Court Dismisses Suit Challenging PTIN Fee

Although a court is required to accept well-pleaded facts as true when evaluating a motion to dismiss, it is not required to accept the plaintiff's legal conclusions. Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. ____, ____, 129 S. Ct. 1937, 1949 (2009)). When evaluating the sufficiency of a plaintiff's complaint, the court makes reasonable inferences in favor of the plaintiff, but is not required to draw the plaintiff's inference. Id. (quoting Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F.3d 1242, 1248 (11th Cir. 2005)). Similarly, the Court does not accept as true "'unwarranted deductions of fact"' or legal conclusions contained in a complaint. Id. (quoting Aldana, 416 F.3d at 1248).

Finally, the Court may dismiss a complaint "if the facts as pled do not state a claim for relief that is plausible on its face." Sinaltrainal, 578 F.3d at 1260. In Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), the Supreme Court observed that a complaint "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." 500 U.S. at 555. Although factual allegations in a complaint need not be detailed, those allegations "must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. Moreover, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949. The mere possibility that the defendant might have acted unlawfully is not sufficient to allow a claim to survive a motion to dismiss. Id. Instead, the well-pleaded allegations of the complaint must move the claim "across the line from conceivable to plausible." Twombly, 550 U.S. at 570.

Plaintiffs have brought this action "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." (Compl. at 1.) In 2010, the U.S. Treasury Department (the "Treasury") issued proposed and final regulations under 26 U.S.C. § 6109 that require paid tax preparers to file for, pay for, and receive a Preparer Tax Identification Number ("PTIN") as a condition of preparing and filing tax returns on behalf of individuals and entities for compensation. (Id. at 2.) According to Plaintiffs, the fee is required for 2010 tax return filings, and must be paid annually. (Id.) Plaintiffs allege that "[b]ecause anyone can prepare tax returns for others for compensation, there is no benefit to a tax return preparer of being required to receive and report a PTIN or other identification number on a tax return." (Id. at 3.)

Plaintiff Jesse E. Brannen, III ("Plaintiff Brannen") resides in White, Georgia. (Compl. ¶ 1.) Plaintiff Brannen is an attorney and certified public accountant ("CPA"), and is licensed in Georgia. (Id. ¶ 2.) Plaintiff Brannen, through his wholly-owned professional corporation, Plaintiff Jesse E. Brannen, III, P.C. ("Plaintiff Brannen P.C.") has prepared tax returns for compensation. (Id.)

Plaintiff Brannen P.C. filed the user fee required for Plaintiff Brannen to receive a PTIN and use it for 2011. (Compl. ¶ 4.) On February 24, 2011, Plaintiff Brannen P.C. filed a refund claim, requesting reimbursement of the user fee paid. (Id. ¶ 5.) On May 14, 2011, Plaintiff Brannen P.C. received a refund claim rejection notice. (Id. ¶ 6.)

Plaintiffs bring this action on behalf of themselves, and also seek to represent a class "composed of individuals and the respective firms (including partnerships) and companies of such persons (whether as employer or as an entity partially or wholly-owned by tax return preparers), who paid the PTIN fee and individuals and their respective companies and firms who have not yet filed for a PTIN and paid the necessary user fee, but will need to do so in the future in order to prepare and file a tax return on behalf of another or others for compensation." (Compl. ¶ 7.)

B. Procedural Background

On May 19, 2011, Plaintiffs filed this lawsuit. (Docket Entry No. 1.) In Count I of their Complaint, Plaintiffs seek an injunction prohibiting the Government from "forcing paid tax return preparers to pay a user fee in order to receive a PTIN." (Compl. ¶ 22.) In Count II of their Complaint, Plaintiffs ask the Court "to return to paid preparers who have paid the user fee in order to receive a PTIN the amounts paid, plus reasonable interest," (Id. ¶ 24.)

On July 15, 2011, the Government filed its Motion to Dismiss. (Docket Entry No. 7.) The briefing process for that Motion is complete, and the Court finds that the Motion is ripe for resolution.

The Government argues that Plaintiffs' Complaint fails to set forth a viable claim for relief. According to the Government, the PTIN user fee is authorized under 31 U.S.C. § 9701, and Plaintiffs have failed to allege that the amount of the user fee is inappropriate under that statute. The Government argues that Congress authorized the Secretary of the Treasury to create regulations requiring tax return preparers to identify themselves by means of identifying numbers on tax returns and refund claims. According to the Government, the PTIN requirement is part of a larger effort to enhance tax compliance and ensure that tax return preparers are knowledgeable, skilled, and ethical. The Government contends that exclusive use of PTINs will help the IRS better identify and monitor tax return preparers, and will help maintain confidentiality of Social Security numbers. According to the Government, the user fee offsets the costs of providing a PTIN, as well as administering applications and renewals.

Plaintiffs argue that the Secretary of the Treasury exceeded his authority by imposing a user fee for PTINs. According to Plaintiffs, 26 U.S.C. § 6109 does not authorize a charge for issuing an identifying number, and does not provide the Secretary of the Treasury with authority to license and qualify tax return preparers. Although Plaintiffs acknowledge that the Secretary of the Treasury has authority to regulate individuals who represent others before the IRS, Plaintiffs argue that preparing a tax return is not the same as representing an individual before the IRS. According to Plaintiffs, Congress rejected a provision of the portion of the Taxpayer Protection and Assistance Act of 2007 that would have amended the statute to include preparing tax returns for compensation in the definition of practicing before the IRS. Plaintiffs assert that the fee to acquire a PTIN is arbitrarily set at $50, and that the Secretary of the Treasury has used the identification statute to collect a fee, without statutory authority. According to Plaintiffs, no need exists for tax preparers to have separate identification numbers, because tax preparers can use their unique Social Security numbers. Finally, Plaintiffs contend that the PTIN requirement does not confer a benefit on tax return preparers, and that, even if the Secretary of the Treasury has the power to regulate tax preparers, that power does not include the right to tax or to charge a fee or to deny tax preparers the means of making a living.

In its reply brief, the Government points out that the authority for the PTIN user fee stems from 31 U.S.C. § 9701, not 26 U.S.C. § 6109, and argues that Plaintiffs have failed to state a claim that the amount of the PTIN user fee is inappropriate under § 9701, in conjunction with the Office of Management and Budget Circular A-25, which provides the President's policies for establishing user fees. The Government contends that any claim by Plaintiffs that the Secretary of the Treasury has no authority to require tax return preparers to obtain PTINs falls outside the scope of the allegations of Plaintiffs' Complaint. In any event, the Government contends that Congress authorized the Secretary of the Treasury to create regulations requiring tax return preparers to identify themselves -- by means of identifying numbers -- on tax returns and claims for refund that they prepare. The Government argues that the Secretary of the Treasury exercised that statutory grant of authority by publishing a regulation requiring tax return preparers to include their identifying numbers on all tax returns and claims for refund that they prepare, and that, for tax returns and refund claims filed after December 30, 2010, that identifying number is a PTIN or other such number prescribed by the IRS. The Government asserts that the PTIN system provides a special benefit on tax return preparers because, without a PTIN, those preparers would not be allowed to prepare tax returns and refund claims on behalf of others in exchange for compensation.

In their surreply brief, Plaintiffs argue that they indeed base their claim on 31 U.S.C. § 9701. Plaintiffs further note that they do not question whether the amount of the user fee is excessive, but, rather, they contend that it is unlawful to charge any fee. Although Plaintiffs concede that Defendant has power to require paid tax return preparers to file for, and obtain, PTINs, Plaintiffs assert that Defendant has attempted to twist that power into a licensing right that does not exist. Plaintiffs further dispute that the benefit of nondisclosure of preparers' Social Security numbers on returns is not a substantial benefit, in light of the safeguards already in place, and argue that the PTIN requirement was designed solely to help the IRS track preparers and penalize them for improper conduct. Again, Plaintiffs argue that Congress never authorized the Secretary of the Treasury to charge fees for PTINs, and that, if Congress had intended to do so, it would have provided that authority in the statute authorizing the PTIN.

B. Discussion

26 C.F.R. § 1.6109-2(d) provides:

26 C.F.R. § 300.12 governs fees for obtaining a preparer tax identification number. 26 C.F.R. § 300.12. 26 C.F.R. § 300.12(b) provides: "The 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." 26 C.F.R. § 300.12(b). 26 C.F.R. § 300.12 lists 31 U.S.C. § 9701 as the authority for the regulation. 26 C.F.R. § 300.12.

31 U.S.C. § 9701 governs fees and charges for Government services and things of value. 31 U.S.C. § 9701. That statute provides, in relevant part:

Third, to the extent that Plaintiffs argue that the imposition of the PTIN fee is an unauthorized attempt on the part of the Secretary of the Treasury to license tax return preparers, Plaintiffs' Complaint does not contain sufficient factual allegations to state such a claim, and Plaintiffs cannot amend their Complaint through their brief in response to the motion to dismiss. Gilmour v. Gates, McDonald & Co., 382 F.3d 1312, 1314 (11th Cir. 2004) ("A plaintiff may not amend her complaint through argument in a brief opposing summary judgment.").⁴ In any event, the Court disagrees with Plaintiff's arguments, and finds that such a claim would fail, because Congress specifically authorized the Secretary of the Treasury to create regulations requiring tax return preparers to identify themselves, by means of identifying numbers, on tax returns and refund claims that they prepare. 26 U.S.C. § 6109(a)(4); 26 U.S.C. § 6109(d). 26 U.S.C. § 7701(a)(36) defines a "tax return preparer" as "any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed by this title or any claim for refund of tax imposed by this title." 26 U.S.C. § 7701(a)(36)(A). For purposes of that definition, "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." Id.⁵ The Secretary of the Treasury exercised its authority under § 6109 by publishing regulations that require tax return preparers to include their identifying numbers on all tax returns and claims for refund that they prepare. 26 C.F.R. § 1.6109-2(a)(1). Under the regulations, for tax returns and refund claims filed after December 30, 2010, the identifying number is the individual tax return preparer's "preparer tax identification number or such other number prescribed by the Internal Revenue Service in forms, instructions, or other appropriate guidance." 26 C.F.R. § 1.6109-2(a)(2)(ii). The Secretary of the Treasury consequently did not exceed its authority by issuing regulations requiring the use of PTINs by tax return preparers.⁶

Fourth, the Court agrees with the Government that, contrary to Plaintiffs' arguments, PTINs provide a benefit to tax return preparers. As the Government points out, 26 U.S.C. § 6109(a)(4) requires tax return preparers to provide their identifying numbers, as prescribed by the Secretary of the Treasury, on all tax returns and refund claims that they prepare. 26 U.S.C. § 6109(a)(4), The 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 in exchange for compensation. The PTIN fee consequently complies with the requirements for user fees set out in 31 U.S.C. § 9701.⁷

In sum, the Court concludes that Plaintiffs' Complaint, as pleaded, fails to set forth viable claims for relief. Specifically, the PTIN user fee is authorized by statute, and the Secretary of the Treasury did not exceed his authority by promulgating regulations establishing the PTIN requirements and related user fees. Additionally, Plaintiffs' Complaint fails to allege sufficiently that the amount of the user fee charged to obtain a PTIN is inappropriate. Under those circumstances, Plaintiffs are not entitled to the relief they seek in their Complaint: (1) an injunction preventing the Secretary of the Treasury from charging user fees to obtain PTINs; and (2) an Order requiring the Secretary of the Treasury to refund all amounts charged to obtain PTINs. The Court consequently grants the Government's Motion to Dismiss.

IT IS SO ORDERED, this the 21 day of August, 2011.

Further, to the extent that Plaintiffs contend that Defendant's reply brief is untimely, the Court observes that, due to arguments made by attorneys that the lack of a three-day mailing extension in the Local Rules conflicts with the provisions of the Federal Rules of Civil Procedure, the Court still applies the three-day extension for mailing to electronically filed documents. Consequently, a party has fourteen calendar days from the date of filing of the response brief, plus three days for mailing, to file a reply brief. According to the Court's own calculations, Defendant's reply brief was due on August 22, 2011 -- the date that Defendant filed it. Defendant's reply brief consequently was timely filed. Even if Defendant had failed to file its reply brief in a timely fashion, the Court would exercise its discretion to consider the reply brief -- just as the Court has exercised its discretion to consider Plaintiffs' technically procedurally improper surreply brief.

² Although the introductory statement of Plaintiffs Complaint indicates that Plaintiff's are attempting "to prevent charges of user fees under 31 U.S.C. § 9701," the substantive allegations of Plaintiff's Complaint challenge 26 U.S.C. § 6109. In any event, Plaintiffs' claims fail, regardless of whether Plaintiffs challenge the PTIN fee under § 9701 or § 6109.

³ Indeed, Plaintiffs acknowledge in their surreply brief that they do not challenge the amount of the user fee as unreasonable. Instead, they focus their arguments on the alleged lack of authority for the user fee.

⁴ Plaintiffs have not filed a motion to amend their Complaint to assert such a claim.

⁵ 26 U.S.C. § 7701(a)(36)(B) provides four exceptions to the "tax return preparer" definition, none of which are relevant to this case. 26 U.S.C. § 7701(a)(36)(B).

⁶ Even if, as Plaintiffs argue, the PTINs were designed to allow the IRS to track and identify unqualified tax preparers, the Secretary certainly has authority to regulate individuals who practice before it.

⁷ The Government also correctly points out that the PTIN requirement serves an additional purpose -- protecting the confidentiality of tax return preparers' Social Security numbers. Although Plaintiffs contend that PTINs are not necessary because the IRS is required by statute to maintain confidentiality of Social Security numbers, this contention overlooks the danger of revealing tax return preparers' Social Security numbers through providing copies of prepared tax returns and refund claims to the taxpayers themselves. In their surreply, Plaintiffs point out that tax return preparers may redact their Social Security numbers from copies of returns provided to clients. Given the likelihood of human error by preparers, who may not always redact 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.