Rule2023-22103
Preparer Tax Identification Number (PTIN) User Fee Update
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 4, 2023
Effective
October 19, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
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.
Full Text
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<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <a href="https://files.fasab.gov/pdffiles/2022_%20FASAB_%20Handbook.pdf">https://files.fasab.gov/pdffiles/2022_%20FASAB_%20Handbook.pdf</a>. 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:
<bullet> Financial, human resources, information technology, and
general management and administrative.
<bullet> Rent and building.
<bullet> Procurement, other services, and consulting.
<bullet> Property, plant, and equipment.
<bullet> Publication services.
<bullet> 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
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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
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