Is the IRS Right to Increase User Fees?

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Craig W. Smalley, EA
Founder/CEO
CWSEAPA LLP
Columnist
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The IRS appears to be fighting back against a Congress that is not fully funding them by raising user fees on what seems like everything. In fact, on our radio show, Tax Avoidance is Legal, I referred to all of these user fee increases as a “shakedown.” 

About 20 years ago, I was a partner in a firm, and being the youngest partner, I was very concerned about my Social Security number going on all of the 750 tax returns that I was filing every year. When the IRS first offered Preparer Tax Identification Numbers (PTINs) about 15 years ago, I was the first partner in my firm to get one and one of the first members of the tax community to participate in the IRS’s new program. 

My PTIN was free and it took about four weeks to receive it. A few years ago, the IRS decided that it was going to regulate tax preparers. The agency made every tax preparer get a PTIN, and they began charging about $50 to receive one. The IRS then raised PTIN fees to $63.25 for a renewal and $64 for a first-time PTIN registration. The IRS indicated that the actual cost of the user fees to the agency was $13 for a PTIN renewal and $14.25 for first-time PTIN registration. Those are costs paid by the IRS to a third-party vendor.

According to the final regulations, the US Treasury Department anticipated that between 800,000 to 1.2 million PTINs would be issued or renewed each year, bringing in between $51 million to $77 million. Anticipated expenses “to administer the PTIN application and renewal process” were pegged at between $11 million and $17 million.

Not surprisingly, this went too far for some tax preparers. A class-action lawsuit was filed against the IRS in September 2014 that challenged the IRS’s authority to charge a fee for the issuance or renewal of a PTIN. The tax preparers wanted the IRS to pay them back.

By statute, certain user fees have to be “fair and based on: (a) costs to the government; (b) the value of the service or thing to the recipient; (c) public policy or interest served; and (d) other relevant facts.”

The plaintiffs are claiming that’s not what’s happening here. Further, the plaintiffs claim that under 31 USC § 9701, user fees may not “be charged with respect to fulfillment of a requirement that is subject to a penalty enforcement scheme because no special benefit is granted and the thing that is done is done involuntarily.” That, the plaintiffs assert, means that the user fees are unlawful from the start.

The lawsuit is still pending in the US District Court for the District of Columbia.

The IRS decided in late 2015 to reduce the PTIN fee back to $50 for both renewals and new applicants. The agency said it would collect $33 as a user fee to support program costs, and a third-party vendor would receive $17 to operate the online system and provide customer support.

This isn’t the only user fee that the IRS has either raised or is thinking of raising. The enrolled agent exam fee would increase from $11 to $81 if the IRS gets its way. An initial proposal would have raised the exam fee to $99.

It would be fine if that were it, but it isn’t. Installment agreement user fees have been raised, as well.

To enter into an installment agreement, it will now cost you $225, up from $120. This fee will apply to taxpayers who enter into an installment agreement in person, over the phone, by mail, or by filing Form 9465, Installment Agreement Request, with the IRS. Taxpayers who establish their agreement in this manner can cut the fee to just $107 by making their monthly payments by direct debit from their bank account. Taxpayers who set up an installment agreement using the agency’s online payment agreement application will pay a fee of $149; however, using direct debit will cut the fee to $31.

But here’s the problem: Taxpayers are perfectly fine with the IRS putting money into their account when they are getting a tax refund, but authorizing a direct debit to the IRS is almost always a no-go for taxpayers.

With all the extra money the IRS is receiving from the fees they are raising, I guess I should commend them. Congress didn’t fully fund them, and they found a way around it.

Related articles:

IRS Reduces PTIN Fees for Tax Return Preparers
NAEA Still Miffed at IRS Over Proposed User Fee Increase
IRS Finalizes New User Fees for Installment Agreements

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