TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

Improved Case Monitoring and Taxpayer Awareness Activities Can Enhance the Effectiveness of the Tax Practitioner Disciplinary Proceedings Program

January 2001

Reference No. 2001-10-027

Executive Summary

The Director of Practice is responsible for enforcing Treasury regulations governing tax practitioners who practice before the Internal Revenue Service (IRS). The term "Practice" includes preparing and filing documents with the IRS, communicating with the IRS for a taxpayer, and representing a taxpayer at conferences with the IRS. The Director of Practice is responsible for making determinations on applications for enrollment to practice and conducting disciplinary proceedings. Tax practitioners found to be in violation of the rules for practice, shown to be incompetent or disreputable, or who willfully and knowingly mislead or threaten a client can be subject to disciplinary actions. These actions can include reprimands, suspensions, or disbarments.

The objective of this audit was to determine the effectiveness of the disciplinary proceedings program in identifying and addressing violations of the rules prescribed for practice.

Results

The overall success of the disciplinary proceedings program is dependent on the IRS timely identifying and initiating corrective action against incompetent or disreputable tax practitioners to protect the public from further harm. In this regard, the Director of Practiceís disciplinary proceedings program suspended or disbarred 77 tax practitioners between October 1998 and December 1999. However, a lack of adequate staffing in the Director of Practiceís Office resulted in delays in assigning and processing complaints about tax practitioners. To help relieve the backlog of work in the Director of Practiceís Office, the Deputy Commissioner Operations assigned five additional attorneys to the Director of Practice in April 2000. It will be difficult to determine whether or not the additional resources will reduce the processing times because the Director of Practiceís Office does not maintain information necessary for monitoring case activity and tracking time expenditures. In addition, the Director of Practice needs to provide taxpayers with more guidance on how to file complaints about tax practitioners.

We believe the Director of Practice can enhance the effectiveness of the disciplinary proceedings program by:

Automated Case Tracking System Should Be Upgraded to Monitor Case Activity and Resources

The current automated case tracking system was not used to monitor program activities because the system did not provide management reports and the system contained inaccuracies. Although the system has the capacity to generate reports to assist in monitoring cases and resources, the programming needed for that purpose had not been completed. Also, the system was not always updated or accurate, and an inventory reconciliation had not been conducted since the system was established in 1998.

The automated case tracking system was not used to identify delays in assigning cases for further review and in issuing letters acknowledging receipt of taxpayer and employee allegations or for highlighting cases open for long periods of time. Additionally, the system did not capture data on the staff days expended working cases to enable management to determine program costs and resource requirements.

For example, the automated case tracking system could have been used to identify delays in assigning tax practitioner allegations warranting further review. Between October 1, 1998 and December 8, 1999, it had taken an average of 110 days for allegations received to be assigned for further review. Delays in working allegations could allow incompetent or disreputable tax practitioners to continue practices that could further harm taxpayers and the IRS.

Taxpayers Should Be Provided Information on How to Report Allegations of Tax Practitioner Violations

Between October 1, 1998 and December 8, 1999, 24 taxpayers reported allegations of tax practitioner violations to the Director of Practice. However, this number may not be representative of actual violations because there was no information readily available to the taxpaying public regarding how to report violations by tax practitioners who practice before the IRS. For example, the IRS web site, publications, and forms available to taxpayers did not provide information on how to report allegations of tax practitioner violations. While some IRS employee manuals outlined procedures for employees to report allegations of tax practitioner violations, the Assistant Commissioner (Customer Service) and National Taxpayer Advocate employees assisting taxpayers on the telephone did not have any information available to taxpayers on how to report these allegations.

The Director of Practice stated that staffing resources limited his ability to make information available to taxpayers on how to report allegations of tax practitioner violations. The Director of Practice also expressed concern that proactive taxpayer outreach programs could increase the reports of allegations beyond the capacity of the disciplinary proceedings program staff to handle them. While encouraging more taxpayer input could result in additional resource needs, we believe this action is necessary because, without input from the public, the Director of Practice cannot totally fulfill his duties to protect taxpayers from incompetent or disreputable tax practitioners.

Summary of Recommendations

The Director of Practice should upgrade the automated case tracking system to provide reliable data needed to monitor case activities and resource requirements. The Director of Practice should also provide the public information on how to report violations on the IRS web site and in IRS publications.

Managementís Response: IRS management agreed with the recommendations and is taking the appropriate corrective actions. IRS management plans to increase staffing and technical support, which will allow the Director of Practice to upgrade the automated case management system and conduct an annual workload and staffing analysis. The Senior Counselor to the Commissioner and the Director of Practice will engage in outreach activities and extend communications to the general public. Additionally, they will work with Communications and Liaison to publicize the role of the Director of Practice. IRS management reiterated that the Director of Practice is not necessarily able to address all of the general publicís concerns. This is because paid tax-return preparers (who are not lawyers, Certified Public Accountants, or Enrolled Agents) are not covered by the jurisdiction of the Director of Practice. Managementís complete response to the draft report is included as Appendix IV.