                                                     UNITED STATES DISTRICT COURT
                                                     FOR THE DISTRICT OF COLUMBIA

                                                                       )
ADAM STEELE, et al.,                                                   )
                                                                       )
                                                                       )
                             Plaintiffs,                               )
                                                                       )
              v.                                                       )   Case No: 14-cv-1523-RCL
                                                                       )
UNITED STATES OF AMERICA,                                              )
                                                                       )
                                                                       )
                           Defendant.                                  )
                                                                       )

                                                               MEMORANDUM OPINION

I.            INTRODUCTION

              Plaintiffs bring this class action against the United States to challenge regulations

promulgated by the Treasury Department and the Internal Revenue Service requiring tax return

preparers to obtain and pay fees for preparer tax identification numbers (PTINs). Both parties

have moved for partial summary judgment on the first issue raised in plaintiffs’ lawsuit: whether

Treasury and the IRS have the authority to require that all tax return preparers obtain and pay for

a PTIN.1 For the reasons stated below, the Court finds that although the IRS has the authority to

require the use of PTINs, it does not have the authority to charge fees for issuing PTINs. The

Court will grant in part and deny in part both parties’ summary judgment motions.

II.           BACKGROUND

              This case revolves around a group of 2010–2011 regulations promulgated by the Treasury

Department and the IRS regarding tax return preparers. As explained fully below, the regulations

imposed certain requirements for becoming a tax return preparer, including obtaining a specific

                                                            
1
    The Court makes no determination regarding plaintiffs’ second claim: that the fees exacted were excessive.

                                                                       1
PTIN and paying a user fee for obtaining such PTIN. Plaintiffs argue that the government lacks

legal authority to require PTINs and PTIN fees, and alternatively, that the fee imposed is excessive

and impermissible. They seek a declaratory judgment that Treasury and the IRS lack legal

authority to charge these fees or that the fees charged are excessive, and for the return or refund of

all fees previously collected or for the return and refund of the excessive fees. In 2016, this Court

certified the proposed class of “all individuals and entities who have paid an initial and/or renewal

fee for a PTIN, excluding Allen Buckley, Allen Buckley LLC, and Christopher Rizek.” See Steele

v. United States, 159 F. Supp. 3d 73, 88 (D.D.C. 2016); Steele v. United States, 200 F. Supp. 3d

217, 227 (D.D.C. 2016).

       A.      Statutory and Regulatory Framework

       Each year, every American is required to submit a tax return to the IRS. Given the

complexity of the tax code, it is unsurprising that many people hire others—tax return preparers—

to prepare their returns for them. Some tax return preparers have credentials, such as CPAs and

attorneys, but others are known as uncredentialed tax return preparers. Before 2010, anyone could

file a tax return on behalf of someone else, credentialed or not. In 2010, however, the IRS,

attempting to regulate both credentialed and uncredentialed tax return preparers, promulgated new

regulations. The regulations established a new “registered tax return preparer” designation,

requiring individuals other than attorneys and CPAs to: “(1) [p]ass a one-time competency exam,

(2) pass a suitability check, and (3) obtain a PTIN (and pay the amount provided in the PTIN User

Fee regulations).” Regulations Governing Practice Before the Internal Revenue Service, 76 Fed.

Reg. 32286, 32287 (June 11, 2011); 26 C.F.R. § 301.7701-15 (defining “tax return preparer”); 31

C.F.R. § 10.4(c) (describing the requirements to become a registered tax return preparer); 31

C.F.R. § 10.3(f) (stating that registered tax return preparers may practice before the IRS); 31 C.F.R.



                                                  2
§ 10.5(b) (stating that fees may be charged for becoming a registered tax return preparer); 26

C.F.R. § 1.6109-2(d) (“Beginning after December 31, 2010, all tax return preparers must have a

preparer tax identification number or other prescribed identifying number that was applied for and

received at the time and in the manner, including the payment of a user fee, as may be prescribed

by the Internal Revenue Service.”).      The regulations also imposed renewal and continuing

education requirements. Regulations Governing Practice Before the Internal Revenue Service, 76

Fed. Reg. at 32287; 31 C.F.R. § 10.6. As statutory authority for these regulations, the IRS relied

on a provision of the U.S. Code which states that the Secretary of the Treasury may “(1) regulate

the practice of representatives of persons before the Department of the Treasury; and (2) before

admitting a representative to practice, require that the representative demonstrate—(A) good

character; (B) good reputation; (C) necessary qualifications to enable the representative to provide

to persons valuable service; and (D) competency to advise and assist persons in presenting their

cases.” 31 U.S.C. § 330(a).

       In support of its conclusion that such regulations were necessary, the IRS pointed to the

prevalence of the use of tax return preparers but the lack of consistent oversight, and specifically

found that

       [t]he tax system is best served by tax return preparers who are ethical, provide good service,
       and are qualified. . . . As such, the IRS recognizes the need to apply a uniform set of rules
       to offer taxpayers some assurance that their tax returns are prepared completely and
       accurately. Increasing the completeness and accuracy of returns would necessarily lead to
       increased compliance with tax obligations by taxpayers.

Regulations Governing Practice Before the Internal Revenue Service, 76 Fed. Reg. at 32294.

Thus, “[t]he primary benefit anticipated from these regulations is that they will improve the

accuracy, completeness, and timeliness of tax returns prepared by tax return preparers.” Id. The

IRS later specifically identified two overarching objectives of the new regulations: “The first

overarching objective is to provide some assurance to taxpayers that a tax return was prepared by
                                                 3
an individual who has passed a minimum competency examination to practice before the IRS as a

tax return preparer, has undergone certain suitability checks, and is subject to enforceable rules of

practice. The second overarching objective is to further the interests of tax administration by

improving the accuracy of tax returns and claims for refund and by increasing overall tax

compliance.” Furnishing Identifying Number of Tax Return Preparer, 75 Fed. Reg. 60309, 60310

(Sept. 30, 2010).

       A statutory provision—in effect prior to the new regulations—requires that “[a]ny return

or claim for refund prepared by a tax return preparer shall bear such identifying number for

securing proper identification of such preparer, his employer, or both, as may be prescribed.” 26

U.S.C. § 6109(a)(4). The statute explains that an individual’s social security number “shall, except

as shall otherwise be specified under regulations of the Secretary, be used as the identifying

number.” Id. § 6109(d). The regulations, however, required, for the first time, that “tax return

preparers must obtain and exclusively use the [PTIN] in forms, instructions, or other guidance,

rather than a social security number (SSN), as the identifying number to be included with the tax

return preparer’s signature on a tax return or claim for refund.” Furnishing Identifying Number of

Tax Return Preparer, 75 Fed. Reg. at 60309; 26 C.F.R. § 1.6109-2(d). As justification for the

requirement that preparers must obtain and use a PTIN, the IRS repeatedly cited to the need to

identify individuals involved in preparing a tax return for others so as to aid their ability to oversee

such individuals “and to administer requirements intended to ensure that tax return preparers are

competent, trained, and conform to rules of practice.” Furnishing Identifying Number of Tax

Return Preparer, 75 Fed. Reg. at 60310, 60313. The IRS further explained the need for the

exclusive use of PTINs, as opposed to both PTINs and social security numbers, arguing that

“[m]andating a single type of identifying number for all tax return preparers and assigning a



                                                   4
prescribed identifying number to registered tax return preparers is critical to effective oversight.”

Id. at 60313. Specifically, “[e]stablishing a single, prescribed identifying number for tax return

preparers will enable the IRS to accurately identify tax return preparers, match preparers with the

tax returns and claims for refund they prepare, and better administer the tax laws with respect to

tax return preparers and their clients.” Id. at 60314. The IRS also briefly mentioned that the

regulations requiring the use of a PTINs would “help maintain the confidentiality of SSNs.” Id. at

60309.

         The regulations also imposed a user fee requirement for obtaining a PTIN. See User Fees

Relating to Enrollment and Preparer Tax Identification Numbers, 75 Fed. Reg. 60316 (Sept. 30,

2010); 26 C.F.R. § 300.13. As authority for requiring these fees, the IRS relied on the Independent

Offices Appropriations Act of 1952 (“IOAA”). See User Fees Relating to Enrollment and Preparer

Tax Identification Numbers, 75 Fed. Reg. at 60317. The IOAA provides that agencies “may

prescribe regulations establishing the charge for a service or thing of value provided by the

agency.” 31 U.S.C. § 9701(b). The IRS stated that a PTIN is a “service or thing of value” because

without a PTIN “a tax return preparer could not receive compensation for preparing all or

substantially all of a federal tax return or claim for refund,” and “[b]ecause only attorneys, certified

public accountants, enrolled agents, and registered tax return preparers are eligible to obtain a

PTIN, only a subset of the general public is entitled to a PTIN and the special benefit of receiving

compensation for the preparation of a return that it confers.” User Fees Relating to Enrollment

and Preparer Tax Identification Numbers, 75 Fed. Reg. at 60317.

         B.     Prior Caselaw Interpreting the Tax Return Preparer Regulations

         In 2014, the D.C. Circuit addressed the regulations regarding the exam and education

requirements, asking “whether the IRS’s statutory authority to ‘regulate the practice of



                                                   5
representatives of persons before the Department of the Treasury’ [under 31 U.S.C. § 330]

encompasses authority to regulate tax-return preparers.” Loving v. I.R.S., 742 F.3d 1013, 1015

(D.C. Cir. 2014). Considering the meaning of the terms “representatives” and “practice . . . before

the Department of the Treasury,” the history of Section 330, the broader statutory framework, the

nature and scope of authority being claimed by the IRS, and the IRS’s past approach to the statute,

the Circuit found that the IRS’s interpretation of Section 330 was unreasonable and failed under

Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). Id. at 1016–22. The

court concluded that “the IRS’s statutory authority under Section 330 cannot be stretched so

broadly as to encompass authority to regulate tax-return preparers,” and invalidated the regulations

requiring competency testing and continuing education. Id. at 1015. Thus, after Loving, the only

part of the new regulatory scheme that remains is the PTIN requirement and the attendant PTIN

fee requirement.

       The only other cases regarding these regulations that have been litigated have taken place

in the Northern District of Georgia (and subsequently the Eleventh Circuit), and all were decided

prior to the D.C. Circuit’s Loving opinion. First, in Brannen v. United States, plaintiffs sought “to

prevent charges of user fees under 31 U.S.C. § 9701 for the right to receive an identification

number necessary to file tax returns on behalf of others for compensation and to recover amounts

paid as such fees.” Brannen v. United States, No. 4:11-CV-0135-HLM, 2011 WL 8245026, at *1

(N.D. Ga. Aug. 26, 2011). After concluding that the authority to charge a user fee for a PTIN

stemmed from 31 U.S.C. § 9701, and finding that the complaint failed to contain allegations to

state a claim that the amount of the fee was inappropriate under § 9701, the Brannen court rejected

the argument that “the imposition of the PTIN fee is an unauthorized attempt on the part of the

Secretary of the Treasury to license tax return preparers.” Id. at *5. It found that “Congress



                                                 6
specifically authorized the Secretary of the Treasury to create regulations requiring tax return

preparers to identify themselves, by means of identifying numbers, on tax returns and refund

claims that they prepare” in 26 U.S.C. § 6109 and therefore the Secretary of the Treasury did not

exceed his authority by issuing regulations requiring the use of PTINs. Id. It then found that the

PTIN fee requirement was authorized by Section 9701 because PTINs provide a benefit to tax

return preparers: “The provision of a PTIN confers a special benefit on tax return preparers, who

otherwise would not be permitted to prepare tax returns and refund claims on behalf of others in

exchange for compensation.” Id. at *6.

       The Brannen decision was affirmed on appeal. See Brannen v. United States, 682 F.3d

1316 (11th Cir. 2012). The Eleventh Circuit held that the PTIN user fees are permissible under

Section 9701:

       [A] tax return preparer cannot prepare tax returns for others for compensation without
       having the required identifying number. And because § 6109(a)(4) expressly authorizes
       the Secretary to assign such numbers, a person cannot prepare tax returns for another for
       compensation unless that person obtains from the Secretary the required identifying
       number. For this reason, when the Secretary assigns the identifying number (the preparer
       tax identification number or “PTIN”), the Secretary is conferring a special benefit upon the
       recipient, i.e., the privilege of preparing tax returns for others for compensation.

Id. at 1319.

       Approximately eighteen months after the Brannen decision, and after the Loving district

court decision, the Northern District of Georgia considered “whether 26 U.S.C. § 6109(a)(4)

permits the United States Treasury Department to issue regulations that assess user fees as well as

annual renewal fees associated with PTIN assigned to those who prepare tax forms for

compensation” and “whether the annual renewal fee assessed for renewing one’s PTIN number is

either arbitrary and capricious or excessive.” Buckley v. United States, No. 1:13-CV-1701, 2013

WL 7121182, at *1 (N.D. Ga. Dec. 4, 2013). Agreeing with Brannen, the Buckley court found

that the imposition of PTIN user fees was authorized and that the fee confers a special benefit on
                                                7
tax return preparers. Id. at *1–2. The court then found Loving—which at the time was still a

district court decision—inapplicable because it “reviewed the competency testing and continuing

education requirements for return preparers,” which were not at issue in Buckley. Id. at *2. It

concluded that “the Loving case specifically held that Congress authorized the PTIN scheme via a

different statutory authority than the testing and competency requirements for registered tax return

preparers, which were at issue in the Loving case.” Id. Following the D.C. Circuit’s Loving

decision, there have been no further developments in the caselaw specifically analyzing the

authority to require PTINs and charge fees for them.

III.   LEGAL STANDARDS

       Plaintiffs first argue that the PTIN requirements—that tax return preparers obtain and pay

fees for PTINS—are arbitrary and capricious under the Administrative Procedure Act. They

alternatively argue that even if the fee requirements are not arbitrary and capricious, they are

unlawful under the IOAA because Congress did not grant the IRS licensing authority over tax

return preparers, so the fees do not confer a “service or thing of value.” After summarizing the

general legal standards for summary judgment, the Court will address the standards for review of

an agency action and those applicable to the IOAA.  

       A.      Summary Judgment

       Courts “shall grant summary judgment if the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). To show that a dispute is “genuine” and defeat summary judgment, the nonmoving party

must present evidence “such that a reasonable jury could return a verdict for the nonmoving party.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Facts are material when they might

affect the outcome of the suit. Id. The parties here have agreed that the first claim—whether the



                                                 8
government had the legal authority to charge PTIN fees—may be decided as a matter of law at the

summary judgment stage.

       B.      Review of an Agency Action

       The APA permits the judicial review of an agency action unless a statute precludes judicial

review or an “agency action is committed to agency discretion by law.” 5 U.S.C. § 701. Although

some agency actions are therefore unreviewable, there is a strong presumption of judicial review

for agency actions, and the exemption to judicial review is “very narrow.” Abbott Labs. v.

Gardner, 387 U.S. 136, 140 (1967); Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402,

410 (1971). The exemption applies “in those rare instances where ‘statutes are drawn in such

broad terms that in a given case there is no law to apply.’” Citizens to Pres. Overton Park, Inc.,

401 U.S. at 410. In other words, “a court would have no meaningful standard against which to

judge the agency’s exercise of discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985). “[O]nly

upon a showing of ‘clear and convincing evidence’ of a contrary legislative intent should the courts

restrict access to judicial review.” Abbott Labs, 387 U.S. at 141.

       If a court may review an agency action, more than one standard of review exists. First,

Chevron review—the standards promulgated in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,

Inc., 467 U.S. 837 (1984)—is appropriate to determine “whether an agency has authority to act

under a statute.” Arent v. Shalala, 70 F.3d 610, 615 (D.C. Cir. 1995). Chevron review employs a

two step analysis:

       First, always, is the question whether Congress has directly spoken to the precise question
       at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as
       well as the agency, must give effect to the unambiguously expressed intent of Congress.
       If, however, the court determines Congress has not directly addressed the precise question
       at issue, the court does not simply impose its own construction on the statute, as would be
       necessary in the absence of an administrative interpretation. Rather, if the statute is silent
       or ambiguous with respect to the specific issue, the question for the court is whether the
       agency’s answer is based on a permissible construction of the statute.

                                                 9
Chevron, 467 U.S. at 842–43. “The paradigmatic Chevron case concerns ‘[t]he power of an

administrative agency to administer a congressionally created . . . program.’” Arent, 70 F.3d at

615 (quoting Chevron, 467 U.S. at 843). As described by the D.C. Circuit, “a reviewing court’s

inquiry under Chevron is rooted in statutory analysis and is focused on discerning the boundaries

of Congress’ delegation of authority to the agency; and as long as the agency stays within that

delegation, it is free to make policy choices in interpreting the statute, and such interpretations are

entitled to deference.” Id.

       Alternatively, agency actions may be held unlawful because they are arbitrary and

capricious. See 5 U.S.C. § 706(2)(A). When “a statute plainly authorizes an agency authority to

act and ‘[t]he only issue . . . is whether the [agency]’s discharge of that authority was reasonable,’

the case ‘falls within the province of traditional arbitrary and capricious review.’” Sociedad

Anonima Vina Santa Rita v. U.S. Dep’t of Treasury, 193 F. Supp. 2d 6, 15 (D.D.C. 2001) (quoting

Arent, 70 F.3d at 616). The standards for arbitrary and capricious review were set out in the

Supreme Court’s State Farm decision:

       The scope of review under the “arbitrary and capricious” standard is narrow and a court is
       not to substitute its judgment for that of the agency. Nevertheless, the agency must
       examine the relevant data and articulate a satisfactory explanation for its action including
       a “rational connection between the facts found and the choice made.” In reviewing that
       explanation, we must “consider whether the decision was based on a consideration of the
       relevant factors and whether there has been a clear error of judgment.” Normally, an
       agency rule would be arbitrary and capricious if the agency has relied on factors which
       Congress has not intended it to consider, entirely failed to consider an important aspect of
       the problem, offered an explanation for its decision that runs counter to the evidence before
       the agency, or is so implausible that it could not be ascribed to a difference in view or the
       product of agency expertise. The reviewing court should not attempt itself to make up for
       such deficiencies: “We may not supply a reasoned basis for the agency’s action that the
       agency itself has not given.” We will, however, “uphold a decision of less than ideal clarity
       if the agency’s path may reasonably be discerned.”

Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)

(internal citations omitted). Keeping with the rule that agencies must explain their decisions,


                                                  10
courts “do not defer to the agency’s conclusory or unsupported suppositions.” McDonnell Douglas

Corp. v. U.S. Dep’t of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004). Courts must “set aside

agency regulations which, though well within the agencies’ scope of authority, are not supported

by the reasons that the agencies adduce.” Allentown Mack Sales & Serv., Inc. v. N.L.R.B., 522

U.S. 359, 374 (1998).

       Although agencies may change existing policies, to survive arbitrary and capricious review

they must “provide a reasoned explanation for the change.” Encino Motorcars, LLC v. Navarro,

136 S. Ct. 2117, 2125 (2016). Although it “‘need not always provide a more detailed justification

than what would suffice for a new policy created on a blank slate,’ . . . the agency must at least

‘display awareness that it is changing position’ and ‘show that there are good reasons for the new

policy.’” Id. at 2125–26. Unexplained inconsistencies in agency position are arbitrary and

capricious and therefore unlawful. Id. at 2126.

       Chevron review and arbitrary and capricious review under State Farm “overlap at the

margins.” Arent, 70 F.3d at 615, n.6 (“[W]hether an agency action is ‘manifestly contrary to the

statute’ is important both under Chevron and under State Farm.”). For example, “a finding that

an agency has acted arbitrarily or capriciously in discharging its statutory duties could be phrased

as a conclusion that the agency’s interpretation of the controlling statute is unreasonable.”

Sociedad Anonima Vina Santa Rita, 193 F. Supp. 2d at 16. In such cases, a decision that an agency

action is arbitrary and capricious is “functionally equivalent” to a determination that the action is

unreasonable under Chevron. Indep. Petroleum Ass’n of Am. v. Babbitt, 92 F.3d 1248, 1258 (D.C.

Cir. 1996).




                                                  11
       C.      “Service or Thing of Value” Under the IOAA

       The IOAA permits agencies to charge user fees for “a service or thing of value provided

by the agency.” 31 U.S.C. § 9701(b). The Supreme Court has read the language of the Act

narrowly in order to distinguish between fees and taxes, the latter of which are the province of

Congress. See Nat’l Cable Television Ass’n, Inc. v. United States, 415 U.S. 336, 340–41 (1974).

Fees are “incident to a voluntary act” and connote a benefit. Id. Agencies may impose fees for

bestowing special benefits on individuals not shared by the general public. Id.; Fed. Power

Comm’n v. New England Power Co., 415 U.S. 345, 350–51 (1974); Engine Mfrs. Ass’n v. E.P.A.,

20 F.3d 1177, 1180 (D.C. Cir. 1994). There must be “a sufficient nexus between the agency

service for which the fee is charged and the individuals who are assessed.” Seafarers Int’l Union

of N. Am. v. U.S. Coast Guard, 81 F.3d 179, 183 (D.C. Cir. 1996). Agencies must “make clear the

basis for a fee it assesses under the IOAA.” Nat’l Cable Television Ass'n, Inc. v. F.C.C., 554 F.2d

1094, 1100 (D.C. Cir. 1976)

IV.    ANALYSIS

       The Court first finds that the agency action here is reviewable. The statute enacted by

Congress specifies that tax return preparers shall use their social security numbers to identify

themselves on prepared returns unless the Secretary of the Treasury specifies otherwise. See 26

U.S.C. § 6109. Nowhere does the government identify the clear and convincing evidence showing

that Congress sought to specifically commit discretion to the agency to determine whether a

different number should be used so as to completely preclude judicial review. Cf. Abbott Labs,

387 U.S. at 141. Therefore the Court will review the agency action here and will determine

whether the agency had the authority to require the use of a PTIN and to charge PTIN user fees.




                                                12
       A.      The Agency is Authorized to Require the Exclusive Use of PTINs

       Although the parties disagree about the proper standard under which to judge the IRS’s

action, the Court first finds that the IRS was authorized to issue regulations requiring the exclusive

use of PTINs under both Chevron and State Farm. First, plaintiffs’ arguments fail step one of

Chevron. Chevron states that “if Congress has directly spoken to the precise question at issue . . .

that is the end of the matter; for the court, as well as the agency, must give effect to the

unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842. The statute specifically

says that the Secretary has the authority to specify the required identifying number to be used on

prepared tax returns. 26 U.S.C. § 6109(d) (“The social security account number issued to an

individual for purposes of section 205(c)(2)(A) of the Social Security Act shall, except as shall

otherwise be specified under regulations of the Secretary, be used as the identifying number for

such individual for purposes of this title.” (emphasis added)). The Court must give effect to the

unambiguous intent of Congress that the Secretary may require the use of such a number.

       In addition, the decision to require the use of PTINs was not arbitrary or capricious. The

agency offered several justifications for the regulation requiring the exclusive use of PTINs. First,

the IRS explained the need to identify tax return preparers in order to maintain oversight, and

stated that the use of a single identifying number was critical to such effective oversight. See

Furnishing Identifying Number of Tax Return Preparer, 75 Fed. Reg. at 60310, 60313. The IRS

stated that the use of a single number would “enable the IRS to accurately identify tax return

preparers, match preparers with the tax returns and claims for refund they prepare, and better

administer the tax laws with respect to tax return preparers and their clients.” Id. at 60314. The

IRS has articulated satisfactory explanations for its actions. See State Farm, 463 U.S. at 43. There

is a rational connection between the regulations—requiring the use of PTINs—and the stated



                                                 13
rationales—effective administration and oversight. See id.  And, there is no indication that the IRS

entirely failed to consider an important aspect of the problem, or that its rationales ran counter to

the evidence before it, or that its reasoning is completely implausible. See id. In addition, this was

not an unexplained change in policy.                           See Encino Motorcars, 136 S. Ct. at 2126.          The

aforementioned reasons for the change in policy were identified by the IRS.

              Other courts to consider this issue also have found that the PTIN requirement is authorized

by law. See Brannen, 2011 WL 8245026, at *5 (“Congress specifically authorized the Secretary

of the Treasury to create regulations requiring tax return preparers to identify themselves, by means

of identifying numbers, on tax returns and refund claims that they prepare.”); Brannen, 682 F.3d

at 1319 (“§ 6109(a)(4) expressly authorizes the Secretary to assign such numbers”); Buckley, 2013

WL 7121182, at *1–2.2

              For these reasons, the Court concludes that the IRS was authorized to issue the regulations

requiring tax return preparers to obtain PTINs.

              B.             The IRS May Not Impose User Fees for PTINs

              Having found that the IRS has the authority to require the exclusive use of PTINs, the Court

now turns to the question of whether the IRS is authorized to charge user fees for PTINs. Plaintiffs

argue that after the D.C. Circuit struck down the eligibility criteria for becoming a registered tax

return preparer in Loving, it removed the IRS’s stated rationale for requiring PTIN fees—to

regulate tax return preparers. Given that the IRS now no longer has any valid justification for the

fees, plaintiffs argue that they are arbitrary and capricious, and therefore unlawful under the APA.

Alternatively, plaintiffs argue that because Congress did not grant the IRS licensing authority—as

found by Loving—tax return preparers receive no special benefit in exchange for the fees,

                                                            
2
  As explained in the next section, however, this Court disagrees with these decisions to the extent that they conclude
that the IRS may charge fees for PTINs under the IOAA.

                                                                  14
rendering them unlawful under the IOAA. In other words, plaintiffs argue that the IRS originally

created a licensing scheme that would limit tax return preparers to those certain people who could

meet eligibility criteria. But, because Loving found that Congress did not authorize a license

requirement for tax return preparers, there are now no restrictions on who may obtain a PTIN and

therefore it is no longer true that only a specific set of people may receive PTINs and the “special

benefit” of being able to prepare tax returns for compensation. The only beneficiary of the PTIN

system is therefore the IRS.

       The government argues that the PTIN and user fee regulations are separate from the

regulations imposing eligibility requirements on registered tax return preparers. It argues that the

PTIN requirements are not arbitrary and capricious because they make it easier to identify tax

return preparers and the returns they prepare, which is a critical step in tax administration, and

because PTINs protect social security numbers from disclosure. In support of its position that it

may charge fees for PTINs, the IRS states that PTINs are a service or thing of value because the

ability to prepare tax returns for compensation is a special benefit provided only to those people

who obtain PTINs, who are distinct from the general public. Individuals without PTINs cannot

prepare tax returns for compensation.       In addition, the IRS argues that PTINs protect the

confidentiality of tax return preparers’ social security numbers, and that protection itself is a

service or thing of value.

       The Court finds that PTINs do not pass muster as a “service or thing of value” under the

government’s rationale. First, the argument that the registered tax return preparer regulations

regarding testing and eligibility requirements and the PTIN regulations are completely separate

and distinct is a stretch at best. While it is true that they were issued separately and at different

times, they are clearly interrelated.    The RTRP regulations specifically mention the PTIN



                                                 15
requirements and state that PTINs are part of the eligibility requirements for becoming a registered

tax return preparer. See Regulations Governing Practice Before the Internal Revenue Service, 76

Fed. Reg. at 32287–89; 26 C.F.R. § 1.6109-2(d) (“[T]o obtain a [PTIN] or other prescribed

identifying number, a tax return preparer must be an attorney, certified public accountant, enrolled

agent, or registered tax return preparer authorized to practice before the Internal Revenue Service

under 31 U.S.C. 330 and the regulations thereunder.”). Furthermore, the overarching objectives

named in the PTIN regulations indicate a connection to the RTRP regulations. They were 1) “to

provide some assurance to taxpayers that a tax return was prepared by an individual who has passed

a minimum competency examination to practice before the IRS as a tax return preparer, has

undergone certain suitability checks, and is subject to enforceable rules of practice;” and 2) “to

further the interests of tax administration by improving the accuracy of tax returns and claims for

refund and by increasing overall tax compliance.” Furnishing Identifying Number of Tax Return

Preparer, 75 Fed. Reg. at 60310. The first objective clearly relates to the RTRP regulations

regarding eligibility requirements for tax return preparers. The second objective is less explicit,

but it does not stretch common sense to conclude that the accuracy of tax returns would be

improved by requiring tax return preparers to meet certain education requirements.

       Having concluded the inter-connectedness of the regulations, the government’s argument

begins to break down. The Loving court concluded that the IRS does not have the authority to

regulate tax return preparers. Loving, 742 F.3d at 1015. It cannot impose a licensing regime with

eligibility requirements on such people as it tried to do in the regulations at issue. Although the

IRS may require the use of PTINs, it may not charge fees for PTINs because this would be

equivalent to imposing a regulatory licensing scheme and the IRS does not have such regulatory

authority. Granting the ability to prepare tax return for others for compensation—the IRS’s



                                                16
proposed special benefit—is functionally equivalent to granting the ability to practice before the

IRS. The D.C. Circuit has already held, however, that the IRS does not have the authority to

regulate the practice of tax return preparers. See id. In coming to its conclusion, the Circuit

considered the statutory language that the Secretary may “regulate the practice of representatives

of persons before the Department of the Treasury.” Id. at 1017–18 (quoting 31 U.S.C. § 330(a)(1)).

The court found that the IRS improperly expanded the definition of “practice . . . before the

Department of Treasury” to include “preparing and signing tax returns” because to “practice

before” an agency “ordinarily refers to practice during an investigation, adversarial hearing, or

other adjudicative proceeding.” Id. at 1018. The Loving court concluded that “[t]hat is quite

different from the process of filing a tax return” in which “the tax-return preparer is not invited to

present any arguments or advocacy in support of the taxpayer’s position . . . [and] the IRS conducts

its own ex parte, non-adversarial assessment of the taxpayer’s liability.” Id. The ability to prepare

tax returns is the “practice” identified by the IRS in Loving, but the court found that such an activity

does not qualify as practicing before the IRS. Therefore, it appears to this Court that the IRS is

attempting to grant a benefit that it is not allowed to grant, and charge fees for granting such a

benefit.

       Over forty years ago, the Supreme Court interpreted the predecessor to the current form of

the IOAA, which stated that that an agency could charge fees for “any work, service . . . benefit, .

. . license, . . . or similar thing of value” provided by the agency. Nat’l Cable Television Ass’n,

Inc., 415 U.S. at 337. In listing examples of activities for which an agency could charge a fee, the

Supreme Court noted “a request that a public agency permit an applicant to practice law or

medicine or construct a house or run a broadcast station,” i.e., permits and occupational licenses.

Id. at 340. Subsequently, the D.C. Circuit cases finding that a fee was permissible under the IOAA



                                                  17
generally concern valid regulatory schemes, as opposed to the situation here where the regulatory

scheme was struck down. In Elec. Indus. Ass’n, Consumer Elecs. Grp. v. F.C.C., common carriers

and equipment manufacturers regulated by the FCC challenged the validity of fees for “(1)

common carrier application, filing, and grant fees; (2) common carrier tariff filing fees; and (3)

equipment type approval, type acceptance and certification fees.” 554 F.2d 1109, 1111 (D.C. Cir.

1976). The court found that fees could be assessed for tariff filings and equipment testing and

approval because such services created the “independent private benefit[s]” of “provid[ing] a

means for the carrier to obtain its revenues and to regulate subscriber use of its facilities” and

“assist[ing] the manufacturer in marketing a quality product and giv[ing] him credibility in the

market place.” Id. at 1015–16. The other fees were “justified by the statutory requirement of a

permit for construction of new or extended lines or the discontinuance of service by a common

carrier, and by the requirement of an operating license and station construction permit.” Id. at

1016.

        In Engine Mfrs. Ass’n v. E.P.A., the Engine Manufacturers Association (“EMA”)

challenged an EPA rule assessing fees for the EPA’s “Motor Vehicle and Engine Compliance

Program under which it test[ed] vehicles and engines for compliance with the emissions standards

of the Clean Air.” 20 F.3d at 1178. Each year, vehicle manufacturers were required to obtain

certificates of compliance to sell their equipment through EPA’s compliance program which

included a comprehensive testing regime.         Id. at 1179.    The testing had three stages: 1)

manufacturer testing; 2) selective enforcement audits by EPA; and 3) in-use testing. Id. The EMA

did not dispute that the compliance certificate conferred a special benefit, but argued that selective

enforcement audits and in-use compliance testing were means of enforcing emissions standards

and the benefits of such testing accrued exclusively to the public. Id. at 1180. The court found



                                                 18
that “[s]elective enforcement audits and in-use compliance testing are integral parts of the

compliance regime . . . [and] passing each successive compliance test is necessary in order to keep

its product certified for sale and to avoid the cost of a recall.” Id. The court therefore concluded

that “the manufacturer obtains a benefit from the entire Compliance Program, not just from the

annual certification.” Id.

       Finally, in Seafarers Int’l Union of N. Am. v. U.S. Coast Guard, the court considered fees

charged for issuing “merchant mariner licenses, certificates of registry, or merchant mariner

documentation . . . to qualified individuals seeking to work aboard a United States merchant marine

vessel,” which were documents that “serve[d] as occupational licenses.” 81 F.3d at 181. The

court, finding that “a person who is lawfully required to obtain an occupational license may be

charged a fee to reimburse the agency for the cost of processing the license,” concluded that an

“agency may exact a fee for administering any procedures reasonably necessary to ensure that

[job-related eligibility criteria necessary to obtain a license] have been met.” Id. at 185. The court

therefore concluded that because Congress laid out specific eligibility criteria for such licenses

which “permit[ted] the Coast Guard to take reasonable steps to ensure that the particular

requirements have been met,” the Coast Guard could charge fees “to recover the expense of

whatever reasonable procedure is employed by the Coast Guard to comply with the statute.” Id.

at 185–86.

       The Court acknowledges that courts in the Eleventh Circuit have found that the PTIN fees

are permissible under the IOAA. See Brannen, 682 F.3d at 1319; Brannen, 2011 WL 8245026, at

*5–6; Buckley, 2013 WL 7121182, at *2. But, the Brannen decisions were made prior to D.C.

Circuit’s Loving decision, i.e., prior to the finding that the IRS lacks the authority to regulate tax

return preparers and the striking down of the regulations attempting to do so. In addition, the Court



                                                 19
disagrees with the Buckley court’s finding that Loving (at the time the district court opinion) is

entirely inapplicable because although the PTIN scheme was authorized by a different statutory

authority, it is, as explained above, interrelated with the RTRP scheme.

       If tax return preparers were regulated entities required to obtain licenses, this case would

be very different and the cases cited above may support the government’s argument that it is

authorized to charge fees. However, Loving makes clear that the IRS may not regulate in this area

or require that tax return preparers obtain an occupational license. The Court is unaware of similar

cases in which an agency has been allowed to charge fees under the IOAA for issuing some sort

of identifier when that agency is not allowed to regulate those to whom the identifier is issued, and

the government has not pointed to any.

       Additionally, the Court notes that after Loving, anyone can obtain a PTIN. They need not

meet any type of eligibility criteria. Thus, it is no longer the case that only a subset of the general

public may obtain a PTIN and prepare tax returns for others for compensation. Hypothetically,

every member of the public could obtain a PTIN, which means that every member of the public

would also get the supposed “benefit” of being able to prepare tax returns for others for

compensation. There is therefore no special benefit for certain individuals not available to the

general public. It seems that if a benefit exists, it inures to the IRS, who, through the use of PTINs,

may better identify and keep track of tax return preparers and the returns that they have prepared.

       The government argues that the fact that anyone may obtain a PTIN is irrelevant,

comparing it to the fact that anyone may enter a national park if they buy a ticket. This is

unpersuasive. The Secretary of the Interior is authorized by statute to “establish, modify, charge,

and collect recreation fees at Federal recreational lands and waters.” 16 U.S.C. § 6802(a). As

plaintiffs note, that statute would be wholly unnecessary if the agency were allowed to charge fees



                                                  20
under the IOAA.3 Here, the Secretary of the Treasury is not specifically authorized to charge user

fees for PTINs, so the national park analogy fails.

              Finally, the Court addresses the IRS’s second argument that PTINs are things of value

because they protect the confidentiality of social security numbers.                       The confidentiality

justification is mentioned only briefly in the regulations requiring the use of PTINs: “The final

regulations will also benefit taxpayers and tax return preparers and help maintain the

confidentiality of SSNs.” Furnishing Identifying Number of Tax Return Preparer, 75 Fed. Reg. at

60309. It is not discussed in the regulation specifically addressing user fees. See generally User

Fees Relating to Enrollment and Preparer Tax Identification Numbers, 75 Fed. Reg. 60316.

Despite the fact that tax return preparers were allowed for many years to use their SSNs, and that

under the statute SSNs are presumptively to be used as the required identifying number, and that

the taxpayer’s SSN appears on their tax returns regardless of whether they used a tax return

preparer, the regulations fail to even state that SSNs were being inadvertently disclosed or that

their confidentiality was at risk. It is not at all clear that requiring PTINs was necessary for this

reason. There is no stated evidence in the administrative record that permitted the IRS to make

such a determination. See Innovator Enterprises, Inc. v. Jones, 28 F. Supp. 3d 14, 20 (D.D.C.

2014) (“[T]he function of the district court is to determine whether or not as a matter of law the

evidence in the administrative record permitted the agency to make the decision it did.”). The

Court will not defer to these conclusory and unsupported justifications, see McDonnell, 375 F.3d

at 1187, and finds that the IRS may not charge fees for PTINs for this reason.




                                                            
3
 The Court makes no decision regarding whether fees for national park entry are permissible solely under the
IOAA.

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