TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
BETTER SCREENING AND MONITORING OF E-FILE
PROVIDERS IS NEEDED TO MINIMIZE THE RISK OF UNSCRUPULOUS PROVIDERS
PARTICIPATING IN THE E-FILE PROGRAM
Issued on September 19, 2007
Highlights
Highlights of
Report Number: 2007-40-176 to the
Internal Revenue Service Commissioners for Small Business
and Self-Employed Division and Wage and Investment Division.
IMPACT ON TAXPAYERS
The
primary means by which the Internal Revenue Service (IRS) regulates electronic
filing (e‑file) Providers are the application
screening process and the monitoring program.
Inadequate screening and monitoring increases the risk to both taxpayers
and the Federal Government for potential losses associated with unscrupulous e‑file Providers.
WHY TIGTA DID THE AUDIT
There
were 259,009 authorized electronic return originators as of May 22, 2007, who
electronically filed (e-filed) about 55 million (71 percent)
of the approximately 77.1 million e‑filed tax returns accepted in Calendar
Year 2007. The application screening
process is used to ensure individuals applying for entry into the e‑file Program have met required screening and verification
checks before they are authorized to participate in the e‑file Program. Monitoring visits are the primary means to
verify compliance with many of the e‑file Program requirements.
WHAT
TIGTA FOUND
The IRS has an effective process for ensuring
applicants meet age requirements and e‑file
Providers meet certain suitability checks, such as tax compliance. However, the IRS does not have an independent
verification process for applicants who claim they are a Not‑for‑Profit
service. In addition, the IRS does not
verify citizenship or perform credit checks, and criminal background checks are
limited.
During a previous TIGTA audit, E-File Providers Are Not Adequately Screened
(Reference Number 2002-40-111, dated June 2002), a test was performed to
identify individuals whose citizenship indicator identified them as not being a
citizen or legal resident alien. A total
of 85 individuals were referred to the IRS for research. Of the 85 individuals,
52 (61 percent) were eventually removed from the e‑file Program. For 40
(77 percent) of the 52 individuals removed, the applicants falsified
their applications by identifying themselves as
Testing also identified that deficiencies
prevent the IRS from measuring program performance and ensuring that authorized
e‑file Providers are in
conformance with e‑file Program
guidelines. For example, current
procedures do not ensure e‑file
Providers most at risk of noncompliance are selected for monitoring visits,
including the scheduling of required follow up visits. E‑file
Monitoring Program management information is inaccurate and e‑File Providers who were
determined to be in violation of e-file
Program requirements were not suspended.
Finally, the IRS does not have a process to
review e‑file Provider cases
worked by its Criminal Investigation function. Characteristics of these cases could identify
risk factors or indicators to be used to screen unscrupulous individuals from
entry into the e‑file Program
and identify unscrupulous e‑file
Providers in the e‑file
Program.
WHAT TIGTA RECOMMENDED
TIGTA recommended the Commissioner, Wage and
Investment Division, ensure applicants who claim to be a Not-For-Profit are in
fact a Not‑For‑Profit and revise screening procedures to require
validation of an applicant’s citizenship.
The Commissioner, Small Business/Self-Employed Division, should develop
processes to ensure risk-based selection criteria is used to select e‑file Providers for monitoring
visits, the receipt and disposition of referrals are recorded, e‑file Providers are suspended
when recommended, adequate documentation supporting appeals is maintained, and
management information accurately reflects e-file
Monitoring Program results. In addition,
procedures should be clarified as to when followup visits should be
performed. Both Commissioners should
ensure results of criminal cases involving e‑file
Providers are used to identify potential risk factors or indicators that can be
built into the screening and monitoring process to improve on the
identification of unscrupulous e‑file
Providers.
In their response to the report, IRS management
agreed with eight of the nine recommendations and partially agreed with one
recommendation. IRS management has already taken or plans to take appropriate
corrective actions.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200740176fr.html
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone Number: 202-927-7037
Web Site:
http://www.tigta.gov