Steele v. United States, 159 F. Supp. 3d 73

Background

In 2010 the IRS required compensated tax return preparers to obtain a PTIN and charged an initial fee ($64.25) and annual renewals ($63); the fee was later lowered to $33 (plus vendor fees).
Plaintiffs challenge the PTIN user fee on two alternative grounds: (1) the IRS lacks statutory authority to charge for a PTIN under 31 U.S.C. § 9701; (2) the fee is excessive relative to the government’s costs.
Plaintiffs seek declaratory relief that the fee is unlawful or excessive, and restitution of PTIN fees collected; they moved to certify a nationwide class of all who paid PTIN fees.
The U.S. does not dispute Rule 23(a) prerequisites (numerosity, commonality, typicality, adequacy) but opposes class certification under Rule 23(b) and raised sovereign immunity as a defense to restitution.
The court certified the proposed class under Federal Rule of Civil Procedure 23(b)(2) for declaratory relief, concluding the IRS acted on grounds generally applicable to the class and § 9701 is interpreted by courts to limit fees to a reasonable relationship to government costs.
The court denied certification as to restitution because plaintiffs have not shown subject matter jurisdiction for monetary relief against the United States (sovereign immunity and APA limitations), but left the ruling subject to reconsideration after further briefing.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Authority to charge PTIN fee under § 9701	PTIN does not confer a "service or thing of value;" IRS lacks authority to charge	IRS may charge under § 9701 because issuing PTINs confers the ability to prepare returns for compensation	Court did not decide merits but found class certification appropriate for declaratory relief because the IRS acted on uniform grounds and § 9701 fees are judged by government cost standard
Excessiveness of the fee	Fee exceeds what § 9701 permits (must reasonably relate to government cost)	Fee is permissible; different recipients derive different value so individualized inquiries would defeat class treatment	Court held declaratory (and injunctive) relief on excessiveness is suitable for class resolution because IRS applies a uniform fee and asserts costs are constant
Class cohesion given different professional statuses (CPAs, attorneys, unlicensed preparers)	Class members share the same legal challenge to a uniform regulation and fee	Class is not cohesive; licensed professionals have different interests and benefits, requiring individualized inquiries	Court rejected cohesion objection under § 9701 cost-focused standard and certified class under Rule 23(b)(2) for declaratory relief
Restitution (monetary relief) and subject matter jurisdiction	Restitution is available and supports class certification for monetary relief	Sovereign immunity bars monetary claims unless the U.S. unequivocally consents; APA waiver does not extend to money damages	Court denied certification as to restitution for lack of demonstrated jurisdiction/waiver of sovereign immunity; left issue open pending further jurisdictional briefing

Key Cases Cited

Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014) (invalidated broader IRS regulation of non‑credentialed preparers under § 330)
Seafarers Int’l Union of N. Am. v. U.S. Coast Guard, 81 F.3d 179 (D.C. Cir. 1996) (fees under § 9701 must relate to government cost, not intrinsic value)
Nat’l Cable Television Ass’n v. FCC, 554 F.2d 1094 (D.C. Cir. 1976) (agency must show cost basis and fees must bear reasonable relationship to agency costs)
Nat’l Ass’n of Broadcasters v. FCC, 554 F.2d 1118 (D.C. Cir. 1976) (narrow interpretation of "value to recipient" to avoid agency taxation)
United States v. Mitchell, 463 U.S. 206 (U.S. 1983) (sovereign immunity and consent to suit define jurisdiction)
Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (U.S. 1998) (subject matter jurisdiction is prerequisite to adjudication)
Bowen v. Massachusetts, 487 U.S. 879 (U.S. 1988) (distinction between equitable restitution and money damages under APA)