The Department of the Treasury and the Internal Revenue Service (IRS) have once again adjusted the user fee associated with obtaining or renewing a Preparer Tax Identification Number (PTIN). In a dual issuance, the agencies released both interim final regulations (T.D. 10035) and a cross-referencing notice of proposed rulemaking (REG-108673-25), effectively reducing the IRS portion of the fee from $11 to $10 per application or renewal. This adjustment, while minor in amount, is the latest development in a long history of litigation and biennial reviews concerning the statutory authority for and calculation of the PTIN user fee. For practitioners, understanding the legal framework and the IRS’s evolving cost methodology is crucial for appreciating the regulatory landscape in which we operate.

The Regulatory and Judicial Context

The authority for the PTIN requirement itself stems from Internal Revenue Code § 6109(a)(4), which grants the Secretary of the Treasury the power to prescribe regulations for including a tax return preparer’s identifying number on returns and other documents. Final regulations (TD 9501) implemented this authority, mandating that any tax return preparer who prepares all or substantially all of a return for compensation must have a PTIN.

The authority to charge a fee for this service, however, is not derived from the Internal Revenue Code. Instead, the government relies on the Independent Offices Appropriation Act of 1952 (IOAA), codified at 31 U.S.C. § 9701. The IOAA authorizes federal agencies to establish user fees for services that provide a specific benefit to an identifiable recipient. These fees are governed by policies set forth in the Office of Management and Budget (OMB) Circular A-25, which mandates that agencies should recover the full direct and indirect costs of providing the service and must review these fees biennially.

The legality of the PTIN fee under the IOAA was the central issue in the landmark case Steele v. United States (260 F. Supp. 3d 52 (D.D.C. 2017) and the related appeal Montrois v. United States (916 F.3d 1056 (D.C. Cir. 2019)). While the D.C. Circuit Court in Montrois affirmed the IRS’s authority to charge a fee, it remanded the case to determine if the amount of the fee was excessive. The D.C. District Court’s subsequent opinion in Steele provided a detailed framework for which costs the IRS could and could not include in its fee calculation. The court ruled that fees must be reduced by costs attributable to activities that produce an "independent public benefit" rather than a specific benefit to the PTIN holder.

The Steele opinion specifically disallowed costs related to:

General compliance activities, except for the direct and indirect costs of investigating "ghost preparers," handling complaints about PTIN misuse, and referring those specific complaints.
All suitability activities.
Support activities not directly related to the provision of PTINs and maintenance of the PTIN database.
Certain activities performed by the third-party contractor that facilitated an independent benefit to the public or the agency.

The latest regulations explicitly state that the new cost model was developed "taking into account the Steele opinion".

IRS Cost Analysis and Fee Calculation

In accordance with OMB Circular A-25 and Federal accounting standards (specifically SFFAS No. 4), the IRS conducted a biennial review to re-calculate the full cost of administering the PTIN program within the constraints set by the Steele court.

The methodology involved several steps:

Direct Cost Estimation: The IRS identified the direct staffing costs within the Return Preparer Office for allowable activities. These activities now narrowly include investigating ghost preparers and handling complaints related to improper, compromised, or stolen PTINs. The agency projected the total salary and benefits for this work to be $17,555,984 over fiscal years (FYs) 2026-2028. Other direct costs for travel, training, and supplies were projected at $190,737 for the same period.
Overhead Allocation: The IRS calculated an overhead rate to account for indirect costs, such as financial, human resources, IT, and general administrative support. Based on its annual calculation, the agency applied an overhead rate of 62.92 percent to the direct costs.
Total Cost Calculation: The sum of direct costs (salary, benefits, supplies) and the allocated overhead resulted in a total projected cost of $28,792,946 for FYs 2026-2028.
Per-Unit Fee Derivation: The IRS then divided this total cost by the projected number of PTIN applications and renewals for the three-year period (2,829,524). The resulting cost per application was calculated to be $10.18, which was rounded down to establish the final $10 user fee.

This $10 fee is in addition to the fee paid directly to the third-party contractor responsible for processing applications and operating the call center. That fee is currently set at $8.75.

Interim Final vs. Proposed Regulations: A Procedural Explanation

The simultaneous issuance of an interim final rule and a notice of proposed rulemaking is a common procedural mechanism used by federal agencies to implement changes quickly while still fulfilling statutory public comment requirements.

The interim final rule is effective immediately upon publication in the Federal Register. The Treasury and the IRS invoked the "good cause" exception under 5 U.S.C. § 553(b) and (c) to bypass the standard notice-and-comment period before the rule takes effect. Their justification is that since the annual PTIN renewal season begins in October, it would be "unnecessary and contrary to the public interest" to continue charging a higher, outdated fee when the agency’s own biennial review has determined a reduction is warranted. This ensures the lower $10 fee is in place for the upcoming renewal cycle for the 2026 filing season.
The proposed regulations, in this instance, have text that is identical to the interim final rule. Their purpose is to formally solicit public feedback. By law, agencies must consider public comments before finalizing a rule. The notice of proposed rulemaking opens a 30-day comment period for tax professionals and other stakeholders to submit feedback on all aspects of the fee change. The Treasury and the IRS will review these comments before promulgating a final, permanent rule. This dual-track approach balances the need for immediate implementation with the legal requirement for public participation in the regulatory process.

For practitioners, this means the $10 fee is effective now, but the rule that establishes it could theoretically be modified in its final form based on the comments received. It is crucial for professional organizations and individual practitioners to engage in this process if they have input on the IRS’s methodology or conclusions.

Prepared with assistance from NotebookLM.