Steele, et Al. v. United States of America

MOTION for Partial Summary Judgment

D.D.C.September 7, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ADAM STEELE, et al., ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 1:14-cv-1523 UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMENT The United States hereby moves pursuant to Federal Rule of Civil Procedure 56(a) for partial summary judgment as to plaintiffs’ first claim, i.e. whether the Service has “legal authority to charge a fee for the issuance and renewal of a PTIN.” (Compl., Count I, ¶39 (Doc. 41).) As grounds for the motion, the United States avers as follows: Under 26 U.S.C. § 6109(a)(4) and its accompanying regulations, only tax return preparers who both obtain and pay for a preparer tax identification number (“PTIN”) may prepare tax returns for compensation. The Treasury Department and the Internal Revenue Service promulgated a user fee for obtaining and renewing a PTIN (the “PTIN User Fee”) under the authority provided by the Independent Offices Appropriations Act (“IOAA”), 31 U.S.C. § 9701. The IOAA permits federal agencies to charge a user fee for providing a “service or thing of value.” Id. The ability to prepare tax returns and refund claims for compensation is a “service or thing of value” because it is a special benefit provided only to those individuals who have a PTIN. Accordingly, the Service is lawfully entitled to charge a user fee for issuing and renewing a PTIN. Case 1:14-cv-01523-RCL Document 66 Filed 09/07/16 Page 1 of 3 2 The grounds for this motion are set forth more fully in the statement of points and authorities in support of the United States’ partial motion summary judgment and statement of material facts which are both being filed contemporaneously with this motion. Dated: September 7, 2016 Respectfully submitted, CAROLINE D. CIRAOLO Acting Assistant Attorney General, Tax Division /s/ Christopher J. Williamson CHRISTOPHER J. WILLIAMSON VASSILIKI E. ECONOMIDES JOSEPH E. HUNSADER United States Department of Justice Tax Division Trial Attorneys Post Office Box 227 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 307-2250 Facsimile: (202) 514-6866 christopher.j.williamson@usdoj.gov OF COUNSEL CHANNING D. PHILLIPS United States Attorney Case 1:14-cv-01523-RCL Document 66 Filed 09/07/16 Page 2 of 3 3 CERTIFICATE OF SERVICE I hereby certify that the foregoing UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMENT was filed with the Court’s ECF system on September 7, 2016, which system serves electronically all filed documents on the same day of filing to all counsel of record including upon: Allen Buckley The Law Office of Allen Buckley LLC 2802 Paces Ferry Road Suite 100-C Atlanta, GA 30339 William H. Narwold MOTLEY RICE LLC One Corporate Center 20 Church Street, 17th Floor Hartford, CT 06103 Nathan D. Finch Elizabeth Smith MOTLEY RICE LLC 3333 K Street NW, Suite 450 Washington, DC 20007 Deepak Gupta Jonathan E. Taylor Peter Conti-Brown GUPTA WESSLER PLLC 1735 20th Street, NW Washington, DC 20009 Christopher S. Rizek Caplin & Drysdale, Chartered One Thomas Circle, NW, Suite 1100 Washington, DC 20005 /s/Christopher J. Williamson CHRISTOPHER J. WILLIAMSON Trial Attorney Case 1:14-cv-01523-RCL Document 66 Filed 09/07/16 Page 3 of 3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DISTRICT OF COLUMBIA ADAM STEELE, et al., ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 1:14-cv-1523 STATEMENT OF POINTS AND AUTHORITIES IN SUPPORT OF THE UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMENT CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General, Tax Division CHRISTOPHER J. WILLIAMSON VASSILIKI E. ECONOMIDES JOSEPH E. HUNSADER Trial Attorneys U.S. Department of Justice, Tax Division Post Office Box 227 Ben Franklin Station Washington, D.C. 20044 OF COUNSEL: CHANNING D. PHILLIPS United States Attorney Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 1 of 18 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......................................................................................................... ii INTRODUCTION .........................................................................................................................1 STATEMENT OF MATERIAL FACTS ......................................................................................2 STANDARD OF REVIEW ...........................................................................................................3 ARGUMENT ..................................................................................................................................4 I. FEDERAL AGENCIES MAY CHARGE USER FEES TO RECOVER THE COST ASSOCIATED WITH PROVIDING A SERVICE OR THING OF VALUE. ..............4 II. CONGRESS AUTHORIZED THE SECRETARY OF THE TREASURY TO PRESCRIBE A PTIN AS AN IDENTIFYING NUMBER FOR TAX RETURN PREPARERS .......................................................................................................................6 III. THE PTIN ENTITLES TAX RETURN PREPARERS TO PREPARE FEDERAL TAX RETURNS AND REFUND CLAIMS FOR COMPENSATION, WHICH IS A SERVICE OR THING OF VALUE ..............................................................................8 CONCLUSION ............................................................................................................................13 Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 2 of 18 ii TABLE OF AUTHORITIES Page(s) Cases Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ...............................................................3, 4 Buckley v. United States, No. 1:13-cv-1701, 2013 WL 7121182 (N.D. Ga., Dec. 4, 2013) ......11 Comm’r v. Engle, 464 U.S. 206 (1984) ...........................................................................................6 Elec. Indus. Ass’n v. FCC, 554 F.2d 1109 (D.C. Cir. 1976) ....................................................5, 12 Engine Mfg. Ass’n v. EPA, 20 F.3d 1177 (D.C. Cir. 1994) ..........................................................6 Fed. Power Comm’n v. New England Power Co., 415 U.S. 345 (1974) .....................................5, 6 Jesse E. Brannen, III, P.C. v. United States, 682 F.3d 1316 (11th Cir. 2012) .................... passim. Jesse E. Brannen, III, P.C. v. United States, No. 4:11-CV-0135-HLM, 2011 WL 8245026 (N.D. Ga. Aug. 26, 2011) ...................................................................................................9 Nat’l Cable Television Ass’n, Inc. v. United States, 415 U.S. 336 (1974) .................................5, 8 Seafarers Int’l Union of N. Am. v. United States Coast Guard, 81 F.3d 179 (D.C. Cir. 1996) ..............................................................................................................5, 6 Steele v. United States, -- F. Supp. 3d --, 2016 WL 525997 (Feb. 9, 2016) ...................... passim. Statutes 26 U.S.C. § 6109 .................................................................................................................. passim. 26 U.S.C. § 7701(a)(36) ..................................................................................................................6 26 U.S.C. § 7805(a) .........................................................................................................................6 31 U.S.C. § 9701 .................................................................................................................. passim. Rules and Regulations 26 C.F.R. § 1.6109-2 ............................................................................................................ passim. 26 C.F.R. § 300.13 ...........................................................................................................................3 Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 3 of 18 iii H.R. Rep. No. 658, 94th Cong., 2d Sess. 274, reprinted in 1976 U.S.C.C.A.N. 2897 ................................................................................................2, 6 See TD 8835; IRS News Release, IR-1999-72, IRS to Issue Alternative Identification Numbers for Tax Preparers (Aug. 24, 1999) ..................................................................2 Furnishing Identifying Number of Tax Return Preparer, T.D. 9501, 75 Fed. Reg. 60309-01 (Sept. 30, 2010) ........................................................................2, 7 User Fees Related to Enrollment and Preparer Tax Identification Numbers, T.D. 9503, 75 Fed. Reg. 60316-01 (Sept. 30, 2010) ..........................................................2 Preparer Tax Identification Number (PTIN) User Fee Update, 81 Fed. Reg. 52766-01 (Aug. 10, 2016) ...................................................................................................................3 I.R.S. Pub. No. 4832, at 33 .............................................................................................................7 Fed. R. Civ. P. 56(c) .......................................................................................................................3 Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 4 of 18 1 INTRODUCTION The United States seeks partial summary judgment as to plaintiffs’ first claim, i.e. whether the Internal Revenue Service has “legal authority to charge a fee for the issuance and renewal of a PTIN.” (Am. Compl., Count I, ¶39 (Doc. 41).) As the Court previously noted, this dispute concerns the “requirement that compensated tax return preparers both obtain and pay for a preparer tax identification number (PTIN).” Steele v. United States, -- F. Supp. 3d --, 2016 WL 525997, at *1 (Feb. 9, 2016). The Treasury Department and the Internal Revenue Service promulgated the user fee for issuing and renewing a PTIN (the “PTIN User Fee”) under the authority provided by the Independent Offices Appropriations Act (“IOAA”), 31 U.S.C. § 9701. The IOAA permits federal agencies to charge a user fee for providing a “service or thing of value.” Id. Plaintiffs allege that the PTIN User Fee is not authorized by law because “the PTIN does not represent or confer a ‘service or thing of value.’” Steele, 2016 WL 525997, at *2. The “service or thing of value” provided by a PTIN is the ability to prepare tax returns and refund claims for compensation. Under 26 U.S.C. § 6109(a)(4) and its accompanying regulations, only individuals with a PTIN may prepare tax returns for compensation. The ability to prepare tax returns and refund claims for compensation is therefore a “service or thing of value” because it is a special benefit provided only to those individuals who have a PTIN. Accordingly, the Service is lawfully entitled to charge a user fee for issuing and renewing a PTIN. The United States respectfully requests this Court enter partial summary judgment in its favor as to plaintiffs’ first claim and determine the PTIN User Fee is statutorily authorized. Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 5 of 18 2 STATEMENT OF MATERIAL FACTS In 1976, Congress enacted legislation to regulate tax return preparers in response to growing problems related to the “substantial increase in the number of persons whose business is to prepare income tax returns for individuals and families of average income.” H.R. Rep. No. 658, 94th Cong., 2d Sess. 274, reprinted in 1976 U.S.C.C.A.N. 2897, 3169. Among other provisions, Congress enacted 26 U.S.C. § 6109(a)(4), which requires tax return preparers to include an identifying number on the tax returns they prepare. In 1999, responding to concerns regarding identity theft and the use of Social Security numbers (“SSNs”), the Service authorized the use of the PTIN as an alternative to the SSN to identify tax return preparers. See TD 8835; IRS News Release, IR-1999-72, IRS to Issue Alternative Identification Numbers for Tax Preparers (Aug. 24, 1999). From 1999 until 2010, tax return preparers could use either their SSN or a PTIN as their section 6109(a)(4) identifying number on tax returns or refund claims they prepared. The regulations requiring tax return preparers to obtain a PTIN and pay the associated PTIN User Fee became effective on September 30, 2010. See Furnishing Identifying Number of Tax Return Preparer, T.D. 9501, 75 Fed. Reg. 60309-01 (Sept. 30, 2010); User Fees Related to Enrollment and Preparer Tax Identification Numbers, T.D. 9503, 75 Fed. Reg. 60316-01 (Sept. 30, 2010). The PTIN regulations specifically require that “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 payment of a user fee, as may be prescribed by the Internal Revenue Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 6 of 18 3 Service.” 26 C.F.R. § 1.6109-2(d). As a result of this regulation, “providing one’s SSN as an alternative was no longer an option.” Steele, 2016 WL 1749, at *3. The preamble to the final regulation setting the PTIN User Fee states that “[h]aving a PTIN is a special benefit that allows specified tax return preparers to prepare all or substantially all of a tax return or claim for refund for compensation.” 75 Fed. Reg. 60316, 60317. Absent 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.” Id. Thus, a PTIN “both confers a special benefit on an identifiable recipient and is a service or thing of value to a tax return preparer.” Id. The PTIN User Fee “merely offsets costs the IRS incurs to provide the special benefits associated with having a PTIN.” Id. at 60318. The fee was originally set at $50 but was revised to $33. See 26 C.F.R. § 300.13(b); Preparer Tax Identification Number (PTIN) User Fee Update, 81 Fed. Reg. 52766-01 (Aug. 10, 2016). STANDARD OF REVIEW Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories and admissions on file . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). To defeat summary judgment, the non-moving party must demonstrate a genuine factual dispute between the parties; a dispute is genuine where a reasonable fact-finder, based on the evidence presented, could return a verdict for the non-moving party with regard to that issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (“the mere existence of some alleged factual dispute between the parties will not Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 7 of 18 4 defeat . . . summary judgment; the requirement is that there be no genuine issue of material fact”). The disputed fact must be “material,” i.e. one that could reasonably affect the outcome of the case. See id. at 248. ARGUMENT Under its Congressional authority, the Secretary of the Treasury has required all tax return preparers obtain and use a PTIN as their identifying number in order to prepare tax returns and refund claims for compensation. See 26 U.S.C. § 6109(a)(4), (d); 26 C.F.R. 1.6109-2(d). Because only those individuals who have a PTIN may prepare tax returns and refund claims for compensation, the PTIN provides a “service or thing of value” to specific individuals, which is not shared by the general public. The PTIN also protects the confidentiality of tax return preparer SSNs. For these reasons, the Service is permitted to charge a user fee in connection with issuing and renewing a PTIN in order to recover the costs associated with providing a special benefit to PTIN holders. Accordingly, the Service is statutorily authorized under the IOAA and 26 U.S.C. § 6109(a)(4) to charge the PTIN User Fee. I. FEDERAL AGENCIES MAY CHARGE USER FEES TO RECOVER THE COST ASSOCIATED WITH PROVIDING A SERVICE OR THING OF VALUE The IOAA authorizes federal agencies to issue regulations establishing user fees for special benefits or services provided to individuals. See 31 U.S.C. § 9701. The IOAA was enacted with the purpose that “each service or thing of value provided by an agency . . . is to be self-sustaining to the extent possible.” 31 U.S.C. § 9701(a). To Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 8 of 18 5 effectuate this intent, Congress granted authority to agencies to establish charges for services or things of value, within broadly established parameters. The IOAA provides: (b) The head of each agency . . . may prescribe regulations establishing the charge for a service or thing of value provided by the agency. . . . Each charge shall be— (1) fair; and (2) based on— (A) the costs to the Government; (B) the value of the service or thing to the recipient; (C) public policy or interest served; and (D) other relevant facts. 31 U.S.C. § 9701(b). An agency “is entitled to charge for services which assist a person in complying with his statutory duties.” Elec. Indus. Ass’n v. FCC, 554 F.2d 1109, 1115 (D.C. Cir. 1976). A fee is appropriate where it is “incident to a voluntary act, e.g., a request that a public agency permit an applicant to practice law or medicine or construct a house or run a broadcast station.” Nat’l Cable Television Ass’n, Inc. v. United States, 415 U.S. 336, 340 (1974). The federal agency “may exact a fee for a grant which, presumably, bestows a benefit on the applicant not shared by” the public. Id.; see also Seafarers Int’l Union of N. Am. v. United States Coast Guard, 81 F.3d 179, 183 (D.C. Cir. 1996) (“fees are valid so long as the agency levies ‘specific charges for specific services to specific individuals or companies’”) (quoting Fed. Power Comm’n v. New England Power Co., 415 U.S. 345, 349 (1974)). Thus, a fee is only appropriate where the user receives a “special benefit that is Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 9 of 18 6 not received by the general public.” Jesse E. Brannen, III, P.C. v. United States, 682 F.3d 1316, 1317-18 (11th Cir. 2012) (discussing New England Power, 415 U.S. at 351). The Supreme Court has “rightly recognized that a [user fee] regulatory scheme would be a ‘failure’ if some benefits did not ultimately inure to the public.” Seafarers, 81 F.3d at 183 (emphasis in original) (quoting New England Power, 415 U.S. at 343); see also Engine Mfg. Ass’n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994) (“If the agency . . . confer[s] a specific benefit upon an identifiable beneficiary . . . then it is of no moment that the service may incidentally confer a benefit upon the general public as well.”). II. CONGRESS AUTHORIZED THE SECRETARY OF THE TREASURY TO PRESCRIBE A PTIN AS AN IDENTIFYING NUMBER FOR TAX RETURN PREPARERS Section 6109(a)(4) states that “[w]hen required by regulations prescribed by the Secretary” of the Treasury, “[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.” A “tax return preparer” is generally defined as “any person who prepares tax returns for others for compensation.” 26 U.S.C. § 7701(a)(36)(A).1 Section 6109(d) states that the “social security account number issued to an individual . . . shall, except as shall otherwise be 1 Section 7701(a)(36)(A) also states that “the preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of such return or claim for refund.” In addition, section 7701(a)(36)(B) contains exceptions to the general rule stated in subpart (A), which limit the scope of who is considered to be a tax return preparer. The PTIN regulations, among other things, incorporate those provisions and narrow the scope of tax returns preparers required to have a PTIN to individuals. See 26 C.F.R. § 1.6109-2(g). Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 10 of 18 7 specified under regulations of the Secretary, be used as the identifying number for such individual for purposes of this title” (emphasis added). Thus, Section 6109 explicitly grants the Secretary the authority to issue regulations requiring tax return preparers to obtain an identifying number, other than a SSN, in order to prepare tax returns or refund claims for compensation. See Steele, 2016 WL 1749, at *2 (section 6109(d) “allows the agency to require tax return preparers to provide a personal identifying number other than their [SSNs] on the returns they prepare”). After notice and comment, the Secretary of the Treasury issued regulations requiring paid tax return preparers to apply for and obtain a PTIN, including paying a user fee to obtain and renew a PTIN. See 26 C.F.R. § 1.6109-2(d); 26 C.F.R. § 300.13. The Secretary exercised its statutory authority to establish the PTIN as the required identification number. See 26 U.S.C. §§ 6109(a)(4), 7805(a) (“the Secretary shall prescribe all needful rules for the enforcement of this title”); Comm’r v. Engle, 464 U.S. 206, 226-27 (1984) (“The Commissioner has broad authority to prescribe” rules and regulations, “and it is up to him to choose the method that best implements the statutory mandate.”). Under these regulations, a tax return preparer cannot prepare tax returns for others for compensation without having a PTIN. See Brannen, 682 F.3d at 1318. The PTIN requirement comports with the text and legislative intent of 26 U.S.C. § 6109(a)(4). Section 6109(a)(4) requires all tax return preparers to “provide proper identification.” Congress required identification “to enable the IRS to identify all returns prepared by a specific individual in cases where the IRS has discovered some returns improperly prepared by that individual.” H.R. Rep. No. 94-658, at 251. The IRS Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 11 of 18 8 explained that “the use of more than one number . . . makes it more difficult for the IRS to collect accurate tax return preparer data and to identify an individual tax return preparer.” I.R.S. Pub. No. 4832, at 33. The PTIN requirement, therefore, effectuates Congress’ intent by “allow[ing] the IRS to better identify tax return preparers, centralize information, and effectively administer the rules relating to tax return preparers.” 75 Fed. Reg. 60309. III. THE PTIN ENTITLES TAX RETURN PREPARERS TO PREPARE FEDERAL TAX RETURNS AND REFUND CLAIMS FOR COMPENSATION, WHICH IS A SERVICE OR THING OF VALUE An individual who does not have a PTIN cannot prepare tax returns or refund claims for compensation. When the Service issues or renews a PTIN, the recipient is given the privilege of preparing tax returns and refund claims for others for compensation. See Brannen, 682 F.3d at 1319. The PTIN also protects the confidentiality of tax return preparer SSNs. Accordingly, obtaining a PTIN provides specific benefits to tax return preparers not available to the public-at-large. And because the PTIN grants this benefit to tax return preparers, the IOAA permits the Service to charge a user fee for issuing and maintaining a PTIN. See National Cable Television Ass’n, Inc., 415 U.S. at 340. Charging a PTIN User Fee, therefore, is lawful. This case is the third challenge to the lawfulness of the PTIN User Fee. As this Court is aware, Allen Buckley has brought all three challenges either as counsel or on behalf of himself and his firm. See Mem. Op. Consolidating Cases and Appointing Class Counsel at 2-3 (Doc. 37). In Brannen, the Northern District of Georgia and the Eleventh Circuit both concluded that the PTIN User Fee was lawful under both the Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 12 of 18 9 IOAA and 26 U.S.C. § 6109(a)(4). See No. 4:11-CV-0135-HLM, 2011 WL 8245026, at *1 (N.D. Ga. Aug. 26, 2011) aff'd 682 F.3d at 1320. The plaintiff was an attorney and CPA in Georgia who prepared tax returns and refund claims for compensation. Brannen, 682 F.3d at 1318. He filed for and paid to receive a PTIN, and subsequently filed for a refund with the IRS for the PTIN fee. Id. He brought the case “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.” See id. The District Court held that the authority for the PTIN user fee stems from 31 U.S.C. § 9701. See Brannen, 2011 WL 8245026, at *5. It concluded that the Secretary of the Treasury “exercised its authority under § 6109 by publishing regulations that require tax return preparers to include their identifying numbers [i.e., a PTIN] on all tax returns and claims for refund that they prepare.” Id. (citing 26 C.F.R. § 1.6109–2(a)(1)). Consequently, the District Court held that the Secretary did not exceed its authority by issuing regulations requiring the use of PTINs by tax return preparers. Brannen, 2011 WL 8245026, at *5. The District Court found that PTINs provide a dual benefit to tax return preparers. First, “[t]he 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 for compensation.” Id. at *6. Second, the PTIN requirement protects the confidentiality of tax return preparers' social security numbers. See id. at *6 n. 7 (“Given the likelihood of human error by preparers, who may not always redact Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 13 of 18 10 their Social Security numbers from returns provided to clients, coupled with the very real threat of identity theft, the Court cannot conclude that the Secretary’s determination that the use of PTINs will protect confidentiality of Social Security numbers is unreasonable”). The Eleventh Circuit affirmed the District Court’s decision. See Brannen, 682 F.3d at 1316. It explained that “since 1976, the Department has had the power to require tax return preparers to include an identifying number on the returns they prepare.” Id. at 1318 (citing 26 U.S.C. § 6109(a)(4)). The Circuit Court found that “31 U.S.C. § 9701 and 26 U.S.C. § 6109 provide statutory authority for the 2010 regulations” requiring the use of a PTIN and the payment of the PTIN User Fee. Brannen, 682 F. 3d at 1319. Section 6109(a)(4) “does two things.” Brannen, 682 F.3d at 1318. First, “it expressly grants authority to the Secretary to prescribe by regulation the particular identifying number required.” Id. Second, the requirement “that any return prepared by a tax return preparer bear his/her assigned identifying number” means that “a tax return preparer cannot prepare tax returns for others for compensation without having the required identifying number.” Id. at 1319. The Eleventh Circuit thus concluded that “[f]or this reason, when the Secretary assigns [a PTIN], the Secretary is conferring a special benefit upon the recipient, i.e., the privilege of preparing tax returns for others for compensation.” Id. Further, this benefit “is the kind of ‘special benefit’ that qualifies under New England Power,” because it is not a benefit “received by the general public.” The fact that the Service did not previously charge a fee for the PTIN is irrelevant. There is nothing in the language or logic of Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 14 of 18 11 section 9701 that requires a user fee to be charged “at the first moment that Congress confers the authority,” or prohibits an agency from implementing a fee for services that it had previously provided for free. Brannen, 682 F.3d at 1319-20. Allen Buckley brought the second challenge on behalf of himself and his firm in Buckley v. United States, No. 1:13-cv-1701, 2013 WL 7121182 (N.D. Ga., Dec. 4, 2013). The complaint alleged that there is no statutory authority to charge the PTIN User Fee. See id. at *1. The District Court granted summary judgment in favor of the United States and held that the initial fee for obtaining a PTIN as well as the subsequent renewal fees are lawful. See id. In so ruling, the District Court primarily relied upon the Eleventh Circuit’s decision in Brannen, which addressed the validity of the initial PTIN User Fee. The District Court held that “the renewal fee, like the [initial] fee, confers a special benefit upon tax return preparers, i.e., the ability to file tax returns on behalf of others for compensation.” Id. at *2. The District Court rejected Buckley’s argument that the D.C. Circuit’s decision in Loving v. IRS called into question the validity of the Brannen decision. The District Court concluded Loving was inapplicable, because the D.C. Circuit “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.” See Buckley, 2013 WL 7121182, at *2; see also Steele, 2016 WL 525997, at *3 (“Although the D.C. Circuit [in Loving] invalidated the IRS’ more wide- ranging attempts to regulate non-credentialed tax return preparers, the regulations Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 15 of 18 12 requiring that all compensated tax return preparers – credentialed and non-credentialed alike – obtain and pay for a PTIN are still in effect.”). The Court should reject this third challenge for the same reasons. Congress gave the Secretary of Treasury discretion to require tax return preparers obtain an identifying number other than a SSN in order to prepare tax returns for compensation. See 26 U.S.C. § 6109(d). Pursuant to that authority, the Secretary mandates the use of a PTIN, which means: (1) individuals without PTINs are statutorily barred from preparing a tax return for compensation; and (2) individuals who obtain and renew a PTIN are given a special benefit not available to the public at large. The IOAA permits an agency “to charge for services which assist a person in complying with his statutory duties,” which in this case is the cost associated with issuing or renewing a PTIN. Elec. Indus. Ass’n, 554 F.2d at 1115. Thus, the Service is statutorily authorized under 31 U.S.C. § 9701 and 26 U.S.C. § 6109(a)(4) to charge a user fee in connection with obtaining and renewing a PTIN. Accordingly, the United States is entitled to partial summary judgment as to plaintiffs’ first claim. (See Am. Compl., Count I (Doc. 41).) // // // // // // // Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 16 of 18 13 CONCLUSION For the foregoing reasons, this Court should grant the United States’ motion for partial summary judgment and determine that the Service is statutorily authorized to charge a PTIN User Fee. Dated: September 7, 2016 Respectfully submitted, CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General, Tax Division /s/ Christopher J. Williamson CHRISTOPHER J. WILLIAMSON VASSILIKI E. ECONOMIDES JOSEPH E. HUNSADER Trial Attorneys U.S. Dep’t of Justice, Tax Division Ben Franklin Station, Post Office Box 227 Washington, D.C. 20044 Tel/Fax: (202) 307-6320 / (202) 514-6866 christopher.j.williamson@usdoj.gov OF COUNSEL: CHANNING D. PHILLIPS United States Attorney Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 17 of 18 14 CERTIFICATE OF SERVICE I hereby certify that the foregoing STATEMENT OF POINTS AND AUTHORITIES IN SUPPORT OF THE UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMENT was filed with the Court’s ECF system on September 7, 2016, which system serves electronically all filed documents on the same day of filing to all counsel of record including upon: Allen Buckley The Law Office of Allen Buckley LLC 2802 Paces Ferry Road Suite 100-C Atlanta, GA 30339 William H. Narwold MOTLEY RICE LLC One Corporate Center 20 Church Street, 17th Floor Hartford, CT 06103 Nathan D. Finch Elizabeth Smith MOTLEY RICE LLC 3333 K Street NW, Suite 450 Washington, DC 20007 Deepak Gupta Jonathan E. Taylor Peter Conti-Brown GUPTA WESSLER PLLC 1735 20th Street, NW Washington, DC 20009 Christopher S. Rizek Caplin & Drysdale, Chartered One Thomas Circle, NW, Suite 1100 Washington, DC 20005 /s/ Christopher J. Williamson CHRISTOPHER J. WILLIAMSON Trial Attorney Case 1:14-cv-01523-RCL Document 66-1 Filed 09/07/16 Page 18 of 18 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ADAM STEELE, et al., ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 1:14-cv-1523 STATEMENT OF MATERIAL FACTS IN SUPPORT OF THE UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMENT Pursuant to Federal Rule of Civil Procedure 56 and Local Rule 7(h)(1), and in connection with its motion for partial summary judgment, the United States hereby submits the following statement of material facts as to which there is no genuine issue: 1. In 1976, Congress enacted legislation to regulate tax return preparers in response to growing problems related to the “substantial increase in the number of persons whose business is to prepare income tax returns for individuals and families of average income.” H.R. Rep. No. 658, 94th Cong., 2d Sess. 274, reprinted in 1976 U.S.C.C.A.N. 2897, 3169. 2. Among other provisions, Congress enacted 26 U.S.C. § 6109(a)(4), which requires tax return preparers to include an identifying number on the tax returns they prepare. 3. In 1999, responding to concerns regarding identity theft and the use of Social Security numbers (“SSNs”), the Service authorized the use of the PTIN as an Case 1:14-cv-01523-RCL Document 66-2 Filed 09/07/16 Page 1 of 4 2 alternative to the SSN to identify tax return preparers. See TD 8835; IRS News Release, IR-1999-72, IRS to Issue Alternative Identification Numbers for Tax Preparers (Aug. 24, 1999). 4. From 1999 until 2010, tax return preparers could use either their SSN or a PTIN as their section 6109(a)(4) identifying number on tax returns or refund claims they prepared. Steele v. United States, -- F. Supp. 3d --, 2016 WL 525997, at *3 (Feb. 9, 2016). 5. The regulations requiring tax return preparers to obtain a PTIN and pay the associated PTIN User Fee became effective on September 30, 2010. See Furnishing Identifying Number of Tax Return Preparer, T.D. 9501, 75 Fed. Reg. 60309-01 (Sept. 30, 2010); User Fees Related to Enrollment and Preparer Tax Identification Numbers, T.D. 9503, 75 Fed. Reg. 60316-01 (Sept. 30, 2010). 6. The PTIN regulations specifically require that “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 payment of a user fee, as may be prescribed by the Internal Revenue Service.” 26 C.F.R. § 1.6109-2(d). 7. As a result of this regulation, “providing one’s SSN as an alternative was no longer an option.” Steele, 2016 WL 1749, at *3. 8. The preamble to the final regulation setting the PTIN User Fee states that “[h]aving a PTIN is a special benefit that allows specified tax return preparers to prepare all or substantially all of a tax return or claim for refund for compensation.” 75 Fed. Reg. 60316, 60317 (Sept. 30, 2010). Case 1:14-cv-01523-RCL Document 66-2 Filed 09/07/16 Page 2 of 4 3 9. The regulation further provides that, absent 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.” Id. 10. The regulation states that a PTIN “both confers a special benefit on an identifiable recipient and is a service or thing of value to a tax return preparer.” Id. 11. The regulation further states that the PTIN User Fee “merely offsets costs the IRS incurs to provide the special benefits associated with having a PTIN.” Id. at 60318. 12. The fee was originally set at $50 but was revised to $33. See 26 C.F.R. § 300.13(b); Preparer Tax Identification Number (PTIN) User Fee Update, 81 Fed. Reg. 52766-01 (Aug. 10, 2016). Dated: September 7, 2016 CAROLINE D. CIRAOLO Acting Assistant Attorney General, Tax Division /s/ Christopher J. Williamson CHRISTOPHER J. WILLIAMSON VASSILIKI E. ECONOMIDES JOSEPH E. HUNSADER United States Department of Justice Tax Division Trial Attorneys Post Office Box 227 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 307-2250 Facsimile: (202) 514-6866 christopher.j.williamson@usdoj.gov OF COUNSEL CHANNING D. PHILLIPS United States Attorney Case 1:14-cv-01523-RCL Document 66-2 Filed 09/07/16 Page 3 of 4 4 CERTIFICATE OF SERVICE I hereby certify that the foregoing STATEMENT OF MATERIAL FACTS IN SUPPORT OF THE UNITED STATES’ MOTION FOR PARTIAL SUMMARY JUDGMNET was filed with the Court’s ECF system on September 7, 2016, which system serves electronically all filed documents on the same day of filing to all counsel of record including upon: Allen Buckley The Law Office of Allen Buckley LLC 2802 Paces Ferry Road Suite 100-C Atlanta, GA 30339 William H. Narwold MOTLEY RICE LLC One Corporate Center 20 Church Street, 17th Floor Hartford, CT 06103 Nathan D. Finch Elizabeth Smith MOTLEY RICE LLC 3333 K Street NW, Suite 450 Washington, DC 20007 Deepak Gupta Jonathan E. Taylor Peter Conti-Brown GUPTA WESSLER PLLC 1735 20th Street, NW Washington, DC 20009 Christopher S. Rizek Caplin & Drysdale, Chartered One Thomas Circle, NW, Suite 1100 Washington, DC 20005 /s/Christopher J. Williamson CHRISTOPHER J. WILLIAMSON Trial Attorney Case 1:14-cv-01523-RCL Document 66-2 Filed 09/07/16 Page 4 of 4 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ADAM STEELE, et al., ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 1:14-cv-1523 [PROPOSED] ORDER AND NOW, after consideration of the United States’ motion for partial summary judgment and any opposition and reply thereto, it is hereby: ORDERED that the United States is entitled to partial judgment in its favor as to Count I of the Amended Complaint (Doc. 41); and it further ORDERED that the Internal Revenue Service is statutorily authorized to charge a fee for the issuance and renewal of a preparer tax identification number (“PTIN”) because the PTIN provides compensated tax return preparers a “service of thing of value” under 31 U.S.C. § 9701. Date: ______________ ____________________________ United States District Judge Case 1:14-cv-01523-RCL Document 66-3 Filed 09/07/16 Page 1 of 1