Taxgirl’s note: On September 8, 2014, Adam Steele joined Brittany Montrois and a “Class of More Than 700,000 Similarly Situated Individuals and Businesses” in filing a class action suit against the federal government seeking to recover allegedly unlawful license fees paid to the Internal Revenue Service (IRS). On June 5, 2017, the Court ruled in favor of the plaintiffs. As a result, tax preparers may be entitled to more than $175,000,000 to be refunded by the IRS. Steele’s first-person take on the industry, PTINs, and the case follows.
We accountants were getting nickel and dimed to death by regulatory fees and costs, and that affects the tax preparation fees that our clients have to pay. It got to the point where you say someone’s gotta do something, but, when one says that, it’s important to remember that each of us is someone.
It’s particularly hard on CPAs and EAs (Enrolled Agents), who have always had to pay licensing fees (in Minnesota, CPAs have to annually renew both an individual, and a firm, permit; each with a fee, even if the CPA is the only one at the firm), and for required Continuing Professional Education (CPE), and for travel to get the CPEs. And woe be unto a CPA who files a renewal form, or pays a fee, or reports CPEs, a little late, he gets walloped with a steep late fee as well. All of these fees and costs factor into what the client eventually has to pay the accountant to get his taxes done.
When I started my practice, in 1981, as an uncredentialed tax practitioner, with no fees to pay and no red tape, my firm prepared long forms for as little as $19.95.
In 2010, the IRS threw a new fly into the ointment. Under the premise of more oversight for the tax industry, they instituted their own PTIN (Practitioner’s Tax Identification Number) system, under which each practitioner was issued a PTIN number, and had to pay the IRS an additional fee, each year, for this service. That was the straw that broke the otter’s back: it was one more form to submit, and one more fee to pay each year.
The fees for original issuance of the PTIN number were $64.25 for the 2011 season, then $63 annual renewal thereafter, until late 2015, when IRS reduced the annual renewal fee to $50 for the 2016 tax season, and thereafter.
On June 1st, 2017, the United States District Court (USDC) at Washington D.C. granted summary judgement in the case of Adam Steele, et al. v. United States of America (case no. 1:14-cv-01523-RCL) holding, simply put, that IRS could assign the numbers if they wanted to, but they couldn’t charge for them. In the case, a class action including (per estimates) at least 700,000 tax practitioners, IRS was ordered to refund those fees and enjoined from charging them in the future, absent Congressional approval. IRS has given notice (on September 6, 2017) that they will appeal the decision, but, as of late October 2017, they had not filed an appeal brief, and it is not known whether they will file one within the allotted time.
Unless the ruling is changed on appeal, the refund, for most practitioners who have paid the PTIN fee each year for practice in all of the 2011 through the 2017 filing seasons, is expected to be about $416 each; although actual payment amounts may be subject to adjustment for certain legal costs as determined by the Court; and the precise amount that any particular practitioner will receive cannot be determined until the final judgement, which is pending.
We CPAs, and EAs were already paying through the nose for regulatory oversight and ethics enforcement. And smaller, community-based, tax firms and practitioners may be disproportionately affected.
CPAs pay it in the fees we pay our state Boards of Accountancy. In Minnesota, our state Board is tougher than the PTIN program would ever be. If a CPA, here, picks up a complaint, even if it’s groundless, he’s probably going to have to do some talking with the people at St. Paul. And in the case of EAs, they are already regulated by, yes, the IRS itself!
Although this annoyed me as a CPA, my attorney, Allen Buckley (also a CPA) of Atlanta, Georgia, discovered, in the going, that Congress never authorized IRS to charge anyone the PTIN fees. That expanded the class, now, to include not just CPAs and EAs, but also attorneys, Registered Tax Return Preparers (RTRPs) and all other people, including uncredentialed practitioners, who prepare taxes for compensation, and so, had to pay for a PTIN. The class now numbers an estimated 700,000 to 1.2 million individuals who will share in the class action refunds.
Also named as lead Plaintiffs in the suit were Brittany L. Montrois, CPA, Atlanta; and attorney Joseph Henchman, who is the V. P. of Legal & State Projects at the Tax Foundation organization at Washington, D.C.
Our fees that we have to charge clients are outrageous anyway. For years, I headed my print advertising with VERY EXPENSIVE TAX SERVICE. Really, anything that you have to pay, to file a form that the government requires you to file, is too much.
Anyone who gets professional tax preparation is probably paying a lot every year. But we are a necessary evil. If a taxpayer tries to do the return himself, well, that may cost him a lot too, in the extra tax he’ll pay and never know about. We are like an auto mechanic: No matter how good the mechanic’s expertise, and the quality of his work, you don’t want to be there. Sometimes we can save the client more than the work costs (like the mechanic who changes your oil pump while you still have an engine). The tax law, today, is so complex that a person with just a small business probably won’t do their own return correctly showing the lowest legal tax.
Even a person with nothing but a W-2 can make expensive mistakes, and not be aware of available tax savings. And the home tax prep software makes it, now, very easy to make those expensive mistakes. A person can make them, now, in much less time than it took them to goof up their return, in the old days.
It’s always been my philosophy that if the government is going to make the tax law so complex as to, generally, necessitate professional service, in order to properly file a form that’s required by the government; then the government should pay those tax prep fees, like, maybe as a credit on the tax return itself. In the past, I’ve suggested certain provisions that have since become part of our federal tax law; but when I suggested that one, it was D.O.A. (Dead On Arrival).
This suit was just another step to try to keep our exorbitant client fees down, as much as can be. Will winning this, over $175 million, suit would change the way I do things? Probably not. We Northern Minnesotans don’t change much, it’s kind of a big deal, just when we change our socks. I don’t know, right now, what I’m going to do with my $190.25 share of the proceeds; but I don’t expect it to result in any major changes, except maybe, the oil in the truck.
Addressing Washington’s present need for more revenue (which, presumably, prompted the PTIN fees), and proposed budget cutbacks, we all know that there are people on disability, or worker’s comp, that shouldn’t be. But, administratively, it’s very hard to weed them out. More fertile fields lie in the expanded Earned Income Credit (EIC) and Child Tax Credit (CTC); both of which are, really, just welfare wrapped in a tax form, and are often wrongly paid. According to a report by the Treasury Inspector General for Tax Administration, for the fiscal year 2015, IRS paid out about $65 billion in Earned Income Credit claims; and, per the IRS’ own estimate, about 23.8% of these payments were issued improperly (e.g., on fraudulent, or otherwise erroneous claims).
I was an Enrolled Agent (EA) before becoming a CPA and believe that a streamlined, voluntary program, for otherwise uncredentialed tax preparers, to assure their clients of, at least, a basic threshold of competence, wouldn’t necessarily be a bad thing if it had Congressional approval. I think a lot of tax practitioners would avail themselves of that because it would give them a credential. Not a real strong one, mind you, but at least a public assurance of basic competence in tax, and agreement to ethics compliance.
We can test for competence, but there is no test for diligence, thoroughness, and integrity. So, to a degree, it’s always going to be caveat emptor – buyer beware. For instance, a competent practitioner knows how to take the correct IRA deduction on his self-employed client’s return; a thorough accountant, however, would go the extra mile – he’d also consider the client’s overall circumstance as reflected by the return, to determine if the client might better meet his goals with a SEP, or a SIMPLE, instead; so to be able to advise the client accordingly. That’s the kind of thing that, I think, a lot of people look for in professional tax help, and you can’t test for it.
The PTIN fees more strongly affected smaller, local, practitioners. But as a consumer, I’d be more likely to trust that type of accountant. The smaller accounting firm has more at risk on the integrity of its good name and word-of-mouth advertising; it can’t just rest on its laurels and national name recognition, like some of the larger firms can. Excessive fees and similar impediments are more discouraging to the smaller, and possibly, better producers. That’s neither good for the industry, nor the consumers.
There are some blatantly incompetent, and/or recklessly careless, practitioners out there – the butchers as I call them (no offense intended to the diligent and conscientious members of the meat cutting and packing industry who don’t prepare tax returns for compensation) – and IRS’ goal of reducing their numbers is a laudable one. It’s something that would be good for the tax industry, for the clients, for the IRS, and for America. The free market can be an effective tool in weeding them out; but only if the public knows what it’s buying.
To be successful, any IRS-sponsored practitioner designation program must have a strong public awareness component, making it a selling point for the participating practitioner. For instance, few people realize that an EA has passed an IRS-administered exam, that is far tougher on tax than the taxation part of the CPA exam. Personally, although my practice has always been limited almost exclusively to tax, I became a CPA because almost no one knows what an EA is. They’re highly regarded amongst other accountants – like, at tax forums and the like, but no one else knows who they are, what they do, and their demonstrated level of expertise at it. So a lot of people want a CPA to prepare their return; they know what that is.
Likewise, few people ever knew what the IRS’s former RTRP designation meant, which probably contributed to its failure to gain prominence in its time. (It was altogether abandoned by IRS when it came to light that the RTRP program, like the PTIN program, lacked Congressional authorization.)
So, were IRS to seek and obtain Congressional approval for a revised program, a public awareness campaign, explaining the difference between the letters (if any) after an accountant’s or tax practitioner’s name, and what assurances of quality the client has, and what services the client can expect to receive, from each; would be a necessary component for any new program’s optimal success. Besides the IRS, organizations like the AICPA, other accountants’ and tax organizations, some consumer organizations, and the various states’ tax departments might be willing to join in on such an effort, as it would be of obvious benefit to their professional memberships and agencies, as well as the general public.
Even with this, of course, and regardless of competence testing, ethics education requirements, and credentials; there will always be a few ‘butchers’ out there who defraud their clients, or who are willing to knowingly collude with their clients to cheat the IRS and all other taxpayers. These people can give the whole tax industry a black eye (as in, for instance, the Enron scandal, when the Big 6 accounting firms became the Big 5; later merging into the present Big 4) and these errant practitioners need to be out of it. IRS already has the power to seek to enjoin them from further tax practice; they should use it.