How the PTIN Issue at the IRS Affects Tax Professionals
In early June, the IRS suspended its Preparer Tax Identification Number (PTIN) system following a US District Court decision regarding the agency’s practice of charging fees to individuals registering for one. The decision was made as part of a class-action lawsuit (Adam Steele, et al. v. United States of America) involving the IRS’s practice of charging tax professionals a fee for applying for or renewing their PTIN.
The decision made was that the IRS was unable to charge fees for its system, but the agency is still allowed to require PTIN application for preparers of tax returns. As a result, the PTIN system was discontinued for a few weeks, with the IRS reopening it on June 21 sans fees.
The legal battle and ensuing chaos that came out of the IRS’s actions has a few implications for both ordinary taxpayers and tax professionals.
For taxpayers, this fiasco can be seen as both a negative and a positive. The inability to apply for or renew a PTIN during that short period of time in June was an inconvenience for any business owner looking to get ahead on their tax requirements. This situation may seem nostalgic to the government shutdown of 2013, where overwhelming bureaucracy in an opaque government structure resulted in the inconvenience of taxpayers.
However, the positive implication this ordeal leaves behind is that change is possible, even in such an inscrutable and bureaucratic organization like the IRS. Granted, the change may be slow and difficult, but the end result of PTIN fees being discontinued is a positive for taxpayers.
For the tax professional, the implications of this situation are that nothing is set in stone. Scenarios such as these are why it is important for anyone working in finance and accounting to stay informed about their field. Enrolled agents who found themselves off guard in the wake of this major change in the IRS’s operating procedures may wish to pursue continued education in order to better prepare themselves for potential upsets to the status quo in the future.
In addition, keeping informed by reading about current events in government policy and finance may help professionals see something like this coming in the future, allowing them to better anticipate the changes that may come to their field.
Both enrolled agents and the firms they represent will feel the effects of this decision. Because of this, it is important to understand what those effects will be and how best to handle them. Enrolled agents should expect the need to play catch-up for a short period of time, as the period of time where firms were unable to renew their PTINs will have undoubtedly resulted in schedules needing to be adjusted.
For firms, the lifted fee requirement will result in money saved over the long run. But in the short-term picture, labor costs to accommodate for these changes in policy may increase due to the necessity of extra time for enrolled agents to make the necessary adjustments.
This is the main idea to take away from this development: that this will be a positive change in the long run. In the near future, acclimating to this new way of handling PTINs may require a change in education for those pursuing a career as an enrolled agent, and it may result in additional costs for organizations affected by the period of inactivity. However, these negative effects will fade over time, and the benefits of this change will become more apparent.
Small businesses will have an easier time with their tax returns, and enrolled agents working with these businesses won’t need to devote as much time or energy to handling additional fees. This is a move that can stimulate the economy, by supporting the creation of new businesses and by reducing the amount of red tape hindering progress. Furthermore, the precedent set by this court decision is that any other fees or overreaching bureaucratic policies that the public finds to be unreasonable can be challenged.
This is ultimately an empowering act for the taxpayer, and for the individual, as it shows the power their voices have and just how much they can accomplish with them.
Bryce Welker is the owner of Crush the CPA Exam and has helped thousands of CPA candidates pass the exam on their first try using resources, tips and tricks.