PTIN Lawsuit Thoughts

You have probably already heard this but we want to share some thoughts about it.

The U.S. District Court for the District of Columbia ruled that IRS can require the use of a Preparer Tax Identification Number (PTIN) but could not charge a fee in connection with having a PTIN.  Assuming you have a PTIN, you are part of this class action lawsuit and affected by this decision.

There are approximately 700,000 preparers affected by this ruling.  Many of these tax preparers are jumping up and down with joy at the prospect of obtaining a refund of the amounts paid for PTINs over the years.

The cost to refund the PTIN fees collected over the past 6 years would cost approximately $250,000,000).  IRS has not yet said if it will appeal the decision.  Nor has IRS stated when any refunds would be issued.

BUT remember:
1) In many lawsuits the attorneys get their costs and fees first and the rest is distributed which means the full amount of the PTIN fees you paid may not be the amount you receive.

2) The refund of PTIN fees is income to you if you have previously deducted them, so you will end up paying income tax on any refund, including self-employment tax if you previously deducted this on Schedule C or a 1065 since the refund is reported back on the same form it was previously deducted from (except if you claimed the deduction on Form 2106 in which are the refund would go on Form 1040, line 21).  Don’t forget you will report the gross amount as income and then claim a deduction for costs such as the legal fees.

3) The US government is the body that will be paying these refunds, the attorney fees, etc.  This means the US government will have a few million less to operate under which means our taxes may go up.

4) Those of you who are EAs noticed a lower renewal fee in the past few years since there was some duplication between the PTIN and EA processing costs.  It would be reasonable for the EA fee to increase if there is no longer duplication of processing costs.

Just pleasant thoughts to keep in mind in case you have been “jumping up and down” with joy at this ruling.

This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).