Steele v. United States
260 F. Supp. 3d 52
| D.D.C. | 2017Background
- In 2010–2011 the Treasury/IRS issued regulations requiring tax return preparers to obtain and use a Preparer Tax Identification Number (PTIN) and to pay a user fee to obtain/renew it; the regulations also originally included competency testing and eligibility rules for a “registered tax return preparer.”
- The IRS justified the PTIN requirement as necessary to identify preparers, improve oversight and tax compliance, and protect SSNs; it relied on 26 U.S.C. § 6109 for the identifying-number rule and 31 U.S.C. § 9701 (IOAA) to impose user fees.
- The D.C. Circuit in Loving invalidated the IRS’s regulations imposing competency, testing, and licensing requirements for preparers, holding § 330 did not authorize regulation of tax-return preparers’ practice before the IRS; the PTIN and fee rules remained at issue.
- Plaintiffs sued seeking declaratory relief and refunds, arguing the PTIN requirement and/or the PTIN fee are unlawful (arbitrary and capricious under the APA and/or impermissible under the IOAA because no “service or thing of value” is conferred).
- The Court reviewed whether the IRS may (1) require exclusive use of PTINs and (2) charge user fees for PTINs, and whether the agency action is reviewable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to require exclusive use of PTINs | PTIN mandate is unlawful | Secretary may prescribe identifying number under §6109; PTIN aids oversight and SSN confidentiality | Court: IRS authorized to require PTINs (Chevron step 1 and not arbitrary or capricious) |
| Authority to charge PTIN user fees under IOAA | Fees unlawful: no special benefit because Loving struck down licensing; fees are arbitrary and capricious | Fees permissible under IOAA because PTINs confer special benefit (ability to prepare returns for compensation) and protect SSNs | Court: IRS may not charge PTIN fees under IOAA; fees not authorized given Loving and lack of special benefit |
| APA arbitrary-and-capricious challenge to PTIN requirement | PTINs arbitrary after Loving | PTINs remain separately justified for identification/oversight and SSN protection | Court: PTIN requirement itself not arbitrary or capricious; reasons adequately explained |
| Reviewability of the agency action | Agency action reviewable | Agency discretion argued but no clear preclusion | Court: Agency action is reviewable; no statute commits decision wholly to agency discretion |
Key Cases Cited
- Loving v. I.R.S., 742 F.3d 1013 (D.C. Cir. 2014) (held IRS lacks authority under §330 to regulate tax-return preparers via competency/licensing requirements)
- Brannen v. United States, 682 F.3d 1316 (11th Cir. 2012) (upheld PTIN user fees under IOAA prior to Loving)
- Nat’l Cable Television Ass’n v. United States, 415 U.S. 336 (1974) (narrow reading of IOAA; fees must reflect a voluntary act conferring a special benefit)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (1983) (standards for arbitrary-and-capricious review and need for reasoned agency explanation)