Preparer Tax Identification Number (PTIN) User Fee Update, 21126-21129 [2020-08055]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 74 (Thursday, April 16, 2020)]
[Proposed Rules]
[Pages 21126-21129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08055]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[REG-117138-17]
RIN 1545-BP43


Preparer Tax Identification Number (PTIN) User Fee Update

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to the regulations 
relating to the imposition of certain user fees on tax return 
preparers. The proposed 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: Written or electronic comments and requests for a public hearing 
must be received by May 18, 2020. Requests for a public hearing must be 
submitted as prescribed in the ``Comments and Requests for a Public 
Hearing'' section.

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-117138-
17) 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or withdrawn.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 mail. Until 
further notice, any comments submitted on paper will be considered to 
the extent practicable. The Department of the Treasury (Treasury 
Department) and the IRS will publish for public availability any 
comment submitted electronically, and to the extent practicable on 
paper, to its public docket.
    Send paper submissions to: CC:PA:LPD:PR (REG-117138-17), room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Michael A. Franklin at (202) 317-6844; concerning cost methodology, 
Michael A. Weber at (202) 803-9738; concerning submissions of comments 
and/or requests for a public hearing, Regina Johnson, (202) 317-5177 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    This document contains proposed amendments to 26 CFR part 300 
regarding user fees.
    Regulations require a tax return preparer who prepares all or 
substantially all of a tax return or claim for refund to provide a PTIN 
as their identifying number on any tax return or claim for refund 
prepared for compensation. To account for its costs of providing PTIN 
application and renewal services, the IRS charges a user fee to apply 
for or renew a PTIN. This proposal would reduce the user fee from $33 
per application or renewal to $21.

A. User Fee Authority

    The Independent Offices Appropriations 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 (OMB) 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 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 authorizes the 
Secretary of the Treasury or his 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 published 
final regulations under section 6109 (REG-134235-08) in the Federal 
Register (TD 9501) (75 FR 60315) (PTIN regulations) 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. The PTIN 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.
    The PTIN regulations also state that the IRS will set forth in 
forms, instructions, or other appropriate guidance PTIN application and 
renewal procedures, including the requirement to pay a user fee to 
obtain or renew a PTIN. Pursuant to the authority granted in section 
6109(c) and in accordance with Sec.  1.6109-2(d) of the PTIN 
regulations, the IRS has set forth application and renewal procedures 
in

[[Page 21127]]

Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) 
Application and Renewal, and the Form W-12 Instructions. Individuals 
may also apply for or renew a PTIN and pay the user fee online at 
irs.gov/ptin. The annual PTIN application and renewal period generally 
begins in the fall of the year preceding the filing season to which the 
PTIN relates.
    Section 1.6109-2(d) states that only individuals authorized to 
practice before the IRS under 31 U.S.C. 330 are eligible to obtain a 
PTIN. Under Sec.  1.6109-2(h), the IRS may prescribe in forms, 
instructions, or other appropriate guidance exceptions to the 
requirements of the PTIN regulations, including the requirement that an 
individual must be authorized to practice before the IRS to be eligible 
to receive a PTIN. On December 30, 2010, the Treasury Department and 
the IRS released Notice 2011-6 (2011-3 IRB 315 (Jan. 17, 2011)), which 
stated that, until December 31, 2013, a provisional PTIN could be 
renewed upon proper application and payment of the applicable user fee, 
even if the individual holding the provisional PTIN was not authorized 
to practice before the IRS.
    On June 3, 2011, the Treasury Department and the IRS published in 
the Federal Register (76 FR 32286) amendments to Treasury Department 
Circular No. 230 (31 CFR part 10), to regulate all tax return preparers 
under 31 U.S.C. 330. In Loving v. IRS, 917 F.Supp.2d 67 (D.D.C. 2013), 
the district court concluded that the Treasury Department and the IRS 
lacked statutory authority to regulate tax return preparation as 
practice before the IRS under 31 U.S.C. 330 and enjoined the Treasury 
Department and the IRS from enforcing the regulations issued under that 
section. The district court subsequently modified its order to clarify 
that the IRS's authority to require that tax return preparers obtain a 
PTIN is unaffected by the injunction. Loving v. IRS, 920 F.Supp.2d 108, 
109 (D.D.C. 2013) (stating ``Congress has specifically authorized the 
PTIN scheme by statute . . . [and that] scheme, therefore, does not 
fall within the scope of the injunction and may proceed as 
promulgated.''). The United States Court of Appeals for the District of 
Columbia Circuit affirmed the district court's decision and order for 
injunction. Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014).

C. PTIN User Fee

    Final regulations (REG-139343-08) published in the Federal Register 
(TD 9503) (75 FR 60316) (initial PTIN user fee regulations) on 
September 30, 2010, established a $50 user fee to apply for or renew a 
PTIN, in addition to a portion payable directly to the contractor, 
which was $14.25 for new applications and $13 for renewal applications. 
The $50 user fee was based on an annual PTIN renewal period and an 
estimate that 1.2 million individuals would be applying for or renewing 
a PTIN each year.
    The Treasury Department and the IRS determined that a $50 user fee 
to apply for or renew a PTIN would recover the full direct and indirect 
costs that the government would incur to administer the PTIN 
application and renewal process. As explained in the preamble to the 
initial PTIN user fee regulations, the projected costs included the 
development and maintenance of the IRS information technology system 
that would interface with a third-party contractor, the development and 
maintenance of internal applications that would have the capacity to 
process and administer the anticipated increase in PTIN applications, 
and customer service support activities, which included website 
development and maintenance and call center staffing to respond to 
questions regarding PTIN usage and renewal. The $50 user fee was also 
determined to recover costs for personnel, administrative, and 
management support needed to evaluate and address tax compliance issues 
of individuals applying for and renewing a PTIN, to investigate and 
address conduct and suitability issues, and otherwise support and 
enforce the programs that required an individual to apply for and renew 
a PTIN.
    Pursuant to the guidelines in OMB Circular A-25, the IRS re-
calculated its costs associated with providing PTINs in 2015. The IRS 
determined that the full cost of administering the PTIN program going 
forward was reduced from $50 to $33 per application or renewal, plus a 
$17 fee per application or renewal payable directly to a third-party 
contractor. Final regulations (REG-121496-15) published in the Federal 
Register (TD 9781) (81 FR 52766) (2016 PTIN user fee regulations) on 
August 10, 2016, superseded and adopted temporary regulations (TD 9742) 
(80 FR 66794) and established the $33 annual user fee to apply for or 
renew a PTIN, plus $17 per application or renewal payable directly to a 
third-party contractor. The reduction in the fee amount was 
attributable to several factors, which included the reduced number of 
PTIN holders (approximately 700,000) from the number originally 
projected (1.2 million) in 2010, which reduced associated costs; the 
absorption of certain development costs in the early years of the 
program; and the fact that certain activities that would have been 
conducted in relation to registered tax return preparers would not be 
performed. In particular, the determination of the user fee no longer 
included expenses for personnel who performed functions primarily 
related to continuing education and testing for registered tax return 
preparers. Additionally, expenses related to personnel who performed 
continuing education and testing for enrolled agents and enrolled 
retirement plan agents were removed from the user fee.
    In 2017, the IRS again conducted a biennial review of the PTIN user 
fee and determined that the amount of the fee going forward should be 
reduced to $31 per application or renewal, plus an amount payable 
directly to a third-party contractor. The reduction was primarily 
attributable to reductions in contract support costs and salary and 
benefits. On June 1, 2017, before a notice of proposed rulemaking 
proposing to reduce the amount of the 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. 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 is currently on remand in the United States District Court 
for the District of Columbia regarding the amount of the fee. Id. at 
1068.
    Pursuant to the guidelines in OMB Circular A-25, the IRS has re-
calculated its cost of providing PTINs. The IRS has determined that the 
full cost of administering the PTIN program going forward has been 
reduced to $21 per application or renewal, plus $14.95 payable directly 
to a third-party contractor. The government is authorized to charge a 
PTIN user fee under the IOAA because, in exchange

[[Page 21128]]

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 to prepare returns for compensation.

D. Calculation of User Fees Generally

    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 
Accounting Standards and Other Pronouncements, as Amended (Current 
Handbook), available at https://files.fasab.gov/pdffiles/2019_fasab-handbook.pdf. Current Handbook includes the Statement of Federal 
Financial Accounting Standards (SFFAS) No. 4: Managerial Cost 
Accounting Concepts and Standards for the Federal Government. 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 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 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 
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. Other direct costs associated with administering the 
PTIN program include contract costs and travel, training, supplies, 
printing, and other miscellaneous costs.
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 
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:
     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 
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 labor, 
benefits, and non-labor costs for the IRS's organizational units that 
interact directly with taxpayers.
    For the PTIN user fee review, an overhead rate of 57.58 percent was 
used. The rate was calculated based on the FY 2019 Statement of Net 
Cost as follows:

 
 
 
Total Indirect Costs..................................    $4,006,706,430
Total Direct Costs....................................  / $6,957,940,668
                                                       -----------------
Overhead Rate.........................................            57.58%
 

E. Calculation of PTIN User Fee

    The IRS projected the direct costs associated with the PTIN program 
for fiscal years 2020 through 2022. Direct costs are incurred by the 
Return Preparer Office (RPO) and include staffing and other direct 
costs related to administering the PTIN program. Staffing costs 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. The labor and benefits for the work 
performed related to the PTIN program is projected to be $30,816,935 in 
total over fiscal years 2020 through 2022. Other direct costs 
associated with administering the PTIN program include contract costs 
and travel, training, supplies, printing, and other miscellaneous 
costs. The total amount of these other direct costs over fiscal years 
2020 through 2022 is projected to be $463,750. Total direct costs for 
fiscal years 2020 through 2022 are therefore projected to be 
$31,280,685. Adding overhead expenses to the total direct costs results 
in total costs of $49,292,103 as shown below:

 
 
 
Total Direct Costs....................................       $31,280,685
Overhead (57.58%).....................................       $18,011,418
                                                       -----------------
Total Direct Costs and Overhead.......................       $49,292,103
 

    The number of users annually is estimated to be 800,000, based on 
numbers of PTIN holders in prior fiscal years. Dividing the total cost 
by the projected population of users for fiscal years 2020 through 2022 
results in a cost per application of $21 as shown below:

 
 
 
Total Costs...........................................       $49,292,103
Number of Applications................................        /2,400,000
                                                       -----------------
Cost Per Application..................................               $21
 

    Taking into account the full amount of these costs, the amount of 
the PTIN user fee per application or renewal is $21. The revised amount 
takes into account a reduction in contract support costs, a reduction 
in the cost of salary and benefits, and the current fiscal year 
overhead rate.
    A third-party contractor performs certain functions, including 
processing

[[Page 21129]]

applications to obtain or renew a PTIN and operating a call center, and 
charges a reasonable fee, which will be set at $14.95 per application 
or 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 contractor portion may change in 2021 when 
the contract expires and will be re-computed.

Special Analyses

    The OMB's Office of Information and Regultory Analysis has 
determined that this regulation is significant and subject to review 
under section 6(b) of Executive Order 12866.
    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 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 directly to 
the contractor), which is a reduction from the previously established 
fee of $33 (plus $17 payable directly 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), 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 Requests for a 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 will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing are also encouraged to be made electronically. If a 
public hearing is scheduled, notice of the date and time for the public 
hearing will be published in the Federal Register. Announcement 2020-4, 
2020-17 IRB 1, provides that until further notice, public hearings 
conducted by the IRS will be held telephonically. Any telephonic 
hearing will be made accessible to people with disabilities.

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.

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.

0
Par. 2. Section 300.12 is amended by revising paragraphs (b) and (d) to 
read as follows:


Sec.  300.12  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 [date 
that is 30 days after these regulations are published as final 
regulations in the Federal Register].

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-08055 Filed 4-15-20; 8:45 am]
BILLING CODE 4830-01-P