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IRS Loses $175 Million Class Action Lawsuit

  • Forbes
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IRS Loses $175 Million Class Action Lawsuit
On September 8, 2014, plaintiffs Adam Steele, Brittany Montrois, "and a Class of More Than 700,000 Similarly Situated Individuals and Businesses" filed a class action suit against the federal government seeking to recover allegedly unlawful license fees paid to the Internal Revenue Service (IRS). Nearly three years later, the plaintiffs, which then included Joseph Henchman, an attorney with the Tax Foundation, who joined Steele and Montrois, got a win after Judge Royce C. Lamberth ruled that "all fees that the defendant has charged to class members to issue and renew a PTIN ... are hereby declared unlawful." The potential cost to the IRS? More than $175 million.

The lawsuit stems from IRS efforts to regulate tax preparers. As part of those efforts, effective September 30, 2010, the IRS required all paid tax preparers obtain and use a preparer tax identification number (PTIN).

1040, signature pageADVERTISINGFor years, the IRS has made it clear that a paid preparer may not file a return without a PTIN - there's even a PTIN directory on the IRS website so that taxpayers can easily find a preparer with a valid PTIN. Think of a PTIN like a substitute Social Security Number (SSN) for tax preparers. That is what it is, more or less - since 1999, tax return preparers have been able to use a PTIN on tax returns instead of their Social Security Numbers. It was a balancing act: the IRS was trying to protect taxpayers by requiring preparers to identify themselves on returns while simultaneously protecting the individual privacy concerns of preparers. At the time, PTINs were issued for free.

The issuance of PTINs wasn't problematic. Here's what was. Beginning with the 2010 rules, PTINs not only became mandatory, they also became expensive. That year, the IRS required an initial fee of $64.25. Each year, an additional renewal fee of $63 applied. The government justified the fee by pointing to 31 U.S.C. § 9701, which permits federal agencies to "charge for a service or thing of value provided by the agency."

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