President; these policies are set 
forth in the Office of Management and Budget Circular A-25, 58 FR 38142 
(July 15, 1993) (OMB Circular A-25).
    Under OMB Circular A-25, Federal agencies that provide services 
that confer benefits on identifiable recipients are to establish user 
fees that recover 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. In general, a user 
fee should be set at an amount that allows the agency to recover the 
direct and indirect costs of providing the service, unless the Office 
of Management and Budget (OMB) grants an exception. OMB Circular A-25 
provides that agencies are to review user fees biennially and update 
them as necessary.

B. PTIN Requirement

    Section 6109(a)(4) of the Internal Revenue Code (Code) authorizes 
the Secretary of the Treasury or her delegate to prescribe regulations 
for the inclusion of a tax return preparer's identifying number on a 
return, statement, or other document required to be filed with the IRS. 
On September 30, 2010, the Treasury Department and the IRS

[[Page 68457]]

published final regulations (TD 9501) under section 6109 in the Federal 
Register (75 FR 60309) to provide that, for returns or claims for 
refund filed after December 31, 2010, the identifying number of a tax 
return preparer is the individual's PTIN or such other number 
prescribed by the IRS in forms, instructions, or other appropriate 
guidance. Those regulations require a tax return preparer who prepares 
or who assists in preparing all or substantially all of a tax return or 
claim for refund after December 31, 2010, to have a PTIN.

C. PTIN User Fee

    Final regulations (TD 9503) published in the Federal Register (75 
FR 60316) on September 30, 2010, established a $50 user fee to apply 
for or renew a PTIN, based on a 2010 Cost Model. In addition, a $14.25 
fee for a new application and a $13 fee for an application for renewal 
was payable directly to a third-party contractor.
    In 2013, the IRS conducted a biennial review of the PTIN user fee 
and issued a new Cost Model that estimated an increase of the PTIN user 
fee, to $54. However, the IRS determined to keep the fee at $50 for the 
next two years.
    In 2015, the IRS conducted a biennial review of the PTIN user fee 
and issued a new Cost Model, which determined that the full cost of 
administering the PTIN program going forward was reduced from $50 to 
$33 per application or application for renewal, plus a $17 fee per 
application or application for renewal payable directly to a third-
party contractor. Final regulations (TD 9781) published in the Federal 
Register (81 FR 52766) on August 10, 2016, superseded and adopted 
temporary regulations (TD 9742) published in the Federal Register (80 
FR 66792) on October 30, 2015, and established the $33 annual user fee 
to apply for or renew a PTIN, plus $17 per application or application 
for renewal payable directly to a third-party contractor.
    In 2017, the IRS again conducted a biennial review of the PTIN user 
fee and issued a new Cost Model, which determined that the amount of 
the fee going forward should be reduced to $31 per application or 
application for renewal, plus an amount payable directly to a third-
party contractor. However, on June 1, 2017, before a notice of proposed 
rulemaking proposing to reduce the amount of the PTIN user fee was 
issued, the IRS was enjoined from charging a PTIN user fee. 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. See 
Steele, 2017 WL 3621747 (D.D.C. July 10, 2017) (final judgment and 
permanent injunction). The government filed an appeal and 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). The case was remanded to the 
United States District Court for the District of Columbia to determine 
whether the fee amounts were excessive. Id. at 1068.
    In 2019, the IRS again conducted a biennial review of the PTIN user 
fee and issued a new Cost Model, which determined that the amount of 
the fee going forward should be reduced to $21 per application or 
application for renewal, plus a $14.95 fee per application or 
application for renewal payable directly to a third-party contractor. 
Final regulations (TD 9903) published in the Federal Register (85 FR 
43433) on July 17, 2020, adopted the proposed regulations (REG-117138-
17) published in the Federal Register (85 FR 21126) on April 16, 2020, 
and established the $21 annual user fee to apply for or renew a PTIN, 
plus $14.95 per application or application for renewal payable directly 
to a third-party contractor.
    In Steele v. United States, No. 1:14-cv-1523-RCL, --- F. Supp. 3d -
---, 2023 WL 2139722 (Feb. 21, 2023), the United States District Court 
for the District of Columbia on remand considered whether the fee 
amounts were excessive under the IOAA. Explaining that while an agency 
may charge only the reasonable cost incurred to provide a service, or 
the value of the service to the recipient, whichever is less, the 
district court allowed that the activities charged for need only be 
``reasonably related'' to the cost to the agency and the value to the 
recipient, and the amount may include both ``direct and indirect 
costs'' associated with the service provided. 2023 WL 2139722, at *7. 
The court further noted that where an activity produces an independent 
public benefit, the fee that would otherwise be charged must be reduced 
by that portion of the costs attributable to the public benefit. Id.
    The district court concluded that the PTIN fees for fiscal years 
(FYs) 2011 through 2017 were excessive to the extent they were based 
on: (1) the activities already conceded by the government in the case; 
\1\ (2) any compliance activities other than direct and indirect costs 
of investigating ghost preparers who do not list their PTINs on returns 
they prepared for compensation as required by law, handling complaints 
regarding improper use of a PTIN, use of a compromised PTIN, or use of 
a PTIN obtained through identity theft, and composing the data to refer 
to those specific types of complaints to other IRS business units; (3) 
any suitability activities; (4) any support activities, other than 
those for the provision of PTINs and maintenance of the PTIN database, 
that facilitated provision of an independent benefit to the agency and 
the public; and (5) any activities of the third-party contractor, other 
than those related to the issuance, renewal, and maintenance of PTINs, 
that facilitated provision of an independent benefit to the agency and 
the public. Id. at *19.
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    \1\ The government previously conceded $26,576,661, $26,623,420, 
and $25,685,247 for amounts collected in FY 2011, FY 2012, and FY 
2013, respectively, which related to certain communications, 
compliance, Office of Professional Responsibility (OPR), and 
operations support activities; $8,737,123 and $9,010,458 for amounts 
collected in FY 2014 and FY 2015, respectively, which related to 
certain communications, Office of the Director, Strategy and 
Finance, suitability, compliance and complaint referrals, competency 
and standards, continuing education, OPR, enrolled agent and 
enrolled retirement plan agent department, and contractor processing 
activities; and $6,904,345 and $6,784,762 for amounts collected in 
FY 2016 and FY 2017, respectively, which related to certain 
communications, Office of the Director, Strategy and Finance, 
suitability, compliance and complaint referrals, OPR, enrolled agent 
and enrolled retirement plan agent department, and contractor 
processing activities.
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    In accordance with the biennial review requirement in OMB Circular 
A-25 and taking into account the district court's February 2023 
memorandum opinion in Steele, the IRS has issued a new Cost Model that 
re-determines costs that the government continues to incur for 
providing PTINs and administering the PTIN program, and re-calculates 
the amount of the user fee as $11 per application or application for 
renewal, plus a $8.75 fee per application or application for renewal 
payable directly to a third-party contractor. The amount payable 
directly to the third-party contractor also takes into account certain 
costs that were addressed by the district court's February 2023 
memorandum opinion in Steele. Subsequently, the IRS entered into a 
modified contract that allows the

[[Page 68458]]

government to pay those costs rather than the individuals who apply for 
or renew a PTIN.
    The government is authorized to charge a PTIN user fee under the 
IOAA because, in exchange for the fee, it provides a service by issuing 
and maintaining PTINs, which provide tax return preparers a specific 
benefit by allowing them to provide an identifying number that is not a 
social security number on returns and claims for refund and to prepare 
returns and claims for refund for compensation. 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 tax return preparers apply for or renew their PTINs 
during the application season, which begins annually in October.

Explanation of Provisions

    The IRS follows generally accepted accounting principles (GAAP) in 
calculating the full cost of administering PTIN applications and 
renewals. 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 
Federal Accounting Standards and Other Pronouncements, as Amended 
(Current Handbook), available at https://files.fasab.gov/pdffiles/2022_%20FASAB_%20Handbook.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 to accurately measure and manage 
the full cost of Federal programs, and the methodology below is in 
accordance with SFFAS No. 4.

1. Cost Estimation of Direct Labor

    The IRS uses various cost-measurement techniques to estimate the 
cost 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 provide the service of providing a PTIN, the IRS estimated 
the number of full-time employees required to conduct activities 
related to the costs of issuing and renewing PTINs. The number of full-
time employees is based on both current employment numbers and future 
hiring estimates. 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.

2. Overhead

    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. These costs can include:
     Financial, human resources, information technology, and 
general management and administrative.
     Rent and building.
     Procurement, other services, and consulting.
     Property, plant, and equipment.
     Publication services.
     Research, analytical, statistical, library and legal 
services.
    To calculate the overhead allocable to a service, the IRS applies 
an overhead rate to the identified direct labor and benefits and other 
direct costs. The overhead rate is the ratio of the IRS's indirect 
labor, benefits, and non-labor costs of business divisions that do not 
interact with taxpayers to the labor and benefits costs of business 
divisions that interact with taxpayers. The IRS calculates an overhead 
rate annually. For the FY 2023 user fee review, an overhead rate of 
62.5 percent was used.

3. Calculation of PTIN User Fee

    The IRS used projections for FYs 2024 through 2026 to determine the 
direct and indirect costs associated with the PTIN program that are 
includible in the PTIN user fee calculation taking into account the 
district court's February 2023 memorandum opinion in Steele. Direct 
costs are incurred by the Return Preparer Office and include staffing 
and contract-related costs for activities, processes, and procedures 
related to administering the PTIN program. Staffing costs included in 
the PTIN user fee calculation relate to the compliance activities of 
investigating ghost preparers; handling complaints regarding the 
improper use of a PTIN, use of a compromised PTIN, or use of a PTIN 
obtained through identity theft; and composing the data to refer those 
specific types of complaints to other IRS business units. The PTIN user 
fee also takes into account indirect costs for support activities 
related to the provision of PTINs and maintenance of the PTIN database. 
In accordance with Steele, the PTIN user fee calculation does not take 
into account compliance costs other than those described in this 
paragraph, costs incurred by the Suitability Department, support costs 
other than those described in this paragraph, and costs previously 
conceded by the government in Steele, as detailed earlier in this 
preamble.
    The labor and benefits for the work performed related to the PTIN 
program is projected to be $16,536,827 in total over FYs 2024 through 
2026. In addition to labor and benefits and overhead expenses, the IRS 
projects incurring travel, training, and supplies costs of $115,000 in 
each of FYs 2024 through 2026. The total labor and benefits, travel, 
training, and supplies, and overhead expenses projected are shown 
below:

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                     Expense                          FY 2024         FY 2025         FY 2026          Total
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Labor and benefits..............................      $5,364,566      $5,510,939      $5,661,322     $16,536,827
Travel, training, and supplies..................         115,000         115,000         115,000         345,000
Overhead (62.5 percent).........................       3,424,729       3,516,212       3,610,201      10,551,142
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    The total cost for FYs 2024 through 2026 are therefore projected to 
be $27,432,969. The number of users is based on FY 2022 numbers 
adjusted by a projected increase in applications over the next three 
FYs. Dividing this total cost by the projected population of users for 
FYs 2024 through 2026 results in a cost per application of $11 as shown 
below:

Total Costs...............................................   $27,432,969
Number of Applications....................................   / 2,542,665
                                                           -------------
Cost per Application......................................        $10.79
 

    Taking into account the full amount of these costs, the amount of 
the PTIN user fee per application or application for renewal is $11.
    Costs related to a third-party contractor's activities for the 
issuance, renewal, and maintenance of PTINs, such as processing 
applications and operating a call center, are included in the PTIN user 
fee calculation, in

[[Page 68459]]

accordance with Steele, which will be set at $8.75 per application or 
application for renewal, in addition to the amount charged by the 
government. The third-party contractor was chosen through a competitive 
bidding process. The amount of the third-party contractor portion may 
change in 2026 when the contract expires and will be re-computed.

Special Analyses

I. Regulatory Planning and Review

    The OMB's Office of Information and Regulatory Analysis has 
determined that these regulations are not significant and are not 
subject to review under section 6(b) of Executive Order 12866.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these interim final regulations will not have 
a significant economic impact on a substantial number of small 
entities. These 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 847,555 individuals will apply annually for an 
initial or renewal PTIN. Although these regulations will likely affect 
a substantial number of small entities, the economic impact on those 
entities is not significant. These regulations will establish an $11 
fee per application or application for renewal (plus $8.75 payable 
directly to the third-party contractor), which is a reduction from the 
previously established fee and will not have a significant economic 
impact on a small entity. 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.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This rule does not include any Federal mandate that may 
result in expenditures by State, local, or Tribal governments, or by 
the private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These interim final regulations do 
not have federalism implications and do not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

V. Good Cause

    The annual PTIN application and renewal period for the 2024 filing 
season will begin shortly. It would be unnecessary and contrary to the 
public interest for the IRS to continue to charge the current, higher 
user fee pending public comment after the IRS has determined pursuant 
to the biennial review conducted under OMB Circular A-25 that the PTIN 
user fee should be reduced going forward. To enable the reduced fee 
amount to be in effect for PTINs issued or renewed by tax return 
preparers preparing returns or claims for refund in 2024, the Treasury 
Department and the IRS find that there is good cause to dispense with 
(1) notice and public comment pursuant to 5 U.S.C. 553(b) and (c) and 
(2) a delayed effective date pursuant to 5 U.S.C. 553(d). The Treasury 
Department and the IRS will consider public comments submitted in 
response to the cross-referenced notice of proposed rulemaking 
published in the Proposed Rules section of this issue of the Federal 
Register and will promulgate a final rule after considering those 
comments.

VI. Submission to Small Business Administration

    Pursuant to section 7805(f) of the Code, this Treasury decision has 
been submitted to the Chief Counsel for the Office of Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Drafting Information

    The principal author of these regulations is Jamie Song, 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

    Estate taxes, Excise taxes, Fees, Gift taxes, Income taxes, 
Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 300 is amended as follows:

PART 300--USER FEES

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

    Authority:  31 U.S.C. 9701.


0
Par. 2. Section 300.11 is amended by revising paragraphs (b) and (d) to 
read as follows:


Sec.  300.11  Fee for obtaining a preparer tax identification number.

* * * * *
    (b) Fee. The fee to apply for or renew a preparer tax 
identification number is $11 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 
October 19, 2023.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.

    Approved: September 25, 2023.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-22103 Filed 9-29-23; 4:15 pm]
BILLING CODE 4830-01-P