IRS PTIN Registration System is "Down"

The Internal Revenue Service's Tax Professionals system presently is "down" due to litigation.  [Note:  See "Update" at end of posting, below (02/06/13)]

According to the IRS Statement on Court Ruling Related to Return Preparers, updated as of January 25, 2013, a litigation stay is the reason:

As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. On Wednesday, Jan. 23, the IRS and Justice Department asked for the injunction to be lifted. Regardless of the outcome of that request, an appeal is planned within the next 30 days.

The IRS is continuing to evaluate the scope of the court's order in determining consistent next steps. Please continue to check this site as additional information becomes available.

The federal litigation, which was filed by individual plaintiffs in 2012, regarding required payment to the IRS of annual fees charged to professional tax preparers, was referenced in a mid-summer posting by Michael Kohn on Accounting Today, entitled Appeals Court Upholds PTIN Fee (06/13/12). The Federal Appeals Court upheld such fees:

A federal appeals court has upheld a lower court ruling dismissing the complaint of a tax preparer who argued that the Treasury Department and the Internal Revenue Service did not have the right to charge an annual fee for a Preparer Tax Identification Number.

The case involved Jesse Brannen III, a tax attorney and CPA in White, Ga. Brannen sued the Treasury Department, claiming that it exceeded its statutory authority when it began charging a $64.25 fees for issuing a PTIN and an annual renewal fee of $63. * * *  

Earlier this year, an advocacy group called the Institute for Justice filed suit against the IRS on behalf of three other tax preparers challenging the IRS’s licensing requirements (see Tax Preparers Sue IRS over New Requirements). * * *

The stay dated January 18, 2013, was issued by the trial court in the same case, Loving v. Internal Revenue Service, Civil Action No. 12-385 (See also: Memorandum Opinion, both unofficial links), filed in the U.S. District Court for the District of Columbia.  That litigation had also questioned the IRS' authority to compel annual continuing education and testing of certain federal income preparers.

But the issue of PTIN fees may be revisited in another federal jurisdiction, according to a press release issued today, entitled Atlanta Attorney/CPA Files Lawsuit Challenging PTIN User Fees (01/28/13).

On January 25, 2013, Allen Buckley, an Atlanta attorney/CPA filed suit in the U.S. District Court for the Eastern District of Tennessee, challenging charging of user fees by the U.S. Treasury Department to issue and annually renew Preparer Tax Identification Numbers ("PTINs").

Beginning in 2010, after the IRS recommended the tax return preparation industry be regulated in a new manner not approved by Congress, regulations were issued to implement IRS's recommendations. One of the regulations included the requirement that a PTIN be obtained, and that fees be charged for issuance and annual renewal of the PTIN. The IRS's recommendation called for renewal every three years, but the regulations provided for annual renewal. The initial fee is $64.25 and the annual renewal fee is $63.

The suit seeks a declaratory judgment that charging of fees for initial issuance of a PTIN and annual renewal thereof is unlawful, and also asks for a permanent injunction, preventing the Treasury Department from charging issuance and renewal fees.

Allen Buckley said: "The user fee statute is the basis for charging of fees. Numerous requirements exist for the user fee statute to be used to charge fees, including requirements that the fees are paid voluntarily and a special benefit is received by the payer. Neither of these requirements has been met in this case." * * *

With the IRS PTIN system "down", if a professional tax preparer is not currently registered or renewed, can one register anew or re-register with the IRS willingly for the year 2013?  How?

Recently, federal estate tax forms and federal transfer tax laws have been in flux.  Now federal tax professional preparer requirements for 2013 are too. 

Update: 02/06/13:

The IRS Preparer Tax Identification Number (PTIN) system was restored online effective February 2, 2013. It had been "down" after January 18, 2013, due to litigation in federal court. For an update, see: PA EE&F Law Blog posting IRS PTIN System Online Again (02/06/13).

Another PA Inheritance Tax Exemption Engrafted?

On January 23, 2013, the Central Pennsylvania Business Journal reported in an article entitled Pa. House committee passes bill to end 'death tax', that the Finance Committee of the Pennsylvania House approved a bill Tuesday for further consideration by the full House that would eliminate Pennsylvania inheritance tax on family-owned businesses.

Cumberland County Republican Rep. Stephen Bloom introduced the measure, which also came up last legislative session.

"The death tax hits businesses during a time when they are most economically vulnerable, crippling our next generation of job creators," Bloom said in a statement. "This is an unnecessary loss to our economy and to the businesses that create 65 percent of Pennsylvania jobs."

House Bill 48 has 70 co-sponsors in the House and is backed by the National Federation of Independent Business in Pennsylvania, the Pennsylvania Retailers' Association and the Americans for Prosperity-Pennsylvania, among others. * * *

In a prior article by Alex Nixon, entitled Proposal would exempt family businesses from Pennsylvania inheritance tax (01/16/13), the reasons for the proposed changes were discussed from the sponsors' and beneficiaries' viewpoints.

The state‘s inheritance tax can leave heirs scrambling to cover a tax bill. And many end up selling the business or taking out costly loans.

“If something were to happen suddenly to my father, there would have been tens of thousands of dollars of estate taxes owed,” said Dave Cranston Jr., president of Cranston Material Handling Equipment Corp. in Robinson. “None of us have that (money) sitting around waiting.”

Cranston owns 80 percent of the business founded by his grandfather in 1957, and his father is alive and well.

But a bill before Harrisburg lawmakers could end the worry for other family-owned companies across the state.* * *

Such relief is proposed in a fashion generally paralleling that which took effect on July 1, 2012, to exempt family farms from such taxation.  See: PA EE&F Law Blog, Family Farms Exempted from PA Inheritance Tax (07/03/12).

Reporter Melissa Daniels, of the Pennsylvania Independent, had interviewed me earlier this year as she prepared her article entitled Family owned businesses could see ‘death tax’ exemption (01/02/13).

Some Pennsylvania lawmakers say the state’s inheritance tax is inherently unfair.
While those lawmakers succeeded in eliminating the tax for family owned farms last year, this session marks round two, with family owned businesses possibly getting a break.

State Rep. Steve Bloom, R-Cumberland, will soon introduce legislation to eliminate the inheritance tax on business assets, including real estate, for children, siblings or other relatives of a decedent.

He led similar legislation last year that exempts family owned farms from paying the tax.

Bloom’s proposal chips away at the tax, rather than eliminating it altogether. But whether another exemption happens will depend on whether lawmakers can stand losing state revenue. * * *

She quoted my concerns about additional changes to Pennsylvania's Inheritance Tax law motivated by one constituency without regard to the effect upon other taxpayers.  I believe that reforms should consider the entire scope of the tax, particularly in view of the transitional and uncertain nature of the federal estate, gift, and generation-skipping tax systems.

But creating parsed-out exemptions in tax codes can create an extra layer of confusion, despite the intent, said Neil Hendershot, a Harrisburg-area attorney who specializes in estate planning.

The inheritance tax is convoluted on its face, he said, with different rates for different situations, and various reporting requirements that may or may not apply to all situations.

“It bears a review but doing it on an ad hoc basis is going to make it more and more complicated,” Hendershot said.

Hendershot said he would prefer to see the law streamlined for all asset classes, or perhaps revamped with advice from a panel of experts. Issues surround the tax, such as privacy concerns on making asset values public information, that could be part of the discussion, he said.

Pennsylvania's Inheritance Tax Laws derive from roots planted in 1826.  Pennsylvania was the first state to apply an inheritance tax, and has done so continuously since.  

Like a tree long-grown and mature, Pennsylvania's Inheritance Tax laws and administrative system may require pruning -- but not just the one low-hanging branch on one side which bothers some nearby.  It is time to examine the living purpose of, and the shadow cast by, that tree in its entirety, thoughtfully and skillfully.  

The Legislature, instead, should constitute a qualified study group to do just that, with the interests of all Pennsylvanians in mind.