[00:00:02] Speaker 00: Case number 17-5204, Brittany Montal, class of more than 700,000 similarly situated individuals and businesses at L, versus United States of America appellate, Mr. Rothenberg for the appellate, Mr. Taylor for the athletes. [00:00:29] Speaker 03: May it please the court. [00:00:32] Speaker 03: This is a tax case, so we've cleared the courtroom mostly. [00:00:37] Speaker 03: But it's not a typical tax case. [00:00:39] Speaker 05: You have 7,000 clients. [00:00:41] Speaker 05: I thought they'd all be packing the courtroom. [00:00:44] Speaker 03: It's not a typical tax case because we don't have to deal with complex statutes, detailed technical rules, and so forth. [00:00:52] Speaker 03: What we have is a fairly simple issue. [00:00:54] Speaker 03: Has Congress authorized the IRS to charge individuals who prepare tax returns for compensation a fee, what's called a PTAN, a preparer tax identification number? [00:01:09] Speaker 03: We think the answer is yes. [00:01:11] Speaker 03: As the 11th Circuit held in Brannon, the district court below thought otherwise. [00:01:17] Speaker 03: The district court was wrong. [00:01:19] Speaker 03: Under the user fee statute, what is all that is needed for a government office to charge a user fee is if it supplies a service or thing of value. [00:01:31] Speaker 03: The validity of the fee does not involve a comparison of private versus public benefits or even a formal licensing scheme. [00:01:42] Speaker 03: All that's needed is what the Supreme Court has called a special benefit. [00:01:47] Speaker 03: Now, Congress, I think it was 1952, enacted the user fee statute. [00:01:52] Speaker 03: And Congress also enacted a statute given Treasury the authority to require something other than the use of social security numbers on a tax return. [00:02:05] Speaker 03: Congress pointed out there had been problems with improper use of social security number and possible identity theft. [00:02:13] Speaker 03: So Congress gave Treasury that authority. [00:02:17] Speaker 03: Now, the district court's decision invalidating the P-10 program was based on this court's loving case. [00:02:27] Speaker 03: and was based on the district court in separate parts of its opinion, saying that, well, you cannot impose a P-10 because it's equivalent to imposing a licensing scheme. [00:02:39] Speaker 03: It's functionally equivalent to granting the ability to practice. [00:02:43] Speaker 03: And the IRS may not regulate in this area. [00:02:46] Speaker 04: Can I ask you in that regard, this class of 700, [00:02:53] Speaker 04: Is there any differentiation between people who would qualify to be enrolled, what do you call them, enrolled agents versus those who are just the ordinary filers, the ordinary tax preparers? [00:03:07] Speaker 03: Yeah, the difference is so-called credentialed preparers. [00:03:12] Speaker 03: Those are attorneys, CPAs, and enrolled agents. [00:03:14] Speaker 03: Enrolled agents have to pass a test and other things before they have that [00:03:20] Speaker 04: designation so could the answer I mean so one could the answers [00:03:28] Speaker 04: be different? [00:03:29] Speaker 04: I mean, at least as to the credentialed ones, it seems like there's already sort of more of a licensing and regulatory scheme in place. [00:03:38] Speaker 04: Does the $700,000 include people that would be credentialed? [00:03:41] Speaker 03: Yes. [00:03:42] Speaker 03: All those people, even credentialed or uncredentialed, have to apply and pay for a P-10. [00:03:47] Speaker 03: The enrolled agents have to pay a separate fee in addition to the P-10 fee. [00:03:53] Speaker 04: Because I just noticed that all three named plaintiffs here are actually credentialed tax preparers. [00:04:00] Speaker 04: Two CPAs and an attorney, as I recall. [00:04:04] Speaker 04: So as to them, it seems like the argument that there's a licensing scheme, this is just part of an already pre-existing licensing scheme. [00:04:15] Speaker 03: Well, their argument, presumably, is weaker. [00:04:19] Speaker 03: But we think that's a much smaller subset. [00:04:28] Speaker 03: Certainly, maybe 10%, 15% of the preparers are actually what's known as credentialed. [00:04:36] Speaker 04: So as to the ones that are not credentialed, the ordinary tax preparers, [00:04:44] Speaker 04: What they were doing this tax preparation for years and years and years beforehand. [00:04:52] Speaker 04: for pay. [00:04:54] Speaker 04: And the only requirement was that they include an identifying number associated with them as tax preparer, distinct from the taxpayer. [00:05:04] Speaker 04: And then all, once we knock out the things that were knocked out in Lovington, all this legislation, excuse me, all this regulation does is say, use a different number. [00:05:17] Speaker 04: How is that? [00:05:19] Speaker 04: Keep doing what you're doing. [00:05:21] Speaker 04: Keep identifying yourself. [00:05:22] Speaker 04: Still gotta do that like you have been all along. [00:05:24] Speaker 04: You just gotta sub in a different number now. [00:05:27] Speaker 04: How is that giving them anything of value? [00:05:30] Speaker 04: What value did you add to what they were doing? [00:05:33] Speaker 03: Well, they actually received value from the get-go. [00:05:37] Speaker 03: It was just the IRS never charged for it. [00:05:40] Speaker 03: And now, IRS, beginning with the proposal in 2010, said, OK, we've reexamined the user fee statute. [00:05:50] Speaker 04: And other agents... Before they were using their Social Security, are you suggesting that you could charge people for Social Security numbers? [00:05:57] Speaker 03: Well, since that has an overwhelming public benefit, since everyone in the country has a social security number, so the short answer is... Folks don't have a choice about it. [00:06:09] Speaker 04: Right. [00:06:09] Speaker 04: There's some people who don't even want it, but they still have to have it. [00:06:15] Speaker 04: My theory is that the government could do the same thing. [00:06:18] Speaker 04: Under your definition of the value here, the government could charge for Social Security numbers. [00:06:26] Speaker 04: Not just make you have them, but charge for them as well. [00:06:28] Speaker 03: Well, I'm not sure Congress would really like that. [00:06:31] Speaker 03: That's not my question. [00:06:32] Speaker 04: My question is your definition of the value that's required under the IOAA. [00:06:37] Speaker 03: Under the IOAA, it seems to me that everyone who went to a local social security office and goes to the window presumably could say, okay, give me a dollar or something. [00:06:47] Speaker 03: The user fee statute, the way the law is under what I call the user fee statute, I think would permit that. [00:06:57] Speaker 01: But that's a much harder case. [00:06:59] Speaker 01: But that's for the initial getting of a social security number. [00:07:02] Speaker 01: For your purposes, somebody already has a social security number, and then they have to disclose that number when they're preparing somebody's taxes, right? [00:07:09] Speaker 03: Well, actually, they cannot use that number anymore. [00:07:12] Speaker 01: They can't use it anymore, but I'm talking about the regime beforehand. [00:07:16] Speaker 01: What they would have to do is that they would give the social security number that, by hypothesis, they already had. [00:07:21] Speaker 01: And as to that, what could be the basis for the IRS exacting a fee associated with just the giving of a social security number that somebody already has? [00:07:31] Speaker 01: I take it there wouldn't be one. [00:07:33] Speaker 03: No, if you didn't institute, without the P-10 system, there's nothing for which you to charge. [00:07:41] Speaker 03: So the key is that they instituted the P-10 program. [00:07:44] Speaker 03: And the P-10 program is not just issuing somebody a number. [00:07:52] Speaker 03: group of people who monitor the vendor staff who created the website for getting the P-10, who give instructions for the call center. [00:08:04] Speaker 03: There's a declaration in the record pointing out about how many [00:08:09] Speaker 03: how many IRS people are involved in the PTEN process. [00:08:13] Speaker 03: It's close to 100 people. [00:08:15] Speaker 03: And the user fee is intended to provide the funds for that program. [00:08:21] Speaker 04: And it's not just- I'm trying to figure out what they're doing, because it's not totally clear to me. [00:08:29] Speaker 04: Because there's a third-party vendor that seems to be doing checking on the person. [00:08:35] Speaker 04: Well, explain to me exactly. [00:08:36] Speaker 04: I fill out the form online. [00:08:39] Speaker 04: pretty short form, submitted online, so y'all don't even have to open mail, what do the folks at the IRS do, and assume this is for the initial number, and they'll have the same question for renewal, but for the initial one, what do they do, and what does a third-party vendor do before that number issues? [00:08:59] Speaker 03: Well, if you look at JA 59 and 60, there are like a whole page of items that they do. [00:09:10] Speaker 03: There is also, I've got a list here I can tell you. [00:09:16] Speaker 03: For instance, if any preparer has been enjoined, they have to double check. [00:09:22] Speaker 04: very general language here on this page. [00:09:24] Speaker 04: What I would like to know is someone sitting at their desk, first of all, who does the background check? [00:09:31] Speaker 04: Third party vendor or the folks at the IRS? [00:09:35] Speaker 03: Well, the background check is simply to make sure they haven't been enjoined, to make sure they are who they say they are, so it's an identity check. [00:09:45] Speaker 03: It's not really a background check, it's an identity check. [00:09:47] Speaker 04: Well, it's your language. [00:09:48] Speaker 04: They call it a tax compliance and background check. [00:09:50] Speaker 04: So whatever it entails, who does that? [00:09:53] Speaker 03: The tax compliance refers to the credentialed preparers. [00:09:58] Speaker 03: The P10s are, the uncredentialed preparers, because of loving, do not have a tax compliance check. [00:10:06] Speaker 01: So that's for the credentialed. [00:10:08] Speaker 01: So that part of it can't be the justification for a fee? [00:10:10] Speaker 01: Right. [00:10:11] Speaker 04: Do they get a background check? [00:10:13] Speaker 04: I'm sorry? [00:10:13] Speaker 04: Do they get any background check at all? [00:10:15] Speaker 03: For the P10? [00:10:16] Speaker 04: Let's just assume I'm talking about non-credential. [00:10:19] Speaker 03: Non-credential, just to make sure that they have to prove that they are who they say they are. [00:10:25] Speaker 04: What does that mean? [00:10:26] Speaker 04: They put their social security number in? [00:10:29] Speaker 03: No, I'm not sure what they do because I haven't gone on their website. [00:10:33] Speaker 04: Do we know if a third party vendor does that or does the IRS do that? [00:10:35] Speaker 03: Most of the nuts and bolts are done by the third party vendor, but then what are you all doing? [00:10:42] Speaker 04: Okay, that's what the money there's a separate charge that goes off to the third party vendors. [00:10:47] Speaker 03: Okay, the third party vendor small. [00:10:49] Speaker 04: It's like $13 and they just said they're doing most [00:10:53] Speaker 03: The third party vendor also has a call center people call in if they're not if they don't get the number properly or they have a problem with the number they call in they want to find out what's going on there are IRS people that write scripts and Q&A's for the call center that's not the call center people IRS directs [00:11:17] Speaker 03: excuse me, if you get X, if you get Y. They also have to, the computer interface between the vendor and the IRS, they have to contract for it. [00:11:30] Speaker 03: They have to monitor the program. [00:11:32] Speaker 03: They have to decide, are we gonna rehire this vendor? [00:11:36] Speaker 03: They're HR people at IRS. [00:11:39] Speaker 03: There are lots of things they do. [00:11:42] Speaker 03: They give assistance. [00:11:43] Speaker 03: If there's a, [00:11:46] Speaker 03: problem preparer, a non-credential preparer, and they see there's a problem. [00:11:52] Speaker 03: They coordinate with the Department of Justice and say, okay, this preparer is not doing this properly. [00:11:59] Speaker 03: So then they would say, they could refer it to DOJ and say, we would like you to [00:12:05] Speaker 03: Bring an injunction. [00:12:06] Speaker 04: They're saying we have a problem and so they they would they would send it to OPR for typically but I mean everyone [00:12:23] Speaker 04: What happens for a renewal? [00:12:26] Speaker 04: You don't change the numbers in the annual renewal. [00:12:28] Speaker 04: I assume the whole point of this is to have a consistent number so you can track folks. [00:12:32] Speaker 03: No, you don't change the numbers. [00:12:34] Speaker 04: What happens on the renewal? [00:12:36] Speaker 03: Well, they have to do the same check to make sure they have not been enjoined. [00:12:41] Speaker 04: Make sure they haven't been enjoined. [00:12:43] Speaker 04: Do you have to check again that they're still who they say they are? [00:12:47] Speaker 04: I assume that didn't change in the intervening year. [00:12:49] Speaker 03: Well, you know, I would assume that they might have to do that also. [00:12:56] Speaker 03: But I mean, there are 95 people that are doing, that do this, the P-10 program. [00:13:03] Speaker 05: So presumably on remand, if we were to hold that this comes within the statute, this calculation of whether you've charged a fair price would be determined. [00:13:15] Speaker 05: Is that right? [00:13:15] Speaker 03: Exactly. [00:13:16] Speaker 03: Exactly. [00:13:17] Speaker 05: This is not a... That's the purpose of the section. [00:13:19] Speaker 05: about which makes it based on the costs of the government. [00:13:25] Speaker 03: Exactly. [00:13:26] Speaker 03: And of course, the plaintiffs did challenge that, and that has not been determined yet. [00:13:30] Speaker 03: And that would be on remand. [00:13:32] Speaker 03: Is the current fee, which is $33 plus a vendor fee, is that a reasonable fee under the circumstances? [00:13:40] Speaker 05: Speaking of the cost of the government, after Loving, I understand your argument that [00:13:47] Speaker 05: At least part of the fee originally in the first rule you acknowledge had to do with things that Loving said you could no longer do, correct? [00:14:00] Speaker 03: Exactly. [00:14:00] Speaker 05: Do you have a refund for that? [00:14:04] Speaker 03: No, they stopped charging once the district court Loving decision came down. [00:14:13] Speaker 05: Right, but Loving concluded that it was invalid from the get-go, so why not? [00:14:19] Speaker 05: Did they not ask you for a refund? [00:14:21] Speaker 03: The plaintiffs want a refund from the get-go from 2010. [00:14:26] Speaker 05: Yeah, but do you acknowledge, do you owe or don't you acknowledge you owe? [00:14:31] Speaker 03: Well, no, no. [00:14:31] Speaker 05: The first year was 2010, is it? [00:14:33] Speaker 03: No, because a lot of the initial startup costs, they figured, okay, how much is it going to cost? [00:14:39] Speaker 03: All right, and so they figured it was $50. [00:14:41] Speaker 03: There are a lot of significant upfront startup costs, and that's why [00:14:46] Speaker 03: Post-loving, they said, okay, we've already incurred these costs. [00:14:51] Speaker 03: It's not costing us $50. [00:14:52] Speaker 05: So you haven't been doing any of the other work with respect to registered repairs? [00:14:58] Speaker 03: No, they've been doing the... Like the background checks, et cetera. [00:15:02] Speaker 05: Had you been doing that? [00:15:04] Speaker 03: They were, until it was enjoined, they weren't doing everything they said they were going to do in 2010. [00:15:11] Speaker 03: So the $50 was based on not just the P-10 program itself, but also the- I understand, so there's two different parts of it. [00:15:20] Speaker 05: I suppose they have an argument that at least part of that money they're entitled to get back because you were not allowed to collect that money in the first place. [00:15:27] Speaker 03: Well, that would be a remand question because that certainly would be enough. [00:15:33] Speaker 03: That would be for remand because you'd have to have, okay, what did they spend, what did IRS spend their money on? [00:15:38] Speaker 03: How did they use the $50 per? [00:15:41] Speaker 01: The paragraph that on JA-59 that is from the Federal Register 66-794 that sets out what the fee is recompensation for, that came after Loving, right? [00:16:06] Speaker 01: It's on JA-59, it's paragraph 58. [00:16:09] Speaker 01: So it's just above what you, I think you were just having a colloquy about it. [00:16:14] Speaker 03: 66 is, yes, that is probably pre-loving. [00:16:17] Speaker 03: I'm just guessing from the number in the federal register. [00:16:19] Speaker 01: Oh, I thought it was post-loving. [00:16:20] Speaker 01: I think it wasn't at 2015. [00:16:23] Speaker 01: Do I have the dates wrong? [00:16:26] Speaker 04: Paragraph 59 says, as of November 2015, [00:16:30] Speaker 03: I believe your honor was quoting the... I guess it's my question. [00:16:34] Speaker 01: The agency's explanation, I think, for the user fee is that block quote in paragraph 58. [00:16:40] Speaker 01: The PTIN user fee is based on direct costs of the PTIN program, which includes staffing and contract-based related costs for activities, processes, and procedures. [00:16:51] Speaker 03: Well, that has to be pre-loving because it talks about tax compliance and so forth. [00:16:55] Speaker 03: These are not done. [00:16:57] Speaker 03: The best explanation [00:16:59] Speaker 03: for post-loving is in the Federal Register on October 30th of 2015, which is, I mean, I have the site, but it's... [00:17:13] Speaker 01: I thought this language is actually post-loving. [00:17:19] Speaker 01: And that's what's confusing me, because this language, I think, is 2015. [00:17:24] Speaker 01: Loving was 2014. [00:17:25] Speaker 01: And I think you're right to assume that it has to be pre-loving. [00:17:29] Speaker 01: That's the confusion that I have, because it seems like you would look at this language and you would think it would be pre-loving, but it's not. [00:17:36] Speaker 03: Okay, the tax compliance and background checks, that is for credentialed preparers. [00:17:43] Speaker 03: That is still done. [00:17:45] Speaker 03: So I didn't want to have any misunderstanding. [00:17:49] Speaker 03: They still do tax compliance and background checks for all credential preparers. [00:17:54] Speaker 03: They do not do that for uncredential preparers. [00:17:56] Speaker 01: But the PTIN user fee, it's assessed against everybody, right? [00:18:02] Speaker 03: Yes, yes. [00:18:03] Speaker 01: So then, at least part of what's in this paragraph, it doesn't make sense to say that this user fee [00:18:11] Speaker 01: is justified based on the things that are itemized in this paragraph, because with respect to uncredentialed tax preparers, some of these things just don't have any applicability. [00:18:23] Speaker 03: But the only things that do not have applicability would be the tax compliance and the professional designation. [00:18:29] Speaker 03: But certainly foreign preparer processing, you do that? [00:18:33] Speaker 01: There's just some things in here that can't justify it. [00:18:36] Speaker 03: There are a few things that do not apply to uncredentialed preparers. [00:18:41] Speaker 01: But this is the stated IRS justification for the fee. [00:18:46] Speaker 03: It's the last thing we have. [00:18:48] Speaker 03: But there's also, it's not just this paragraph, but further on, AD Fed Register 66, [00:18:59] Speaker 03: 792. [00:19:00] Speaker 03: There's an entire paragraph that talks about why they're doing P-10s, and they talk about it enables IRS to more easily identify and communicate with tax preparers. [00:19:12] Speaker 03: This was something the 11th Circuit pointed out in Brandon. [00:19:15] Speaker 03: that it enables IRS can issue targeted updates. [00:19:20] Speaker 03: If they see there's a problem with a certain preparer, and it could be the preparer erred in the taxpayer's favor or erred in the taxpayer's disfavor, IRS can then use the P-10 program to send out what is called a targeted update. [00:19:36] Speaker 01: Okay, we notice you failed to... [00:19:39] Speaker 01: attributes of the system would have equally been the case with the Social Security number. [00:19:45] Speaker 01: It may have some other problems to use the Social Security number, but as long as you have an identifier of some sort, including a Social Security number. [00:19:52] Speaker 03: You certainly could have done that, but Congress clearly didn't want to move away from the Social Security number. [00:19:59] Speaker 01: The Congress didn't mandate that. [00:20:01] Speaker 01: Well, no, no. [00:20:01] Speaker 03: There's a Senate report that indicated that there was a problem. [00:20:05] Speaker 03: So that's the time when Congress gave Treasury the authorization. [00:20:09] Speaker 01: The authorization to do it. [00:20:10] Speaker 01: Exactly. [00:20:10] Speaker 01: Yeah, but not a mandate. [00:20:11] Speaker 01: Exactly. [00:20:12] Speaker 03: Yeah. [00:20:12] Speaker 03: But I mean, you know, not using social security numbers, IRS has also indicated in the Federal Register that does, at least presumably, does benefit the preparers. [00:20:23] Speaker 03: I mean, there are lots of things in terms of benefits. [00:20:27] Speaker 03: It's just right here. [00:20:28] Speaker 03: The only thing here is the threshold. [00:20:30] Speaker 03: Can IRS charge a user fee? [00:20:33] Speaker 03: And we think this court's jurisprudence and seafarers and so forth points out that you clearly can. [00:20:39] Speaker 03: I mean, it doesn't matter whether the ultimate purpose of a program is to benefit the public. [00:20:49] Speaker 03: Presumably anything an agency does presumably benefits the public. [00:20:53] Speaker 03: And Seafarers also pointed out that it doesn't matter if a user fee is considered to be personally beneficial to the person who has to pay it. [00:21:03] Speaker 03: That's not the test. [00:21:04] Speaker 03: The test is, is an identifiable person getting a benefit that is not available to the general public. [00:21:11] Speaker 04: In using that language, getting a benefit, does that assume that they gained something they didn't have otherwise? [00:21:23] Speaker 03: Without the P10, they cannot prepare a return. [00:21:26] Speaker 04: I'm asking your definition of value or benefit here. [00:21:28] Speaker 04: Does that mean that they're getting something they couldn't have? [00:21:33] Speaker 04: Otherwise, it's a value-added proposition. [00:21:37] Speaker 03: Yes, they're getting money for preparing a return. [00:21:40] Speaker 03: They can't do that unless they have the PTIN. [00:21:42] Speaker 04: Well, they're not getting that money from you, someone else. [00:21:44] Speaker 04: So they were doing that before you required that they have the PTIN. [00:21:49] Speaker 04: Again, if it's value-added, then I'm having trouble understanding how [00:21:54] Speaker 04: File your returns, make money, use your Social Security number, and then on this date, use a different number, but keep doing everything you were doing the same before as value added as opposed to simply a different identifier being employed by the IRS. [00:22:10] Speaker 04: And of course we don't want you to file without using the right identifier because we can't do our job without it. [00:22:14] Speaker 03: The best answer is that it doesn't have to be value added. [00:22:17] Speaker 03: It simply has to be valued. [00:22:18] Speaker 03: The fact that the IRS did not charge a P-10. [00:22:21] Speaker 04: So it could be pre-existing value? [00:22:23] Speaker 03: Exactly. [00:22:24] Speaker 03: And the Brandon case points out that [00:22:27] Speaker 03: It doesn't, let me, I have it right here. [00:22:30] Speaker 03: It says, and I'm quoting from the Branham case. [00:22:33] Speaker 03: It says, nothing in the language of the user fee statute, nor in logic, prohibits an agency from implementing a fee for services that it had previously provided for free. [00:22:46] Speaker 03: So I rest two. [00:22:48] Speaker 01: I'm still not quite understanding that, what the service was before, because if before it was a social security number, [00:22:55] Speaker 01: not a P-10. [00:22:56] Speaker 01: I understand if IRS creates a P-10, then IRS needs to create an apparatus to administer the P-10, because that doesn't otherwise exist. [00:23:03] Speaker 01: But if it was Social Security numbers before, your argument is, well, we could have assessed a fee before, and all we're doing now is capturing a fee that we could have assessed before. [00:23:12] Speaker 01: What would the fee have gone to if it was Social Security numbers before? [00:23:15] Speaker 03: It would be a different question if they didn't institute the actual P-10 system. [00:23:22] Speaker 03: In other words, your question is, what if IRS just said, you can use social security numbers, and then we're going to charge you? [00:23:29] Speaker 03: That's a different, potentially harder question. [00:23:33] Speaker 03: This court doesn't have to go there? [00:23:35] Speaker 01: I don't understand why we don't have to at least understand why introduction to the P-10 didn't add some value. [00:23:43] Speaker 01: Because if it didn't add any value beyond what was already there with the Social Security number, then – and there was – as you say, it's a harder question, so there's at least the possibility that no fee could have been assessed with respect to the Social Security number, then it seems like the addition of the P10 would have to change the calculus in some way that made the otherwise dubious assessment of a fee non-dubious. [00:24:09] Speaker 03: Well, the Federal Register, with all of the various preambles, point out that it is, and they specifically say it is beneficial to the preparer not to have a Social Security number because even though it's supposed to be redacted and you're supposed to not include... This is the one justification that I get, which is that when you move away from a Social Security number, it helps preserve the Social Security number. [00:24:34] Speaker 01: And that I get, there's a question as to whether that was actually ever asserted as the basis for the P-10 number. [00:24:40] Speaker 01: But in the abstract, I can understand that. [00:24:42] Speaker 01: But it seems to me that if we think that that justification for moving from SS number to a P-10 number, which is that we're doing that because it protects people's Social Security number, if that's not stated as a basis for justifying the P-10 number, then it's hypothetical, it might well be true, but it's not [00:24:59] Speaker 01: actually one that we can act upon because it's not, it wasn't uttered by the agency as the basis for moving to the P-10 and then there would have to be something else that's the value added by the P-10. [00:25:11] Speaker 03: Besides the part about they can have targeted communication. [00:25:15] Speaker 01: They can do that with a social security number. [00:25:19] Speaker 01: That's what I think it's the same line of questioning that Judge Millett is pursuing, but if everything they can do with the P-10 they could have done with the Social Security number and the justification for moving to the P-10 is not to protect the Social Security number, what's left as the basis for the fee with the P-10? [00:25:39] Speaker 03: Well, the whole process whereby if they do not [00:25:47] Speaker 03: The P-10 program is also looking at what are you doing if you have bad preparers, okay? [00:25:55] Speaker 03: They have to have a mechanism for, okay, if they find a bad preparer, I mean, it does get, your question is really what difference does it make, what number they use? [00:26:07] Speaker 01: Yeah, exactly. [00:26:08] Speaker 01: So that seems like that could have been done with a social security number. [00:26:12] Speaker 03: I'm not saying it couldn't be done without a social security number, but what I am saying is that in terms of the user fee statute, what I call the user fee statute, if the requirement is you have to have that or you cannot prepare a return for compensation, our position is that's a special benefit and you can charge for it. [00:26:34] Speaker 01: Right, and that argument would be equally true of the Social Security number. [00:26:37] Speaker 01: I think it would be. [00:26:38] Speaker 01: Right, so then that's a different question because I mean earlier you were saying that that would be a harder question. [00:26:43] Speaker 01: Now it sounds like that's actually maybe essential to your argument. [00:26:45] Speaker 01: I'm not saying you're wrong about that, but it sounds like where we are now is that [00:26:50] Speaker 01: Yes, what the – all the P10 does, other than protect the Social Security number – let's just put that to one side. [00:26:57] Speaker 01: You may have an argument as to why we shouldn't put that to one side, but let's just suppose we're putting that to one side – that the justification for the P10 is not that it protects the Social Security number. [00:27:05] Speaker 01: Then, if everything the P10 does is the same thing that the Social Security number does, then it has to be the case that the IRS could have assessed a fee just for not giving the Social Security number, because that's something somebody already had, but for [00:27:18] Speaker 01: monitoring the person who gives the social security. [00:27:24] Speaker 03: Yes, yes, so they can say, okay, I mean, because if they find Arizona preparer, IRS wants to be able to contact all the people who had returns filed by that person. [00:27:35] Speaker 03: So the short answer is yes. [00:27:38] Speaker 01: So then the argument devolves into whatever, and I don't mean to be pejorative by saying devolved, but it reduces to, [00:27:47] Speaker 01: the ability of the IRS to assess a fee if we were in the prior regime where it was a social security number? [00:27:54] Speaker 03: Yes, so my answer would be yes. [00:27:56] Speaker 03: They could charge a fee. [00:27:57] Speaker 03: And the district court's rationale for not charging the fee is just not right. [00:28:01] Speaker 03: There is no connection between Loving and the district courts. [00:28:06] Speaker 03: The only connection is that I'm standing before you like I did in Loving. [00:28:10] Speaker 03: That's the only connection I see between the two cases. [00:28:12] Speaker 05: Well, it wasn't me. [00:28:15] Speaker 03: If I have any time left, I'd like to say it before the bottom. [00:28:19] Speaker 05: You don't have any time, but we're really blacks here. [00:28:26] Speaker 02: Thank you, and may it please the court, Jonathan Taylor for the plaintiff's appellees. [00:28:30] Speaker 02: In 2010, the IRS attempted to create an occupational licensing scheme for tax return preparers. [00:28:36] Speaker 02: And to effectuate that scheme, the agency would start requiring prepares. [00:28:41] Speaker 05: Isn't that the case that the preparers asked for a PTIN because they wanted it to protect their confidentiality? [00:28:49] Speaker 05: That's what the early comments are. [00:28:51] Speaker 05: When Congress passed the statute that allowed the use of the PTIN, there were hearings, and at the hearings, the tax preparers all said they were worried about their social security numbers. [00:29:02] Speaker 05: They wanted an alternative. [00:29:05] Speaker 05: Is anything I just said wrong? [00:29:07] Speaker 02: No, so in 1998 Congress authorized the IRS to change the identifying number if it wanted to. [00:29:14] Speaker 05: And they did it in part at the request of tax preparers who were worried about their Social Security numbers. [00:29:20] Speaker 02: As to the privacy concern, I would just make a couple of points. [00:29:24] Speaker 02: So it was the case that until 2010 when the IRS decided to mandate PTINs, it offered an optional PTIN for free for people who were concerned about the security of their information. [00:29:38] Speaker 02: And I think at that point, to help protect those preparers' Social Security numbers, the IRS could have charged a fee. [00:29:46] Speaker 02: But what happened in 2009 is then the IRS allowed tax return preparers to omit their identifying numbers from the taxpayers' copy of the return to protect their... So that's an argument about there are two different ways in which the government can process things. [00:30:03] Speaker 05: But that's not up to us to decide which is the better method. [00:30:05] Speaker 05: Obviously, the government [00:30:07] Speaker 05: finds it helpful for other reasons to have a number that people can track. [00:30:12] Speaker 05: Once you have that and you have to establish a number, [00:30:17] Speaker 05: The preparers would prefer a PTIN over a social security number, wouldn't they? [00:30:22] Speaker 02: Well, many of them already had a PTIN in 2010. [00:30:25] Speaker 02: And just on privacy, I would just note that in the rulemaking, the IRS doesn't identify anywhere the privacy rationale as the basis for the fee. [00:30:33] Speaker 02: If you look at the fee regulations. [00:30:35] Speaker 05: That sounds like a different question. [00:30:36] Speaker 05: It seems to me we have two different issues here. [00:30:39] Speaker 05: One is whether this is a service that's being provided or a thing that's being provided. [00:30:45] Speaker 05: And the second question is how much it's worth. [00:30:47] Speaker 05: But the first question about whether this is a service or not, a benefit that only affects some people and not others, seems to me to be satisfied. [00:30:58] Speaker 05: I'll just quickly mark three places where they did make the statement that Judge Shunabasin was asking whether they made, which was the protection of the confidentiality of the preparers' SSNs. [00:31:08] Speaker 05: It seems obvious to me, and must seem obvious to everyone now, that [00:31:13] Speaker 05: The IRS is not too good at protecting our Social Security numbers. [00:31:18] Speaker 05: Anybody who can't – I mean, that seems something we can traditionally recognize, and all they need to say is that we aren't very good at this. [00:31:28] Speaker 05: And this protects the preparers. [00:31:31] Speaker 05: You're not suggesting you want to go back to a system where every preparer has to put their Social Security number on. [00:31:35] Speaker 02: No, I'm not suggesting that, but I mean, all that I'm saying is that in the rule that authorized the fee, the PTIN fee, the agency doesn't identify as the asserted special benefit or thing of value, the, you know, protecting the confidentiality of Social Security numbers. [00:31:53] Speaker 05: Well, I'm looking at the proposed rule in 2010, and it says listing the things that the use of PTINs as the identifying number will benefit tax [00:32:04] Speaker 05: taxpayers and tax return preparers, and help maintain the confidentiality of SSNs. [00:32:11] Speaker 05: That's at your A3. [00:32:12] Speaker 02: Well, I'm looking at A10, which is the succinct statement of the objectives of illegal basis for the proposed rule. [00:32:19] Speaker 02: And at the bottom of the middle column, the IR says quite clearly that the individuals who obtain a P10 receive the ability to prepare all or substantially all of the tax return preparers. [00:32:29] Speaker 05: That's another reason, but I'm looking at a column entitled [00:32:32] Speaker 05: explanation of provisions requiring the use of P10s. [00:32:36] Speaker 05: And it says one of the three reasons they give is to help maintain the confidentiality of Social Security members. [00:32:43] Speaker 05: They say again in the 2010, I don't know if you can see what this is, the final rule that [00:32:56] Speaker 05: Most of the comments received on the Notice of Proposed Rule making support the requirement to use a P-10 as exclusive identifying number. [00:33:04] Speaker 05: And those comments come from tax preparers who are worried about their returns. [00:33:09] Speaker 05: And then there is another one on the final 2010 rule listing what commentators are suggesting in the third column, the identity protection provided by P-10s. [00:33:25] Speaker 05: So maybe they didn't do the best possible job, but this is one of those ones that seem obvious that using another number than your social security number, it protects you. [00:33:36] Speaker 05: And I don't see why they have to state it any more than that. [00:33:39] Speaker 02: I want to be clear. [00:33:41] Speaker 02: The IRS had already issued P-TIMs to people who had requested them who were concerned about their social security numbers being disclosed. [00:33:51] Speaker 02: But in 2010 what the IRS started doing is it started mandating P-10s and it imposed some eligibility criteria because it wanted to use a P-10 as an occupational license and I think that's why. [00:34:02] Speaker 05: I think so those reasons about that we struck down and loving they can't use anymore. [00:34:08] Speaker 05: But Congress did authorize them to require a single number, correct? [00:34:12] Speaker 05: It did. [00:34:13] Speaker 05: And they did require a single number. [00:34:17] Speaker 05: And the choice about whether it's a P-10 or a Social Security number is really not our business here. [00:34:22] Speaker 05: The only question is whether, having chosen a P-10, it fits within the user fee statute. [00:34:29] Speaker 05: Isn't that right? [00:34:30] Speaker 02: We are not challenging the requirement that tax return preparers obtain a P-10. [00:34:34] Speaker 02: We're challenging the fee. [00:34:35] Speaker 02: And this is a large annual fee to keep a random ID number that's permanent. [00:34:41] Speaker 02: Maybe it's too large. [00:34:42] Speaker 05: It does seem large to me also, but that's something that can be disputed below. [00:34:47] Speaker 02: Well, I think it's relevant to the justification. [00:34:49] Speaker 02: So we have two arguments for why the fee is unlawful. [00:34:51] Speaker 02: One is a lack of statutory authorization. [00:34:53] Speaker 02: The other is the impermissibility of the IRS's justifications in the rulemaking. [00:34:57] Speaker 01: And I think – can I just do one question about that on the justification? [00:35:01] Speaker 01: Yeah. [00:35:01] Speaker 01: So suppose the justification's just – as explicitly as could possibly be the case said part of the justification, even post-loving, part of the justification is to protect Social Security numbers. [00:35:15] Speaker 01: Then would you still have an argument that they can't assess a fee at all, or would your argument be about the amount? [00:35:22] Speaker 02: I think if the asserted special benefit in this hypothetical was helping safeguard confidential information, and it was an optional system, I think that that would be a special benefit. [00:35:34] Speaker 05: Why is that to be an artificial system? [00:35:35] Speaker 02: Well, I think there has to be some sort of voluntary act. [00:35:38] Speaker 05: Well, that's not the way with any of the other permits that the courts rule on. [00:35:42] Speaker 05: Those are all mandatory. [00:35:43] Speaker 05: Now, I understand you have an argument that this isn't like that, but there's no rule that has to be voluntary in that sense. [00:35:50] Speaker 02: Well, I think that the case that I would look at, just on the statutory question, is the Seaford case that my friend pointed out, which actually lays down the framework for when the asserted justification is the ability to make a living off of a certain type of occupation. [00:36:04] Speaker 02: And that's the asserted rationale here. [00:36:06] Speaker 02: It's in the rulemaking. [00:36:07] Speaker 02: It's the argument that the IRS makes. [00:36:09] Speaker 05: It is correct that without the P-10, they could not be preparing returns for compensation, correct? [00:36:18] Speaker 05: I think the way I would answer that... That's what Brandon says, is its explanation, which says nothing at all about the thing that we struck down in Loving. [00:36:28] Speaker 05: A person cannot prepare tax returns for another for compensation unless that person obtains from the Secretary the required identifying number. [00:36:35] Speaker 05: That's true, correct? [00:36:37] Speaker 02: That's true, but I think what I would say is that in 2010, most people already had a P-10. [00:36:44] Speaker 02: And then the IRS mandated that everyone, even if you already had a P-10, pay an annual fee just to keep the number. [00:36:51] Speaker 02: And so everyone already had the number. [00:36:53] Speaker 02: And then if you really want to see this, look at the 2015 rule, where everyone has already been required to pay for the P-10. [00:36:58] Speaker 02: And the IRS thinks it's a good idea to charge $50, 33 on its own, and then 17 to a vendor, for the person to keep the number they already have that is a permanent number that doesn't change and has no eligibility criteria. [00:37:10] Speaker 02: And I think the IRS kind of gives the game away a little bit in acknowledging, when Judge Srinivasan read the justification for the rule for the 2015 fee, my friend thought that you were talking about the fee pre-loving because they're continuing to charge for activities they cannot conduct. [00:37:28] Speaker 02: And I think that shows that they're at best in denial about the consequences of this court's decision in loving and at worst in defiance of it. [00:37:37] Speaker 05: I think what it shows is that there may be some parts [00:37:40] Speaker 05: the fee that you should be able to get back. [00:37:43] Speaker 05: But that's to be determined below. [00:37:45] Speaker 05: It may be that there are some parts of the fee that they're justified in charging. [00:37:50] Speaker 05: And I didn't see any comments by you or, in fact, anyone on the 2015 reduction in the fee. [00:37:58] Speaker 05: Were there any comments found? [00:37:59] Speaker 02: No, but our complaint is not that the IRS failed to adequately respond to a comment. [00:38:04] Speaker 02: It failed to adequately respond to this Court's decision in loving. [00:38:06] Speaker 02: It didn't really take seriously the consequences, I think. [00:38:10] Speaker 02: You know, it's one thing for the agency if it thinks it's using this number as an occupational license to start charging a fee on an annual basis to ensure continued compliance with eligibility criteria. [00:38:21] Speaker 02: But the problem is the IRS didn't have that licensing authority in the first place. [00:38:25] Speaker 05: They do have the authority to require a single number, correct? [00:38:30] Speaker 02: They do, they have the authority. [00:38:31] Speaker 05: And it wasn't arbitrary and capricious. [00:38:34] Speaker 05: leaving aside the statute to decide to use the PTIN rather than some mixture of numbers. [00:38:40] Speaker 02: We haven't challenged it as being arbitrary, but if you look at the rule, the justifications are shot through. [00:38:47] Speaker 05: You haven't challenged the decision to have a [00:38:51] Speaker 05: PTIN rather than a social security number. [00:38:53] Speaker 02: We haven't challenged the rule that requires a PTIN for lack of statutory authority. [00:38:58] Speaker 05: You have not. [00:38:59] Speaker 02: We have not. [00:39:00] Speaker 02: I would note that even that regulation imposes eligibility criteria on who could obtain a PTIN, but the district court in Loving enjoined it from being enforced. [00:39:09] Speaker 02: So now you can't... How many people do you represent? [00:39:15] Speaker 02: It's a class of 700,000 people. [00:39:17] Speaker 05: Okay, so 700,000 out of however million [00:39:20] Speaker 05: hundred millions of people in the United States are the only ones who have to provide the P-10, correct? [00:39:27] Speaker 05: That's correct. [00:39:28] Speaker 05: And they can obtain compensation when they prepare somebody else's return. [00:39:34] Speaker 05: So they are completely distinguished from all the other hundred millions of Americans. [00:39:39] Speaker 05: This is a benefit that goes only to them, the benefit of being able to charge for preparing a return. [00:39:46] Speaker 02: And that's a benefit that they already had before. [00:39:49] Speaker 05: I don't understand why that matters. [00:39:50] Speaker 05: We held in Central and Southern that it doesn't matter that they were giving it away for free before. [00:39:59] Speaker 05: You agree that that's not the line here, that they were giving it away for free? [00:40:02] Speaker 02: No, that's absolutely right. [00:40:03] Speaker 02: The IRS has the, I mean, any agency, it's not forced to exercise its authority to charge a user fee, even if that's authorized. [00:40:11] Speaker 02: And it can later. [00:40:13] Speaker 02: It can do that if it has a reasonable basis for why it thinks, just under the APA, that it makes sense now to change its policy. [00:40:19] Speaker 02: And I do want to get to that shortly. [00:40:20] Speaker 05: It doesn't have to be, all they have to do is have a good reason. [00:40:23] Speaker 05: They do have to have a good reason. [00:40:24] Speaker 05: So the good reason can be we weren't charging before, and now we're charging because we're allowed to. [00:40:30] Speaker 05: And that seems to be a perfectly good reason. [00:40:32] Speaker 05: In fact, Congress might be quite mad at them for not charging user fees. [00:40:36] Speaker 02: Well, they don't charge for any other permanent ID number that they issue. [00:40:39] Speaker 01: If you look at the rule... Well, can I ask this? [00:40:40] Speaker 01: Can I ask this? [00:40:40] Speaker 01: So in the world beforehand, when it was optional to get a P-10, suppose that what the IRS says is, our default mode is Social Security numbers. [00:40:50] Speaker 01: We're going to give you so that you can protect your Social Security number. [00:40:53] Speaker 01: We're going to give you the option to have a P-10, but we're going to charge you. [00:40:56] Speaker 01: Nothing wrong with that. [00:40:57] Speaker 02: I think they would have the statutory authority to do that, and because the service of legal value in that case, but not in this case, would be allowing someone to protect the safety of their information. [00:41:07] Speaker 01: So just in the abstract, there's nothing necessarily wrong with charging for a P-10 because in that universe that would have been fine. [00:41:13] Speaker 02: No, that's exactly right. [00:41:15] Speaker 01: And then the distinction that we have, the two potential distinctions that you're pointing to now is [00:41:20] Speaker 01: it's mandatory rather than voluntary, and that the justification, in fact, at least as a stated matter, formally in the 2015 rule, didn't explicitly incorporate protection of Social Security numbers. [00:41:36] Speaker 02: I think that's right. [00:41:37] Speaker 02: I think the other thing I would add to that is just as a statutory matter under the IOAA, what you have here is, it's not just, they're not just charging, the agency didn't just think it was charging for a random number. [00:41:46] Speaker 02: I thought it was charging for a real occupational license at the time, that it created the P-10 requirement and created the requirement that prepares pay an annual fee for obtaining that number and renewing it. [00:41:58] Speaker 02: And I think that when the asserted rationale is an occupational licensing rationale, that the framework is provided by this Court's decision in seafarers. [00:42:07] Speaker 02: And what the Court said there is that a user fee for license applicants is only permissible if the procedures in question are related to the qualifications set forth in the licensing statute. [00:42:18] Speaker 02: And the problem here is there is no licensing statute. [00:42:20] Speaker 02: There are no eligibility criteria on who can obtain this so-called license anymore. [00:42:25] Speaker 04: And so you have... Well, there are... I mean, it's not much. [00:42:28] Speaker 04: It's not like the credentialed preparers, but in 66, 94, and 95, there are actually some regulations of tax preparers. [00:42:37] Speaker 04: Yes, those... Plus, you know, and plus now this is how you'll continue to do that business, but it's not an entirely laissez-faire activity. [00:42:46] Speaker 02: It is policed and regulated. [00:42:48] Speaker 02: District judges have the authority to enter injunctions. [00:42:51] Speaker 02: restraining someone from preparing tax returns if they've committed fraud on a repeated basis. [00:42:56] Speaker 02: And the federal government can prosecute them in those cases. [00:42:59] Speaker 04: No, the IRS can impose penalties under 66.94.95 itself. [00:43:02] Speaker 02: It can. [00:43:02] Speaker 04: It can impose penalties on tax preparers for doing things bad. [00:43:07] Speaker 04: So that sounds like there is in fact some [00:43:10] Speaker 04: licensing scheme, it might be a fairly minimal one, but isn't that, is that relevant or why isn't that relevant? [00:43:17] Speaker 02: There are no eligibility criteria for who can obtain this licensing. [00:43:20] Speaker 02: Well, there are. [00:43:21] Speaker 04: You gotta be over 18, you gotta not be enjoined from doing it, and I can't remember if there's something about foreign status. [00:43:30] Speaker 02: So I don't know where they get the authority to say that minors cannot get one. [00:43:33] Speaker 02: That doesn't come from a statute. [00:43:35] Speaker 02: But what I would say is if you look at the PTEN application, I submitted an application last week just to see what this is like now because it's free, it's been adjoined. [00:43:42] Speaker 02: Do it while you can. [00:43:45] Speaker 02: And you supply some basic identifying information. [00:43:48] Speaker 02: Notably, they don't ask if you've been adjoined from preparing tax returns, which if that were a driving force, you would expect them to ask that question. [00:43:54] Speaker 02: And then within two or three seconds of submitting this basic identifying information, I got a PTIN, a random ID number that was generated by this third-party vendor. [00:44:03] Speaker 02: And so if the PTIN is the sole basis for why, you know, the key that allows you to prepare tax returns and meet the IRS's odds, the sole basis for why they can charge a fee for it, the IRS does nothing in order to help facilitate that. [00:44:17] Speaker 05: Well, they have your name, don't they? [00:44:19] Speaker 05: So presumably they could check whether you had previously listed yourself without a PTEN. [00:44:26] Speaker 05: And when they go for renewal, they could just check the database under the PTEN to determine whether you had understated due to an unreasonable position, which is 6694, 6695 had previously failed to identify, 7407 had an injunction against you. [00:44:45] Speaker 05: These are all elements of your ability to practice. [00:44:49] Speaker 02: Well, I think what they could do is if they wanted to check to see whether I'm complying with their various tests or whatever it is that they do exactly, I think they could potentially, I suppose, try to revoke a number at some point, but surely the revocation of a P-10 is not a service or thing of value for which they can charge a fee. [00:45:10] Speaker 02: Anyone with a pulse and a credit card can get a P-10 at this point. [00:45:14] Speaker 02: It just doesn't serve any function. [00:45:15] Speaker 05: But it doesn't serve everybody in the United States. [00:45:17] Speaker 05: It only serves the people who are trying to get compensated for preparing somebody else's return. [00:45:22] Speaker 05: So it may be true that anybody with a pulse can get it, but it does no use for anybody other than somebody who wants to be compensated. [00:45:30] Speaker 02: I think what you're pointing out is that this is really just kind of, at this point, a kind of zombie licensing scheme that isn't really rational. [00:45:37] Speaker 02: And I think, if anything, that just, I think, strongly suggests that the IRS is not really engaged in reasoned decision-making. [00:45:43] Speaker 02: I mean, it just does not make sense in 2015 to, you know, after everyone already has a P10, and there are no longer any eligibility criteria for who can get one, to persist with an annual $50 fee [00:45:57] Speaker 05: Well, if it turns out on remand that it doesn't cost the government anything anymore, that there were fixed costs which have already been sunk, and there's no further costs, then you get your money back. [00:46:10] Speaker 05: But there are going to be renewals, there are going to be new people, presumably the universe of people who want [00:46:18] Speaker 05: P-10s is not fixed. [00:46:19] Speaker 05: In fact, here you are. [00:46:20] Speaker 05: You just bought yourself one. [00:46:22] Speaker 05: Recently, you didn't have one before. [00:46:24] Speaker 05: So that must have cost something. [00:46:26] Speaker 02: There is an excessive misclaim on remand. [00:46:28] Speaker 02: But what I would, I just want to point out, my friend referenced a declaration from the director of the return prepare office. [00:46:34] Speaker 02: And you can find this at J-171. [00:46:36] Speaker 02: We cite it on the last page of our brief. [00:46:38] Speaker 02: This is, I'll give you a second to get to it because I think it's actually pretty important. [00:46:43] Speaker 02: This is, [00:46:44] Speaker 02: The director of the return preparer office here is telling this court in Loving that, quote, I'm looking at the bottom of paragraph 12, the last sentence, JA 171. [00:46:56] Speaker 02: The combined PTIN and competency tester user fees received by the service through the end of calendar year 2012 exceeded $105 million, which some may only be spent on the registered tax return preparer program [00:47:08] Speaker 02: That is the program that this court invalidated and loving. [00:47:11] Speaker 02: I mean, the fees are being used entirely to support this unauthorized regulatory regime. [00:47:17] Speaker 02: And I wouldn't, I mean, don't just look at that declaration. [00:47:20] Speaker 02: You could also look at the rulemaking. [00:47:21] Speaker 02: If you go to A9, which is the addendum to our brief, [00:47:26] Speaker 02: There are two paragraphs that I think are the money paragraphs in the bottom left-hand column where the IRS is explaining. [00:47:32] Speaker 02: We didn't charge a fee for a P-10 before, but now we are. [00:47:35] Speaker 02: And the IRS says the reason is because before anyone could get a number and it didn't have much content, but now we're going to do real eligibility checks to determine who qualifies, and so they say. [00:47:46] Speaker 02: The IRS currently issues P-10s to tax return preparers without charging a fee. [00:47:50] Speaker 02: That's a key to the reader that, okay, now we're going to explain our change of policy. [00:47:54] Speaker 02: The P-10 application issuance and renewal process, however, will become significantly more expansive and intricate with the implementation of the registered tax return preparer program. [00:48:04] Speaker 02: Federal tax compliance checks will be performed on all. [00:48:07] Speaker 05: What year was that? [00:48:08] Speaker 05: What year was that? [00:48:09] Speaker 02: That was in 2010. [00:48:10] Speaker 05: Yeah, so that's before Loving and before it was struck down, which brings me to the next question. [00:48:16] Speaker 05: So your amended complaint was filed before the 2015 rule, correct? [00:48:20] Speaker 05: That's right. [00:48:21] Speaker 05: And you asked, among other things, you asked for vacating the rule, right? [00:48:27] Speaker 05: The district court's final, the district court's, in that random opinion, is only about what's wrong with the 2010 rule. [00:48:37] Speaker 05: It doesn't even mention the 2015 rule. [00:48:40] Speaker 05: And yet it permanently enjoins government going forward from ever having this. [00:48:47] Speaker 05: This means even with a justification, you know, 50 pages on why identity theft happens of Social Security numbers, which again I don't think is really required, it still wouldn't be okay. [00:49:01] Speaker 05: Or even if the IRS said, look, it doesn't really cost 50 bucks, it costs $2 because we have to keep up the website, we have to pay the webmaster, we have to check renewals to determine whether you've been enjoined. [00:49:18] Speaker 05: All that has been enjoined by the court. [00:49:21] Speaker 05: The typical thing that a court does in an APA case is to vacate the rule that's being challenged. [00:49:29] Speaker 05: The only rule you challenged is 2010. [00:49:32] Speaker 05: Help me with why the judge didn't overstep. [00:49:34] Speaker 02: Okay, so there's a lot in there, but what I would say first is that the district court here, it found that there was no statutory authority for the IRS to charge a P2P. [00:49:43] Speaker 05: So then it's not just, you have to live or die on the argument that there is no statutory authority at all. [00:49:48] Speaker 02: No, I don't think we do, but let me just first try to get this part of the answer out. [00:49:53] Speaker 02: So if you find that there's no statutory authority, there's obviously, it doesn't matter whether the IRS tried to supplement its justifications in 2015. [00:50:00] Speaker 02: So I think that explains the district court's remedy and the injunction. [00:50:04] Speaker 02: And I would just note that the IRS has not sought to stay in this court of that injunction. [00:50:08] Speaker 02: And now, as to the justifications, if you were to find that there is statutory authority, now we're going to look to see whether the agency's justifications are reasonable in light of the scope of the agency's statutory authority. [00:50:22] Speaker 02: I think that the 2010 rule, in our view, is just clearly out. [00:50:27] Speaker 02: It's obviously motivated by a desire to implement this licensing scheme, and it's a licensing fee. [00:50:32] Speaker 02: It operates like a licensing fee, and there's no licensing authority. [00:50:35] Speaker 02: But then if you look at 2015, the first point I would make is obviously just under [00:50:40] Speaker 02: This rule cannot retroactively justify fees that are imposed under a rule that rested on a faulty foundation. [00:50:46] Speaker 02: But then, again, I think the 2015 rule, in the one paragraph that Judge Srinivasan mentioned earlier, where the IRS is trying to explain all the things that it's doing, and this is at B29, which is the addendum to our brief, if you want to follow along. [00:51:02] Speaker 02: I mean, even this justification, it's the second paragraph in the middle column. [00:51:09] Speaker 02: The IRS can't help but refer to all these various compliance checks and other things that they're doing that have no bearing on whether somebody gets a P-10, which is the sole basis for why they charge a fee. [00:51:20] Speaker 02: And so I don't – I mean, I think this is an agency that – I mean, it might have the ability to collect taxes, but it doesn't have the ability to create taxes. [00:51:29] Speaker 02: And the way that this annual fee is operating right now is as a kind of tax or an occupational license or what have you, but it's just not reasoned decision-making. [00:51:39] Speaker 02: And I think also just in a sense that the IRS, if you really – if you look at the top paragraph here of A29, [00:51:46] Speaker 02: The IRS is explaining that the amount of the user fee, it's $33, whether you've got the P-10 or not already, whether you're renewing or whether you're applying in the first instance, because the costs to the government are the same. [00:51:58] Speaker 02: Now, if that's true, then what the IRS is effectively saying is that the marginal cost of actually having a database generate this random number, which the government doesn't even do, it's a third-party vendor that does, is effectively zero. [00:52:09] Speaker 02: I mean, it probably costs more for the agency to issue this rule than it does to issue a random ID number that doesn't change. [00:52:15] Speaker 02: And that's just not rational. [00:52:17] Speaker 02: I mean, yes, you could view it as an excessiveness question, but I think it's better to just say there's no way you could think an agency that is operating under a proper conception of its own authority would issue the rules either in 2010 or in 2015 that the IRS has done here. [00:52:35] Speaker 02: And I think whether you view that as through the lens of a lack of statutory authority under seafarers or as just arbitrary or capricious under this court's general approach, I think it's unlawful. [00:52:44] Speaker 04: Can I ask you – I just have two questions. [00:52:47] Speaker 04: One is, when Congress passed the statute that authorized the IRS to use – to issue TPINs, do you know what Congress's rationale was? [00:52:57] Speaker 04: I don't know if there's legislative history or anything. [00:52:59] Speaker 04: Were they concerned about Social Security numbers? [00:53:01] Speaker 02: There is one line in the legislative history that references a concern that, you know, there might be some, you know, Social Security numbers could be inadvertently disclosed, and so to help protect the confidentiality of Social Security numbers, the IRS would have the discretionary authority, if it chose to exercise it, to allow for another alternative, an alternative... Were there other purposes that were identified for that statute? [00:53:25] Speaker 04: Why else would Congress say, hey, if you want, maybe use a different number? [00:53:30] Speaker 02: There is only one sentence in the legislative history. [00:53:34] Speaker 04: That's all there is about that statute. [00:53:36] Speaker 04: That's all there is. [00:53:37] Speaker 04: There's certainly no indication. [00:53:38] Speaker 05: But there was a hearing on the statute. [00:53:40] Speaker 05: And in the hearing, there are statements by tax preparers, including the International President of the Tax Executive Institute, which is not provided to us here, but which says, and I'm just going to quote, [00:53:55] Speaker 05: In today's world of instant access to volumes of sensitive information about an individual, including even credit reports accessible over the Internet, practitioners are understandably concerned that their Social Security number could be the key to unauthorized release of their personal financial information. [00:54:13] Speaker 05: Practitioners feel that the requirement that they include their Social Security number on returns violates their privacy. [00:54:20] Speaker 05: as it could provide a possibly unscrupulous taxpayer the opportunity to access certain records that would not otherwise be available. [00:54:29] Speaker 05: And it goes on. [00:54:31] Speaker 05: So I appreciate this is not in the record, but it is the hearing that led to the report. [00:54:39] Speaker 05: If they would reissue the rule and cut and paste this section of the practitioners severe concern back in [00:54:48] Speaker 05: 1998 about the risks of their privacy, would that be sufficient to sustain their rule? [00:54:53] Speaker 02: Well, it wouldn't be sufficient to sustain the fee rule. [00:54:57] Speaker 02: It might be sufficient to sustain the P-10 rule, which we're not challenging. [00:55:00] Speaker 02: But I would also point out that the previous regime, before the P-10 mandatory rule was put in place, [00:55:07] Speaker 02: was that the tax return preparer had the option. [00:55:09] Speaker 02: You could put your social security number on the form, or if you were really concerned about confidentiality and other things, you could apply for a PTIN from the IRS, and they would help you safeguard the confidentiality of your own information. [00:55:22] Speaker 02: If the sole concern is just effectuating Congress and Congress's purpose, there was no reason for the IRS to move away from that regime. [00:55:32] Speaker 01: But you just drew a distinction between the underlying requirement and the fee part of it. [00:55:36] Speaker 01: If it was voluntary, you'd have no problem with the fee. [00:55:38] Speaker 02: If it's voluntary, the asserted benefit is that we're helping you protect your social security number. [00:55:46] Speaker 02: It's not an annual fee because it's a one-time thing. [00:55:49] Speaker 02: We would not have a problem with that rule. [00:55:51] Speaker 01: And then does that mean that the agency then couldn't just say, look, we understand that some people might actually not care about the privacy of their own social security number, but that this is a society-wide systemic problem. [00:56:02] Speaker 01: We're just not going to allow that risk to persist because it causes [00:56:05] Speaker 01: too many collateral consequences, so everybody's going to have to have a P-10 because disclosure of Social Security numbers is a problem, and then we're going to exact the same fee that we would have in the prior regime where you did it voluntarily. [00:56:18] Speaker 02: I think I get two responses. [00:56:21] Speaker 02: First, as to whether the IRS would have the statutory authority to mandate the P-10 requirement in that case. [00:56:25] Speaker 02: they would absolutely would have that authority. [00:56:27] Speaker 02: And then as to whether they would have the authority to charge a fee, if the Asserted Special Benefit is not a licensing benefit, which is what the Asserted Special Benefit is here, but, you know, we're helping you protect your information, then I think that would probably qualify. [00:56:42] Speaker 02: You'd have a difficult question about this, you know, is it voluntary, is it not, given that the agency has no other regulatory authority. [00:56:52] Speaker 01: I mean, it might be that under seafarers... So there could be a mandatory [00:56:55] Speaker 01: a mandatory P-10 requirement that results in a mandatory fee. [00:57:02] Speaker 01: It sounds like there could be. [00:57:03] Speaker 01: You might have a great claim that, boy, the amount of that fee better be pretty darn small. [00:57:07] Speaker 02: It better be a one-time fee. [00:57:08] Speaker 02: The justification better be pretty good. [00:57:10] Speaker 02: The IRS better say why it thinks this makes good sense. [00:57:14] Speaker 02: But I think if it were a one-time fee and the asserted special benefit were different and we had a very different case than we have here, I think that would be a much stronger case for the IRS to be able to sustain that. [00:57:24] Speaker 02: But we are miles away from that here. [00:57:28] Speaker 02: The IRS is charging a massive annual fee to people who already have the number that doesn't change. [00:57:34] Speaker 02: And that just makes no sense, given that there are no eligibility criteria. [00:57:37] Speaker 02: It might make sense that the IRS had licensing authority. [00:57:40] Speaker 02: It doesn't have that. [00:57:41] Speaker 02: And so the fee that was intended to fund the failed licensing scheme should be returned to tax return preparers. [00:57:48] Speaker 04: I'm sorry, because I had a second question. [00:57:50] Speaker 04: And I just want to check one thing. [00:57:54] Speaker 04: Before someone can bring a refund suit like this against the IRS, they have to submit a claim to the IRS for a refund. [00:58:05] Speaker 04: The complaints that one of the named parties did, do you know, does that mean the other two named parties didn't, do we know, do class members have to do that too, or does that not apply to class actions? [00:58:15] Speaker 02: I don't know the answer to that, but I can't imagine that the class members or the named plaintiffs in this case would be forced to go through with this feudal administrative exhaustion requirement that I don't think really exists in a case like this. [00:58:30] Speaker 04: Well, it's actually, there's a statute in this jurisdictional. [00:58:33] Speaker 04: That's why I asked the question. [00:58:34] Speaker 02: Well, I just don't think it applies because the agency, I mean, I think that that statute exists where if you've got a problem with your return or you have some, you know, you should go first to the agency before you file C. Well, any sum alleged to have been excessive that was collected by the IRS. [00:58:50] Speaker 04: So it's not just taxpayer returns. [00:58:53] Speaker 02: Well, I mean, if the court is concerned about that, we'd be happy to file a 28-J or supplemental brief or something, but I just don't think that that type of exhaustion requirement would apply here and it hasn't been addressed by the parties or below. [00:59:05] Speaker 05: Isn't it plain under any theory that you're entitled to a refund of at least part of the money that was originally [00:59:12] Speaker 05: required under the 2010 rule? [00:59:14] Speaker 02: And if so, why? [00:59:16] Speaker 02: From the 2015 rule that the IRS, they're not backing down. [00:59:19] Speaker 02: Instead of refunding the P-10 fees after Loving, they've continued to insist on this annual fee. [00:59:26] Speaker 02: There is no way that someone in an office somewhere in the IRS would give a refund for someone who paid a P-10 fee when the agency's position is in the issued a rule saying we've got the authority to do this. [00:59:37] Speaker 02: And so we are challenging that rule and we're not, I mean, it is true that the consequence of challenging that rule is that any fees that were collected based on that rule would be returned as restitution. [00:59:53] Speaker 02: But this is not a suit for a refund. [00:59:55] Speaker 05: I'm sorry, I didn't mean it in the sense of the taxpayer having to separately file for a refund, but part of your [01:00:02] Speaker 05: your request below would be any parts of, at least any parts of the cost that reflect the preloving requirements. [01:00:13] Speaker 02: That's right. [01:00:14] Speaker 02: I would just, I would also note that if you look at docket 51 below, it's a joint scheduling order at page 2, the parties agreed that if we prevailed on our first claim, which is the claim, the sole claim on debt issue on appeal, not the excess in his claim, [01:00:27] Speaker 02: that the natural consequence of that would be that, quote, the members of the class will be entitled to a refund of the P-10 fees they have paid to date, the IRS will cease charging fees in the future, and the case will be concluded. [01:00:38] Speaker 02: And so I think it's common ground in this case that the consequences of unlawful agency action would require reimbursement of the fees. [01:00:51] Speaker 05: I think I promised you we'd be flexible. [01:00:52] Speaker 05: If you don't want us to be flexible, that's fine. [01:00:56] Speaker 03: Unless you have any questions, the P-10 fee is currently not being collected because of the district court's injunction. [01:01:03] Speaker 04: Can I ask you a jurisdictional one? [01:01:05] Speaker 04: Because you had originally raised jurisdiction and then it seems to have fallen out, so am I wrong to think that the refund provision applies here? [01:01:13] Speaker 03: This is not a refund of tax, so the normal tax rules about claim for refund and all that do not apply because you're not seeking a refund of a tax. [01:01:21] Speaker 04: Any sum alleged to have been excessive or in any manner wrongfully collected? [01:01:25] Speaker 04: And I guess their whole theory is that it is a tax, right? [01:01:27] Speaker 04: It's not a user fee, so it must be a tax. [01:01:29] Speaker 04: So I'm a little confused about what to do. [01:01:32] Speaker 04: And you all raised this jurisdictional issue initially and then dropped it. [01:01:35] Speaker 03: Yeah, we have not raised it again in our brief. [01:01:39] Speaker 04: I just want to make sure I'm doing due diligence on this. [01:01:41] Speaker 05: It's interesting. [01:01:42] Speaker 05: So if you win, it's not a tax. [01:01:46] Speaker 05: But if they win, it is a tax, and they should have sought a refund, and they can't be here. [01:01:49] Speaker 05: Is that the idea? [01:01:50] Speaker 03: That's a nice catch-22. [01:01:51] Speaker 03: I didn't think about that. [01:01:52] Speaker 03: Maybe I should have put that in my brief. [01:01:54] Speaker 03: Thank you. [01:01:56] Speaker 05: You're welcome. [01:01:57] Speaker 05: Thanks to all of you. [01:01:58] Speaker 03: We'll take the matter under submission.