United States District Court, District of Columbia
Royce C. Lamberth United States District Judge Dated.
Currently before the Court is the plaintiffs’ Motion for Class Certification . Upon consideration of the motion, plaintiffs’ opposition, defendant’s reply, the entire record herein, and the applicable law, the Court finds that plaintiffs have satisfied the requirements of Federal Rule of Civil Procedure (FRCP) 23 as it relates to plaintiffs’ request for declaratory relief. The Court will certify the proposed class under FRCP 23(b)(2) for that portion of the case.
However, plaintiffs have not yet demonstrated that the Court has subject matter jurisdiction over plaintiffs’ request for restitution. The Court will therefore deny plaintiffs’ motion for certification as it relates to that aspect of plaintiffs’ claims. This ruling is subject to reconsideration, if needed, after the parties more fully brief issues relating to jurisdiction, with specific attention paid to the doctrine of sovereign immunity. The Court will therefore GRANT IN PART and DENY IN PART plaintiffs’ Motion to for Class Certification.
This lawsuit arises out of the Department of the Treasury and Internal Revenue Service’s (IRS’s) requirement that compensated tax return preparers both obtain and pay for a preparer tax identification number (PTIN). The regulation became effective on September 30, 2010 and specifically requires 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 the payment of a user fee, as may be prescribed by the Internal Revenue Service.” 26 C.F.R. § 1.6109-2(d). This “user fee” is further described in 26 C.F.R. § 300.13(b), which states that “[t]he fee to apply for or renew a preparer tax identification number is $50 per year, which is the cost to the government for processing the application for a preparer tax identification number and does not include any fees charged by the vendor.” In addition to this $50, the charge for a PTIN also “consists of fees charged by a third-party vendor to ‘administer the application and renewal process.’” Am. Compl. ¶ 21, ECF No. 41 (quoting User Fees Relating to Enrollment and Preparer Tax Identification Numbers, 75 Fed. Reg. 60, 316, 60, 319 (Sept. 30, 2010)). In total, the IRS required an initial fee of $64.25 to obtain a PTIN and an annual $63 renewal fee thereafter. See Id. at 1.
Importantly, the IRS coupled its recent requirement for a PTIN with attempts to more comprehensively regulate tax return preparers. Although many of these broader regulations were recently invalidated in Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), the IRS continues to require tax return preparers to obtain and pay for a PTIN. As described in more detail below, the IRS points to different statutory authority, independent from the statute at issue in Loving, to justify the imposition of a PTIN fee. Specifically, the government relies on 31 U.S.C. § 9701, which permits agencies to issue regulations to establish a charge for a “service or thing of value” the agency provides.
In the current lawsuit, plaintiffs challenge the IRS’s PTIN fee, arguing first that because the PTIN does not represent or confer a “service or thing of value, ” the IRS is not permitted to impose any fee at all for the identifying number. Am. Compl. ¶¶ 39-45. In the alternative, plaintiffs argue that even if the IRS is authorized to impose a fee for a PTIN, the amount the IRS charges is excessive and therefore impermissible at its current level. Id. at ¶¶ 46-50. In terms of relief, plaintiffs seek a judgment declaring either that the IRS lacks the authority to charge a fee for a PTIN or that the fee it charges is excessive. Id. at 15. Additionally, plaintiffs seek restitution or return of the PTIN fees collected by the IRS, or alternatively, simply those fees collected that exceed the amount authorized by law. Id.
For reasons to be discussed, plaintiffs argue that the two, alternative grounds they use to challenge the fees make this case “ideally suited for class treatment.” Pls.’ Mot. for Class Certification 1, ECF No. 46. The three named plaintiffs, Adam Steele, Brittany Montrois, and Joseph Henchman, have asked the court to certify under FRCP 23 the following class: “All individuals and entities who have paid an initial and/or renewal fee for a PTIN, excluding Allen Buckley, Allen Buckley LLC, and Christopher Rizek.” Id.
1. Statutory Framework
The IRS argues that two sets of statutory provisions work in combination to permit the agency to issue regulations requiring compensated tax return preparers to obtain and pay for a PTIN. First, 26 U.S.C. § 6109 grants the IRS power to require, by regulation, that tax return preparers include a personal identifying number on the returns they prepare. See 26 U.S.C. § 6109(a)(4). Importantly, the statute specifically allows the agency to require tax return preparers to provide a personal identifying number other than their social security numbers (SSNs) on the returns they prepare. § 6109(d)(4). Nothing in the text of that statute, however, expressly permits the IRS to charge a fee for a PTIN. For such authority, the IRS instead relies on 31 U.S.C. § 9701, which permits agencies to issue regulations to establish a fee for a “service or thing of value” the agency provides. The IRS argues that the “service or thing of value” it provides in issuing PTINs is “the ability to prepare tax returns for compensation.” See United States’ Opp’n to Pls.’ Mot. for Class Certification 15, ECF No. 50. As referenced, the plaintiffs contend that § 9701 does not authorize the IRS to require payment for a PTIN because a PTIN does not confer or represent a “service or thing of value, ” and even if the IRS is authorized to charge a fee for the PTIN, that fee is excessive and therefore invalid at its current level.
2. History of the PTIN and Other Recent Efforts to Regulate Tax Return Preparers
Although the IRS has used SSNs to track tax return preparers for decades, in 2010 and 2011 the agency issued a series of regulations designed to more broadly and comprehensively regulate the tax return preparation industry. Regulation of the industry began in the late 1970s when Congress enacted legislation to authorize the Treasury to require tax return preparers to provide their SSN on each return they prepared. Am. Compl. ¶ 9 (citing 26 U.S.C. § 6109(a)(4)). Until 1999, the IRS used that authority and required tax return preparers to include their SSNs in each return. See United States’ Opp’n to Pls.’ Mot. for Class Certification 3. Then, in an effort to protect the privacy of tax return preparers and minimize the risks associated with revealing one’s SSN, Congress amended § 6109 to permit the IRS to authorize tax return preparers to use numbers other than their SSN to identify themselves on returns. See Am. Compl. ¶¶ 10-11. In keeping with the spirit of the statute, in 1999 the IRS immediately began to issue PTINs to offer return preparers an alternative to providing their SSN. Id. At this point, however, PTINs were not mandatory; instead, tax return preparers were given the option of providing either their SSN or PTIN on the returns they prepared. Id. Moreover, the IRS offered PTINs to tax return preparers free of charge. Id.
After this period of relative regulatory stability, in 2010 the IRS issued new regulations concerning tax return preparation and specifically the role of PTINs. First, the agency began to require that tax return preparers use PTINs; providing one’s SSN as an alternative was no longer an option. Second, and importantly, the IRS began to charge a fee for the PTINs’ issuance, $64.25 for the initial registration fee and $63 for each renewal. Id. at 1; see Id. at ¶ 13. Both the initial and the renewal fees included a $50 charge the IRS used “for processing the application for a [PTIN].” Id. at ¶ 21. The remainder of each fee related to charges by a third-party vendor to “administer the application and renewal process.” Id. For the first time, anyone-regardless of their credentials and licenses-who sought to prepare a tax return for compensation was required to pay this $64.25 to initially obtain (or $63 to renew) a PTIN.
In addition, as the IRS began to mandate the use of and payment for PTINs, the agency also issued separate regulations targeted at “non-credentialed tax return preparers (i. e., preparers other than attorneys, CPAs, and [other certified tax specialists]).” Id. at ¶ 18. Breaking with its previous policies, the IRS required non-credentialed tax return preparers to pass a competency examination, pay an annual fee, and take fifteen hours of continuing education courses each year. See Loving v. IRS, 917 F.Supp.2d 67, 69 (D.D.C. 2013). In doing so, the IRS relied on a different statute, 31 U.S.C. § 330, which was originally enacted in 1884 and authorizes the IRS to “regulate the practice of representatives of persons before the Department of the Treasury.” See Loving v. IRS, 742 F.3d 1013, 1014 (D.C. Cir. 2014). As never before, the new IRS regulations forced non-credentialed tax return preparers to satisfy additional requirements before they were permitted to prepare returns for compensation.
Responding to a legal challenge brought by non-credentialed tax return preparers, the D.C. Circuit invalidated these regulations in 2014 in Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). The Circuit found that § 330 did not authorize the IRS to regulate tax return preparers because, among other reasons, tax return preparers are not “representatives of persons before the Department of the Treasury.” Id. at 1016-21 (interpreting the language of § 330). Essentially, “the traditional tools of statutory interpretation-including the statute’s text, history, structure, and context-foreclose[d] and render[ed] unreasonable the IRS’s interpretation of Section 330.” Id. at 1021-22. Congress had simply not permitted the Treasury Department to broadly and comprehensively regulate the tax return preparation industry.
Although the D.C. Circuit invalidated the IRS’s more wide-ranging attempts to regulate non-credentialed tax return preparers, the regulations requiring that all compensated tax return preparers-credentialed and non-credentialed alike-obtain and pay for a PTIN are still in effect. As stated, these regulations, which form the basis of the present lawsuit, are promulgated under 31 U.S.C. § 9701. This statute permits federal agencies to impose a fee in return for a “service or thing of value” the agency provides. According to the language of the statute, those fees are required to be “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)(2). As discussed more fully in section II.B.1 of this opinion, however, the Supreme Court and D.C. Circuit have interpreted § 9701(b) very narrowly, stating that agencies may not impose fees for a service or thing of value that exceed a reasonable approximation of the cost to the government of providing the service. See, e. g., Seafarers Int’l Union of N. Am. v. U.S. Coast Guard, 81 F.3d 179, 185 (D.C. Cir. 1996) (“[T]he measure of fees [imposed under § 9701] is the cost of the ...