Federal agencies have begun using user fees as a substantial means of financing the federal government. Certain requirements must be met in order for user fees to be (lawfully) charged.
Under 31 U.S. Code section 9701, heads of agencies may prescribe regulations establishing a charge for a service of thing of value provided by the agency. Regulations prescribed by the heads of executive agencies are subject to policies prescribed by the President and must be as uniform as practicable. Each charge must be: (a) fair; and (b) based on (1) the costs to the Government; (2) the value of the service or thing to the recipient; (3) the public policy or interest served; and (4) other relevant facts. In addition, the U.S. Supreme Court has ruled that the payer must receive a “special benefit” in exchange for the payment, and payment must be made voluntarily. An involuntary fee payment is a tax, and only Congress can tax.
Historically, the courts have upheld user fees when things of value, to which a person is not entitled, are supplied by a government agency upon a request by the payer. Examples include fees charged for letting one’s cattle graze on federal land (common in the western U.S.), patent fees and license fees. No one has a right to a patent. Rather, a submission must be filed with the federal government to receive a patent. A fee is charged to cover the work involved. If a patent is issued, it could have tremendous value to the recipient. While the states ordinarily create licensing regimes (but not the federal government), the federal government has provided for licensing in certain areas of life. For example, federal law requires a license in order to create and maintain a nuclear power plant. Licenses are similar to patents, and courts have generally upheld the costs necessary to issue licenses.
Recently, agencies have begun creating requirements (which agencies often have the power to do), and then demanding fees in order to fulfill the requirements. An example is charge to receive a Preparer Tax Identification Number (PTIN) by a tax return preparer. This requirement was created in 2010. For many years, the IRS has had the power to require return preparers to include an ID number on prepared returns. This potential requirement was established by Congress to help the IRS better determine the preparer of a return. Few, if any, preparers, wish to register with the IRS and report to the IRS the returns they have prepared. They do so because the IRS requires them to do so, and a substantial penalty scheme applies to failure to comply. Through a few cases, Allen Buckley has been fighting for the cause for years. He believes no “special benefit” has been provided because, as correctly noted by the IRS in its Publication 4832, any person can prepare tax returns for others for compensation if he or she so desires. (Case law holds that the reason given by the agency is the reason that must be analyzed to determine lawfulness.) The only other arguable special benefit is prevention of penalization. Case law has not gone that far; nor should it. Otherwise, the flood gates will be opened for agencies to start charging their “full” costs of operations onto the citizens and residents of the U.S. Taxes, that only Congress can levy, are supposed to cover those costs.
