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
September 19, 2007
Reference Number: 2007-40-176
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
1 = Tax Return/Return Information
2(e) = Law Enforcement Procedure(s)
2(f) = Risk Circumvention of
Agency Regulation or Statute (whichever is applicable)
3(d) = Identifying Information - Other Identifying Information of an Individual
or Individuals
Phone Number |
202-927-7037
Email Address | Bonnie.Heald@tigta.treas.gov
Web Site |
http://www.tigta.gov
September 19, 2007
MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Better Screening and Monitoring of E-File Providers Is Needed to Minimize the Risk of Unscrupulous Providers Participating in the E-File Program (Audit # 200740020)
This report presents the results of our review to determine whether the Internal Revenue Service’s
(IRS) screening and monitoring of electronic filing (e-file) Providers is effective. This audit is a followup to prior
Treasury Inspector General for Tax Administration (TIGTA) reviews.[1]
Impact on the Taxpayer
The primary means by which the IRS
regulates e-file Providers are the application screening process and
the monitoring program. The application
screening process does not ensure the integrity of the individuals applying for
participation in the e-file Program and the monitoring program
does not ensure e‑file Providers are compliant with e‑file Program
requirements. Inadequate screening and
monitoring increases the risk to both the taxpaying public and the Federal
Government for potential losses associated with unscrupulous e‑file Providers.
Synopsis
There were 259,009 authorized electronic return originators[2] 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.
Applicant requirements and suitability checks are not verified or consistently performed.
The IRS has an effective process for ensuring applicants
meet age requirements and e‑file Providers meet certain suitability
checks, such as tax compliance. A review of 98 applications found that tax compliance
checks were correctly performed for the 137 Principal and Responsible
officials[3] and the 94 businesses listed on these applications. However, the IRS does not have an
independent verification process to confirm the accuracy of applicants who
claim they are a Not‑for‑Profit service. In addition, the IRS does not verify
citizenship. Tests of 98 applications showed 3 of the 137
applicants were either aliens not allowed to work or alien students with
restricted work authorizations. In a
previous audit,[4] we conducted a similar test 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
Furthermore,
credit checks are not performed and criminal background checks are
limited. The IRS does verify the status of
individuals who submit a professional certification in lieu of a fingerprint
card to ensure they are still in good standing with the organization that
issued the certification. It also
verifies all new applicants are at least 21
years of age and not deceased.
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 followup visits.
· E‑file Providers who were issued written reprimands were not subject to the required followup visits.
· Procedures have not been developed requiring e-file Monitoring Coordinators to record the receipt and disposition of referrals.
· E‑file Providers determined to be in violation of e‑file Program requirements were not suspended.
· Documentation supporting e‑file Provider appeal requests and decisions associated with these requests is inadequate.
· E-file Monitoring Program management information is inaccurate.
Finally, the IRS does not have a process to review e‑file Provider cases, worked by its Criminal Investigation function, to identify opportunities to improve on the screening checks and selection criteria for monitoring visits. 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. The Criminal Investigation function initiated 315 criminal cases involving tax return preparers during Fiscal Years 2006 and 2007 (as of April 30, 2007).
Recommendations
The Commissioner, Wage and Investment Division, should 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.
Response
IRS management agreed with eight of our nine recommendations
and partially agreed with one recommendation.
The Electronic Tax Administration Office is currently partnering with
Stakeholder Partnerships, Education, and Communication Headquarters office to
establish formal procedures for validating existing authorized IRS e-file Providers as an organization
providing a Not-for-Profit service. The
Electronic Tax Administration Office has taken steps to review the citizenship
verification process and develop a solution.
The citizenship codes of applicants can be checked using the Data Master
One[5]
tape from the Social Security Administration before they are accepted into the
IRS e-file Program. Applicants found to have a citizenship code
that shows they are an alien in the
IRS management has developed a risk-based selection criterion and procedures regarding followup visits. Both of these items should be published by January 30, 2008. IRS management has developed a process to keep track of referrals and Electronic Filing Identification Number suspension cases through a new control log.
IRS management has clarified procedures requiring the maintenance of adequate documentation supporting an e-file Provider’s request for an appeal, as well as documentation supporting the review and outcome of an appeal. They have also developed a process to keep track of results that are kept by the Area E-File Monitoring Coordinators.
IRS management will study the feasibility of using results of criminal cases involving e-file Providers to identify risk factors or indicators for the suitability process. This will require working with the Criminal Investigation Division to obtain criminal case characteristics of providers of e-file returns and any other information they might have. We believe management’s action satisfies the intent of our recommendation. Management’s complete response to the draft report is included as Appendix VI.
Copies of this report are also being sent to the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs), at (202) 622-5916.
The Monitoring
Program Does Not Ensure E-File Providers Are Compliant With Program
Requirements
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV –
Prior Treasury Inspector General for Tax Administration Report Recommendations
Appendix
V – Examples of E-File Provider Requirements Verifiable Only Through a
Monitoring Visit
Appendix
VI – Management’s Response to the Draft Report
Abbreviations
|
e-file, e-filed |
Electronic Filing, Electronically Filed |
|
ERO |
Electronic Return Originator |
|
IRS |
Internal Revenue Service |
|
TIGTA |
Treasury Inspector General for Tax
Administration |
|
|
|
The Internal Revenue Service’s (IRS) electronic filing (e-file) Program offers taxpayers an alternative to filing a traditional paper tax return. The e‑file Program enables tax returns to be sent to the IRS in an electronic format via an authorized IRS e‑file Provider. An e‑file Provider is generally the first point of contact for most taxpayers filing a tax return through the IRS’ e‑file Program. Figure 1 lists types of authorized e-file Providers.
Figure 1: Types
of Authorized IRS E-File Providers
|
Electronic
Return Originator (ERO) |
EROs originate the electronic submission of
income tax returns to the IRS. An ERO
electronically submits income tax returns that are either prepared by the ERO
firm or collected from a taxpayer. |
|
Intermediate
Service Providers |
Intermediate
Service Providers receive tax return
information from EROs or from taxpayers who file electronically using a
personal computer, modem, and commercial tax preparation software on an Internet
site; process the tax return information; and either forward the information
to a transmitter or send the information back to the EROs or taxpayers. |
|
Transmitters |
Once the return is prepared, the income tax return
data is sent to the IRS by a transmitter.
Transmitters must have software and modems that allow them to connect
with IRS computers. EROs and Intermediate Service Providers may also apply to be transmitters and
transmit return data themselves or they may contract with accepted
third-party transmitters who will transmit the data for them. |
|
Software
Developers |
Software Developers write the e-file programs according to IRS file specifications and record
layouts making IRS e-file and Federal/State e-file
possible. The IRS and participating States
require that all software pass a series of tests each year. Once approved, this software may be sold
and used by EROs. |
Source: IRS training guidance provided to individuals interested in becoming e-file Providers.
There were 259,009 authorized EROs 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 primary means by which the IRS regulates e-file Providers are the application screening process and the monitoring program.
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 Program. To become an e-file Provider, an applicant is required to complete an Application to Participate in the IRS e-file Program (Form 8633) and submit it and a fingerprint card to the IRS. The IRS allows an individual with a professional certification to send a copy of the certification in lieu of a fingerprint card. Certifications include Attorney, Certified Public Accountant, Enrolled Agent, and Banking Official. Each application is required to identify Principal(s) and at least one Responsible Official.
·
A
Principal includes the sole proprietor, partners, or individuals authorized to
act for the entity in legal and/or tax matters.
At least one such individual must be listed on the application.
·
A
Responsible Official is the first point of contact with the IRS and has the authority
to sign revised IRS e-file applications. A Responsible Official ensures the e‑file Provider adheres to the
provisions of the revenue procedure as well as all publications and notices
governing IRS e-file.
The requirements and suitability checks outlined
in the IRS e-file Application and Participation (Publication 3112) include:
·
Applicant must be a
United States (U.S.) citizen or legal resident alien.
·
Applicant must be 21
years of age as of the date of the application.
Suitability checks may include:
·
Criminal background
check.
·
Credit history
check.
·
Tax compliance check
to ensure all required tax returns are filed and paid and to identify fraud and
preparer penalties.
E-file Program requirements are meant to protect the Program’s image and integrity.
All
authorized e-file Providers, except
those that function solely as Software Developers, must meet requirements and pass
suitability checks prior to acceptance in the e-file Program. If an individual does not meet the requirements
and/or fails a suitability check, the application will be denied. Applicants denied participation in IRS e-file will be notified in writing and may
appeal the decisions.
Once
approved, e-file Providers must
maintain strict adherence to Program requirements to ensure continued
participation. Program requirements are
outlined in Revenue
Procedure 2005–60, Handbook for Authorized IRS e-file Providers of
Individual Income Tax Returns (Publication 1345), and the Filing Season Supplement for Authorized IRS
e-file Providers (Publication 1345A).
Requirements include the need to ensure tax returns are accurately
filed, are supported by the appropriate documentation, are signed by the taxpayers, and security systems are in place to prevent
unauthorized access to taxpayer accounts and personal information by third
parties.
The e-file
Monitoring Program is designed to ensure e-file Providers are in compliance
with requirements.
The e-file Monitoring Program requires IRS employees visiting e‑file Provider sites to, for example, review the quality of IRS e-file submissions for rejects,[6] check adherence to signature requirements on tax returns, scrutinize advertising material, and examine records and office procedures. A monitoring visit is the primary means to verify compliance with many of the e-file Program requirements. Appendix V provides examples of those e‑file Program requirements that can only be verified via a monitoring visit.
Each year during the filing season,[7]
specially trained IRS employees visit approximately 1 percent of all
authorized e-file Provider
establishments to perform comprehensive operational reviews. Figure 2 shows the trends in the e-file Monitoring Program during the
2005 through 2007 Filing Seasons.
Figure 2:
Trends in E-File Monitoring Program for
the 2005-2007 Filing Seasons
|
Tax Return Filing Season |
Total e-file Providers Included in
Selection Process |
Total e-file Monitoring Visits
Planned |
|
2007 |
127,000 |
1,270 |
|
2006 |
105,300 |
1,053 |
|
2005 |
117,571 |
1,175 |
Source: IRS documentation related to planning its annual e-file Provider monitoring visits.
Monitoring visits involve an assessment of e-file Provider business practices,
including methods for advertising, preparing tax returns, and safeguarding sensitive
taxpayer information. Violations of e-file requirements can result in the following:
·
Verbal
warning – oral admonishment to the e-file Provider for not
adhering to e-file Program rules and entails discussion of possible
consequences relating to further noncompliance.
·
Written
reprimand – issuance of a formal written warning, communicating more
serious violations.
·
Suspension
– a 1 to 2 year removal from the e-file Program.
·
Expulsion
– permanent removal from the e‑file
Program.
The IRS Wage and Investment Division is responsible for the oversight of the e‑file Provider screening process. The Small Business/Self-Employed Division is responsible for the Monitoring Program. This review is a followup review to previous audits the Treasury Inspector General for Tax Administration (TIGTA) performed assessing the effectiveness of the IRS’ screening and monitoring of e-file Providers.[8] Appendix IV provides a list of the recommendations and corrective actions associated with these reviews.
This review was performed at the Electronic Tax
Administration function in
The Application Screening Process Does Not Ensure the Integrity of the Individuals Applying for Participation in the E-File Program
Program
requirements and suitability checks are not verified or consistently
performed.
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 to confirm the accuracy of applicants who claim they are a Not‑For‑Profit service. Additionally, the IRS does not verify citizenship; credit checks are not performed; and criminal background checks are limited.
The IRS does verify the status of applicants who submit professional
certifications in lieu of a fingerprint card to ensure they are still in good
standing with the particular organizations that issued the certifications. It also verifies all new applicants are at least 21 years of age and not
deceased. Additionally, the
IRS developed an automated process to check and monitor tax compliance of both
applicants and existing approved e-file Providers.
There are currently no
national standards an individual is required to satisfy before presenting
himself or herself as a Federal tax preparer and selling tax preparation
services to the public. Tax compliance checks, validation
of professional certification, confirmation of age requirements, and sampled
criminal background checks reduce the risk of non-integrity of e-file Providers. However, it is important that the IRS
adequately screens e‑file
Provider applicants to protect both the taxpaying public and the Federal
Government from losses resulting from actions by unscrupulous Providers.
An
automated process checks and monitors tax compliance for applicants and
existing e-file Providers
In Fiscal Year 2004, the IRS developed the Automated e-file Application Processing
system. This system automates the
process of checking and monitoring tax compliance and ensures applicants and
approved e-file Providers are current
with their tax return filings and tax payments.
In addition, this process ensures individuals and businesses have not
been assessed fraud and/or preparer penalties.[9] A review of
98 applications found that tax compliance checks were correctly performed
for the 137 Principal and Responsible officials[10] and the 94 businesses listed on these
applications.
Validations
are not performed on applicants who claim they are a Not-For-Profit service
Applicants claimed they were a Not-For-Profit service for 5
of the 98 applications reviewed. However,
only four were a Not-For-Profit service.
The remaining applicant, who claimed to be a Not-For-Profit service, was
a commercial business. IRS management
informed us this applicant had erroneously claimed it was a Not-For-Profit
service; however,
****1, 2(e)**** E‑file
Provider applicants who claim they are a Not‑for‑Profit service
select one of five options on the Form 8633, as shown in Figure 3.
Figure 3:
Information Required by Applicants Claiming Not-for-Profit Status
Figure
3 was removed due to its size. To see
Figure 3, please go to the Adobe PDF version of the report on the TIGTA Public
Web Page.
Not-for-Profit applicants are excluded from all e-file Program requirements and
suitability checks. When IRS assistors
review applications, they only ensure the applicant has checked one of the
boxes identifying the appropriate service (see Figure 3). No further verification is performed to
ensure the applicant is a Not-For-Profit service.
Without validation, the risk increases
that
****2(f)**** As of December 31, 2006, there were
14,149 e‑file Providers
who claimed Not-For-Profit status.
Validations are not performed to ensure applicants
are
Tests of 98 applications showed 3 (2 percent) of the 137 applicants were either aliens not allowed to work or alien students with restricted work authorizations. For the remaining 134 applicants, 51 did not have a citizenship indicator (the citizenship field on IRS records was blank) and 83 were found to be citizens. IRS officials explained that citizenship or legal resident alien status is not validated because applicants are required to provide a valid Social Security Number. If an applicant is found to have an invalid Social Security Number, the applicant is ineligible to participate in the e-file Program.
We previously recommended the IRS verify the citizenship of
applicants before acceptance into the e-file
Program.[11] Management disagreed with the recommendation
stating they would continue to use current procedures that require Principals and
Responsible Officials to possess valid Social Security Numbers. However, the IRS already receives information
from the Social Security Administration that indicates whether an individual is
a
Concerns have been raised about the completeness and
accuracy of the citizenship indicator information provided by the Social
Security Administration. According to a Social
Security Administration Inspector General report,[12] citizenship indicators were not required until
1978 (Social Security Numbers issued prior to 1978 may not contain a citizenship indicator). In addition, inaccuracies with the
citizenship indicator were also reported.
Approximately 7 percent of the non‑citizens reviewed were found to be misclassified.
However, the IRS should use this
information to ensure applicants are
Prior cases worked by the IRS resulted in the removal of 52 of the individuals TIGTA identified as having questionable citizenship or legal resident alien status. In addition, ****1****
For 40 (77 percent) of the 52
individuals removed, the applicants falsified their applications by identifying
themselves as
Credit checks are not performed and criminal background checks are limited
IRS e-file Application and Participation (Publication 3112) and the IRS public web site (IRS.gov) advise that e‑file Provider applicants may be subjected to credit history checks and criminal background checks. Yet, the IRS does not conduct credit history checks on applicants and criminal background checks are generally limited to random selections of every fourth applicant that submits a fingerprint card. The IRS will conduct a criminal background check when any individual indicates on the application that he or she has been assessed preparer penalties, been convicted of a crime, failed to file personal tax returns, failed to pay tax liabilities, or been convicted of any criminal offense under the U.S. Internal Revenue laws.
In
response to a prior TIGTA report,[14]
IRS management responded that credit checks were not performed because the
checks were ineffective. E-file Providers also raised concerns
that their credit history reports showed inquiries by the IRS. Management previously indicated that additional criminal background checks
are not necessary and cited an IRS business case study, which showed that,
while 10 percent of the investigations revealed information, it was usually not
significant enough to deny participation in the e-file Program. Management’s
position on not performing credit checks and limiting criminal background
checks has not changed.
IRS management previously indicated they rely on voluntary compliance and the IRS requirement for fingerprint cards or professional certifications is a sufficient deterrent for individuals with criminal backgrounds who would attempt to apply to the e-file Program. They acknowledged the risks involved in limiting checks, noting “simply increasing the number of applicants we subject to an existing compliance check does not necessarily equal a more effective screening method.”
Relying on voluntary compliance will not address the risks associated with this Program. Losses to both the taxpaying public and the Federal Government could result from actions taken by unscrupulous e‑file Providers. In addition, information on tax forms (including names; Social Security Numbers; and income, employment, and bank account details) is regarded as a prime target for identity thieves.
Recommendations
The Commissioner, Wage and Investment Division, should:
Recommendation 1: Verify that Not-for-Profit applicants are a Not-for-Profit service. For existing authorized e-file Providers who are a Not-for-Profit service, a validation should be performed to ensure these e-file Providers are in fact a Not-for-Profit service.
Management’s Response: IRS management agreed with this recommendation. The Electronic Tax Administration Office is currently partnering with Stakeholder Partnerships, Education, and Communication Headquarters to establish formal procedures for validating existing authorized IRS e-file Providers as an organization providing a Not-for-Profit service via management reports, screening prior to acceptance for the IRS e‑file Program, etc.
Recommendation 2: Revise screening procedures to require validation of an applicant’s citizenship. This process should require corresponding with potential applicants whose citizenship indicators reflect a non-citizenship status. For existing authorized e-file Providers, the IRS should conduct a validation to identify individuals with non-citizenship statuses and develop a process to confirm the citizenship of these individuals.
Management’s Response: IRS management agreed with this
recommendation. The Electronic Tax
Administration Office has already taken steps to review the citizenship
verification process and develop a solution.
The citizenship codes of applicants can be checked, using the Data
Master One[15]
tape from the Social Security Administration, before they are accepted into the
IRS e-file Program. Any applicants found to have a citizenship
code that shows they are an alien in the
The Monitoring Program Does Not Ensure E‑File Providers Are Compliant With Program Requirements
Deficiencies prevent the IRS from measuring program performance and ensuring that authorized e-file Providers are in conformance with e-file Program guidelines. Current procedures do not ensure Providers most at risk of noncompliance are selected for monitoring visits and Providers in violation of Program requirements are suspended. E‑file Provider appeals are not well documented and the e-file Monitoring Program management information is inaccurate.
Deficiencies
in the e-file Monitoring Program put the integrity of the e-file Program at
risk.
Improvements are needed
to ensure the e-file Monitoring Program
will have the most impact in detecting and stopping unscrupulous Providers. Taxpayers and the Federal Government’s risk
from fraudulent tax return filings increases when noncompliant e-file Providers are not identified. The recent filing of civil injunction suits against five corporations that operate tax preparation
businesses shows the importance of adequate oversight over e-file Providers.
The lawsuits allege the e-file
Providers
created and fostered an environment in which fraudulent tax return preparation is
encouraged and flourishes. The suits
allege more than $70 million in combined losses to the Federal Government.
Throughout
the audit, as we brought the following issues to IRS management’s attention, management understood the significance of the issues
and took immediate actions to address these concerns. These actions often included the immediate
development and issuance of interim guidance.
Targeted monitoring visits
are not based on risk factors and required followup visits are not being
conducted
Current procedures do not ensure the established risk-based selection process is followed when selecting e-file Providers for monitoring visits. Required followup visits are not being conducted. In addition, documentation is not maintained to support referrals from internal and external sources and the actions taken based on these referrals.
There are three types of monitoring visits, prioritized by: Referrals, Follow up, and Targeted/Random. For Targeted monitoring visits, the established risk-based selection criteria is to include e-file Providers who e-filed 100 or more tax returns, had a reject rate of at least 25 percent, and/or had 25 percent or more missing U.S. Individual Income Tax Declaration for an IRS e-file Return (Form 8453). These criteria were established in response to a prior TIGTA audit[16] that recommended the IRS develop uniform risk-based selection criteria to take advantage of available information and data for selecting e-file Providers for its monitoring visits. In addition, guidelines require that all e-file Providers who are issued written reprimands be subject to followup monitoring visits in the subsequent tax return filing season to ensure corrective actions have been taken.
Risk-based selection criteria to identify those e-file Providers to be visited is not being followed
Testing at two Area Offices[17] identified that monitors were not following the risk‑based criteria when selecting e-file Providers to review. A review of the characteristics of 40 randomly sampled e-file Providers selected for monitoring visits for the 2007 Filing Season identified that:
·
Three (8
percent) of the 40 e-file Providers e-filed fewer than 100 tax returns. Of the 3, 1 e‑file Provider did
not have any tax returns filed, while 2 others had filed returns totaling
15 and 23.
·
Thirty-two
(80 percent) of the 40 e-file Providers had reject rates below 25 percent. For example, 2 e-file Providers had
reject rates of only 4 and 8 percent.
Monitoring
Coordinators were not aware of the risk-based criteria to be followed when
identifying e-file Providers for a monitoring visit.
An ample number of e-file Providers that met specific risk-based criteria could have
been selected for monitoring visits. Analysis
of tax data for these 2 Area Offices identified 453 e-file Providers that met the criteria of having filed 100 or more
tax returns and a 25 percent or greater reject rate – 200 in one of the Areas
and 253 in the other Area. Workload
planning required these two Areas in total to perform 220 visits.
Monitoring Coordinators[18] in these two Area Offices stated they were unaware of selection criteria. The criteria had not been added to formal guidance documents. Coordinators acknowledged that selections were often tied to visits conducted as part of the Earned Income Tax Credit Due Diligence Program. As a result, monitoring visits were at times limited geographically and had no relationship to any of the selection criteria. The coupling of visits for the two Programs was a resource driven decision to save on travel and staff expenditures.
E-file Providers who were issued written reprimands were not
subjected to the required followup visits
Sixty-six monitoring visits, conducted during the 2006 Filing Season, in the two Area Offices tested, resulted in written reprimands. A review of these reprimands found that 24 (36 percent) of 66 were not scheduled for required followup visits during the 2007 Filing Season. Infractions detailed in the written reprimands included:
·
Use of
leave and earnings statements to prepare tax returns without waiting for the Wage
and Tax Statements (Form W-2).
·
Violations
of advertising guidelines, including misleading advertising.
·
Form
8633 was not updated when information such as an e-file Provider telephone number had changed.
The IRS manual requires all e-file Providers issued written reprimands be subject to followup monitoring visits in the subsequent tax return filing season to ensure corrective actions have been taken.
****3(d)**** Furthermore, guidelines were not clear when a followup was required. Management agreed to take corrective action and revised the 2007 visit plan, as appropriate, to include the cases that were overlooked.
Documentation is not maintained to show referrals from internal and external sources and actions taken based on these referrals
Procedures have not been developed requiring Monitoring Coordinators to record the receipt and disposition of referrals. Referrals can come from internal and external sources. For example, an internal referral is when a Monitoring Coordinator sees an e-file Provider has tax compliance issues and an external referral is when a taxpayer alleges an e-file Provider prepared fraudulent tax returns.
****3(d)**** In addition, cases with additional tax compliance issues were not timely transferred to other IRS functions. At times, IRS employees conducting monitoring visits identify tax compliance issues that warrant a referral of an e-file Provider to the IRS Examination or Criminal Investigation functions. In one Area Office, four e-file Providers were referred to the Examination function and ****1, 3(d)**** function. However, the ****1, 3(d)**** Despite the monitoring visits being completed in April 2006, ****3(d)**** Standards for Internal Controls in the Federal Government mandate that all transactions and other significant events need to be clearly documented and the documentation should be readily available for examination.
E-file providers violating
Program requirements are not always suspended
A review of cases in 3 Area Offices showed that 6 (17 percent) of 35 e-file Providers who had received written notifications of suspension were not suspended. Suspension recommendations resulted from violations identified during 2006 Filing Season monitoring visits. E-file Program requirements violated by these six e-file Providers include: misleading advertisements, failure to secure taxpayer signatures prior to e-filing their tax returns, questionable signatures on tax returns, failing to cooperate with an e-file monitor, and/or preparing tax returns based on the last pay stub received rather than an employer issued end-of-year wage and income statement as required. ****1**** e-file Providers continued to e-file during the 2007 Filing Season; the remaining ****1**** retained e-filing capability but had not e-filed a tax return.
After issuing a notification of suspension, procedures require
Monitoring Coordinators to prepare an e-file Monitoring Sanction Sheet and fax
the Sheet to the e-file Unit at
the
Adequate
documentation was not maintained supporting appeal decisions.
In addition, three Monitoring Coordinators in three Area Offices were not aware of the requirement to include the Principal(s) and/or Responsible Official(s) on the e-file Monitoring Sanction Sheet when the removal of these officials was warranted. Instead, the Coordinators were only including the name of the business specific to that of the e-file business location. Depending on the violation, officials at the business location may warrant removal from the e‑file Program. Without identifying the specific individuals, the only action that will be taken is revoking e-filing privileges for the specific business location. The Principal(s) and/or Responsible Official(s) are then permitted to reapply once again and receive e-filing privileges at the same location previously suspended or a different location. Removing an individual from the e-file Program prevents the individual from participating for a period of time (usually 2 years).
Once we brought these issues to management’s attention, immediate action was taken to ensure all e-file Providers who should be suspended from participation in the e-file Program were in fact suspended. Also, management quickly alerted responsible employees of issues identified and issued interim guidance.
Decisions for reversing e-file Provider suspensions are not well documented
Documentation supporting decisions to reverse recommended suspensions is not maintained by Area Offices. A review of 18 proposed suspensions from 2 Area Offices found that 8 (44 percent) of the proposed suspensions were reversed by the Monitoring Coordinators. The suspensions were reduced to either warnings or written reprimands. For 5 (63 percent) of 8 reversals documentation was not available to show either the rationale for the reversals or the specific individuals involved in the reversal decisions.
An e-file Provider advised of either a proposed suspension (i.e., not effective until all appeal options are exhausted) or an immediate suspension has the right to submit, to the IRS within 30 days, a written request for appeal that must be accompanied by supporting documentation. The appeal process is comprised of two levels, the first being an administrative review decided by Area Office officials. If the e-file Provider is not satisfied with the outcome of the administrative review, he or she may proceed to the second level and file a formal appeal.
Formal guidelines state the Monitoring Coordinator will decide whether to reverse the suspensions. Guidance also outlines that an administrative review committee will review and decide the appeals. However, guidance does not detail specific documentation to be maintained. Standards for Internal Controls in the Federal Government mandate that all transactions and other significant events need to be clearly documented and the documentation should be readily available for examination.
Management
information used to monitor e-file Providers is not accurate
Three of four Monitoring Coordinators submitted inaccurate management information reports to National Program Management at the conclusion of the 2006 Filing Season. Reviews of e-file monitoring case files in two of four Area Offices identified inaccuracies in reporting the disposition of monitoring visits. Figure 4 provides a comparison of the actual disposition to what was reported (excluding suspension information for which separate testing was performed).
Figure 4:
Comparison of Actual Results of 2006 Filing Season
Monitoring Visits With Information
Reported
|
Results |
Results Reported to
National Program Management |
||
|
|
|
Difference |
|
|
In Compliance |
89 |
97 |
8% |
|
Verbal Warning |
20 |
25 |
20% |
|
Written Reprimand |
57 |
44 |
-30% |
|
In Compliance |
28 |
36 |
22% |
|
Verbal Warning |
4 |
14 |
71% |
|
Written Reprimand |
9 |
9 |
--- |
Source: TIGTA review of monitoring case files maintained
in two Area Monitoring Coordinator offices sampled.
Inaccuracies
in management information resulted from the lack of a reconciliation process.
In addition, two of four Area Offices’ management information relating to suspensions was inaccurate. Figure 5 provides a comparison of what was reported to actual results.
Figure 5: Comparison of Actual Suspensions With the Number Reported
|
|
Results Per TIGTA Review |
Results Reported to National Management |
|
||||||
|
|
Proposed |
Immediate |
Proposed |
Immediate |
|||||
|
Area A |
17 |
0 |
16 |
3 |
|
||||
|
Area B |
11 |
0 |
11 |
0 |
|
||||
|
Area C |
5 |
2 |
0 |
5 |
|
||||
|
Area D |
0 |
0 |
0 |
0 |
|
||||
|
Total |
33 |
2 |
27 |
8 |
|
||||
Source: TIGTA review of suspension documentation
obtained from Area Offices Monitoring Coordinators included in our sample.
Beginning the last week of January each year and throughout the filing season, Monitoring Coordinators are required to report weekly, to the National Program Management, the number of e-file monitoring visits completed, along with the specific results of those monitoring visits. These weekly reports are based on data the Coordinators receive from the offsite monitors who performed the visits.
Inaccuracies result when the Monitoring Coordinators review the cases after they have already reported the weekly results to the National Management. The Monitoring Coordinators review the monitoring visit case files after the end of the filing season, and at times the reviews result in a change to the disciplinary actions recommended by the offsite monitor who performed the visit. However, Monitoring Coordinators are not updating management information with changes based on their reviews.
Not updating results when proposed suspensions are reversed on
appeal and a lesser disciplinary action is recommended also contributes to the
inaccuracies in management information.
Inaccurate management information impedes the IRS’ ability to
effectively quantify the scope and results of the e-file Monitoring Program and to make informed business decisions
relative to Program direction.
Recommendations
The Commissioner, Small Business/Self Employed Division, should:
Recommendation 3: Develop a process that ensures established risk-based selection criteria is used to identify e-file Providers for monitoring visits.
Management’s Response: IRS management agreed with this recommendation. A risk-based selection criterion has been developed and added to Internal Revenue Manual 4.21.1, Electronic Filing Program-Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Recommendation 4: Clarify procedures regarding when followup visits should be performed and implement a process that ensures followup visits are conducted in accordance with the clarified guidelines.
Management’s Response: IRS management agreed with this recommendation. Procedures regarding followup visits have been clarified and added to Internal Revenue Manual 4.21.1, Electronic Filing Program-Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Recommendation 5: Develop a process to record the receipt and disposition of referrals from internal and external sources. This process should also ensure the timely referral to other IRS functions, if recommended.
Management’s Response: IRS management agreed with this recommendation. A process has been developed to keep track of these cases through a new control log kept by the Area E-File Monitoring Coordinators to be forwarded to the Headquarters analyst at the end of each quarter, including the end of the calendar year. This new procedure has been added to Internal Revenue Manual 4.21.1, Electronic Filing Program‑Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Recommendation 6: Develop a process to ensure e-file Provider privileges are suspended when recommended and consideration is given and notated if Principal(s) and/or Responsible Official(s) should be removed from the e-file Program.
Management’s Response: IRS management agreed with this recommendation. A process has been developed to keep track of Electronic Filing Identification Number suspension cases through a new control log kept by the Area E-File Monitoring Coordinators to be forwarded to the Headquarters analyst at the end of each quarter, including the end of the calendar year. This new procedure has been added to Internal Revenue Manual 4.21.1, Electronic Filing Program-Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Recommendation 7: Develop procedures requiring the maintenance of adequate documentation supporting an e-file Provider’s request for an appeal, as well as documentation supporting the review and outcome of an appeal.
Management’s Response: IRS management agreed with this recommendation. Procedures have been clarified and incorporated into Internal Revenue Manual 4.21.1, Electronic Filing Program-Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Recommendation 8: Develop a process to ensure management information accurately reflects the results of the e-file Monitoring Program.
Management’s Response: IRS management agreed with this recommendation. A process has been developed to keep track of results that are kept by the Area E-File Monitoring Coordinators to be forwarded to the Headquarters analyst at the end of each quarter, including the end of the calendar year. This new procedure has been added to Internal Revenue Manual 4.21.1, Electronic Filing Program-Monitoring the IRS e-file Program, which should be published by January 30, 2008.
Reviews of Closed Criminal Cases
Involving E-file Providers May Identify Risk Factors or Indicators
to Detect Unscrupulous E-file Providers
The IRS does not have a
process to review e-file Provider cases
worked by its Criminal Investigation function to identify opportunities to
improve on the screening checks and selection criteria for monitoring
visits. 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. The Criminal Investigation function initiated
315 criminal cases involving tax return preparers during Fiscal Years 2006 and
2007 (as of April 30, 2007). The
Criminal Investigation function currently does not track tax preparer cases by
whether or not the individual was an e-file
Provider, but an analyst stated that most of these cases involve e-file Providers.
An example included in a
prior TIGTA report[19] detailed a closed criminal case concerning an e‑file Provider who pled guilty to filing false tax returns. This case exemplifies the importance of the IRS
including reject rates as a risk factor in the monitoring visit selection
criteria. This e‑file Provider had a reject rate in excess of 40 percent
for tax returns submitted during the 2001 and 2002 Filing Seasons. The high reject rate resulted from a process known as
“washing.”
The
washing entailed the e-file Provider submitting tax
returns using fraudulently obtained Social Security Numbers. As part of the IRS’ validity checks, it
verified the Social Security Numbers using computer files to determine if they
were valid and/or were previously used on another tax return. If the checks identified problems, the tax
return was rejected and the e-file
Provider was
provided an explanation on why the tax return was rejected. The e-file Provider
would keep track of the rejected Social Security Numbers to ensure they were
not used on subsequently submitted fraudulent tax returns. The IRS has since added a high reject rate as
one of the indicators for identifying an e-file Provider
for a monitoring visit.
This
e-file Provider filed approximately 9,000 fraudulent tax returns over
a 3-year period and received approximately $7 million in fraudulent tax refunds
in 1 year alone. This e-file Provider had a criminal history before being accepted
into the Program. The e-file Provider pled guilty to filing false, fictitious, and
fraudulent claims against the
Recommendation
The Commissioners, Wage and Investment Division, and Small Business/Self Employed Division, should:
Recommendation 9: 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.
Management’s Response: IRS management partially agreed with this recommendation. The Wage and Investment and Small Business/Self-Employed Divisions will study the feasibility of using results of criminal cases involving e-file Providers to identify risk factors or indicators for the suitability process. This will require working with the Criminal Investigation Division, to obtain criminal case characteristics of providers of e‑file returns and any other information they might have. If a work request is needed for enhancements to the electronic e-file Application, more time will be needed for funding and implementation of new electronic processes.
Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to determine whether the IRS’ screening and
monitoring of e-file Providers is
effective. To accomplish this objective, we:
I. Determined whether the initial and periodic screening process is effectively identifying those e-file Providers that are not in compliance with Program requirements.
A. Assessed actions taken by the IRS in response to prior TIGTA recommendations.
B. Determined whether applicants met e-file requirements prior to acceptance in the Program.
1. Obtained a list of active e-file Providers from the Third Party Data Store.[20] To validate this data, we selected five records from the Third Party Data Store extract and validated them to printouts from the Third Party Data Store.
2. Selected a statistically valid sample of 98 active e-file Providers out of 29,454 e-file applications that were accepted in 2006 to assess compliance with e-file requirements. Our sample size was selected based on a 10 percent error rate, a 5 percent precision rate, and a 90 percent confidence level.
a) Performed data matches for all Principal(s) and Responsible Official(s)[21] listed on the application to confirm that they were in compliance with age and citizenship requirements and that the individuals were not deceased.
b) Performed data matches for the business, all Principal(s), and Responsible Official(s) to ensure they were tax compliant.
c) Determined whether a fingerprint card or professional certification was received for all Principal(s) and Responsible Official(s) listed on the application.
d) Determined whether a mandatory criminal background check was performed for those applicants who indicated on the application that the firm failed to file business tax returns or pay tax liabilities, or an individual on the application indicated they had been assessed preparer penalties, been convicted of a crime, failed to file personal tax returns or pay tax liabilities, or been convicted of any criminal offense under the U.S. Internal Revenue laws.
e) For those individuals in our sample selected for a criminal background check, assessed the actions taken based on any results received back from the Federal Bureau of Investigation and determined whether results were received prior to acceptance.
C. Determined whether the IRS has a process to ensure applicants selecting Not-for-Profit are in fact Not-For-Profit.
D. Determined whether the IRS’ screening process is effective.
II. Determined whether the IRS’ e-file monitoring process effectively identifies any e-file Providers who are not complying with Program requirements.
A. Assessed related actions the IRS took in response to prior TIGTA recommendations.
B. Determined whether the IRS has established a process to effectively track and resolve referrals received.
C. Assessed the process for e-file Monitoring Coordinators to follow when referring an e‑file Provider to the Examination and/or Criminal Investigation function.
D. Evaluated whether the checksheet that e-file monitors use to ensure completeness of monitoring visits includes an assessment of all Program requirements.
E. Assessed the effectiveness of the process followed for selecting e-file Providers for monitoring visits.
F. Determined if disciplinary actions resulting from violations identified during 2006 monitoring visits were carried out in accordance with guidelines. For the two Area Offices we visited, we determined whether written reprimands issued to noncompliant e‑file Providers were followed-up on, as required.
G. For the two Area Offices visited, reviewed the effectiveness of actions taken to suspend e-file Providers. Sites visited were selected to ensure broad geographic coverage. Because of significant issues identified, we expanded testing to two other Area Offices, selected based on the relative high volume of suspensions in Calendar Year 2006. In total, we assessed the processing of all 35 proposed and immediate suspensions imposed in Calendar Year 2006.
H.
Identified
control breakdowns and attempted to assess the impact on taxpayers and the IRS.
Appendix II
Major Contributors to This Report
Michael
E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income
Programs)
Augusta
R. Cook, Director
Russell
P. Martin, Audit Manager
Pamela
DeSimone, Lead Auditor
Robert
Howes, Senior Auditor
Andrea
Hayes, Auditor
Mary
Keyes, Auditor
Appendix III
Acting Commissioner C
Office of the Commissioner – Attn: Acting Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner, Small Business/Self-Employed Division SE:S
Deputy Commissioner, Wage and Investment Division SE:W
Director, Compliance, Small Business/Self-Employed Division SE:S:C
Director, Customer Account Services, Wage and Investment Division SE:W:CAS
Director, Customer Assistance, Relationships, and Education, Wage and Investment Division SE:W:CAR
Director, Electronic Tax Administration, Wage and Investment Division SE:W:ETA
Director, Strategy and Finance, Wage and Investment Division SE:W:S
Chief, Performance Improvement, Wage and Investment Division SE:W:S:PI
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: Senior Operations Advisor, Wage and Investment Division SE:W:S
Appendix IV
Prior Treasury Inspector General for Tax
Administration Report Recommendations
|
Report Reference |
Recommendation |
Corrective Action per the IRS |
|
2004-40-013 November 2003
[22] |
Ensure citizenship and age requirements are met. |
Agreed – will ensure responsible officials possess valid Social Security
Numbers. |
|
|
Ensure criminal background checks are obtained electronically. |
Agreed - process requires the purchase of scanning hardware and
software. Completion of this acquisition process will not occur before the
2004 Filing Season. |
|
|
For unprocessable fingerprint cards, a name check should be used
as the basis for the criminal background check. |
Agreed - guidelines revised and the Federal Bureau of
Investigation will be requested to perform a background check using name and
other available information on unprocessable cards. |
|
|
Ensure individuals who provide professional certifications are in
current standing. |
Agreed - revised IRS e-file
Application and Participation (Publication 3112) as well guidelines and
procedures. Also, enrolled agents will
be validated during application process.
There is no central repository for a systemic check for the other
categories of professionals. Will pursue other methods to perform check of
other categories. |
|
Report Reference |
Recommendation |
Corrective Action per the IRS |
|
2004-40-013 November 2003 (continued) |
Periodic updates of criminal investigations. |
Disagreed – no action. |
|
|
Use e-file reject
rates for selecting monitoring visits. |
Agreed – will develop related guidance. |
|
|
Establish a system to measure
the effectiveness of the e-file Provider monitoring program. |
Agreed – will
revise monitoring reports to reflect the results broken down by referral type. |
|
2003-30-039 January 2003[23] |
Establish a goal and method for
measuring program effectiveness for improving ERO compliance, such as results
of followup visits. |
Disagreed – cannot accurately measure results of visits. |
|
|
Maintain case documentation - re-enforce that followup
visits are a measure of monitoring the impact on compliance. |
Agreed - issued memo guidance. |
|
|
Allow time for case building. |
Agreed - training provided. |
|
|
Ensure ease of identifying referral sites. |
Agreed - guidance issued. |
|
|
Develop process for proper mix of random/mandatory visits -
broad geographic coverage. |
Agreed - guidance issued. |
|
|
Develop uniform risk-based criteria for selecting e-file Providers to include in
monitoring visit plans. |
Agreed - Guidance issued on use of indicators in selecting e-file Providers for monitoring
visits. |
|
|
Provide clear and unambiguous infraction and sanction
guidelines. |
Agreed - Guidelines revised. |
|
Report Reference |
Recommendation |
Corrective Action per the IRS |
|
2003-30-039 January 2003 (continued) |
Revise e-file
Monitoring Guidelines to consider Earned Income Tax Credit due diligence
when determining e-file Provider compliance
with Internal Revenue Service e-file Program requirements. |
Agreed - instructed
monitors to pursue due diligence penalties when appropriate. |
|
|
Ensure complete case documentation is maintained. |
Agreed - guidance issue. |
|
2002-40-111
June 2002
[24] |
Screening procedures should
include independent validation of citizenship and age. |
Disagreed - due to view that number of ineligible
applicants based on age and citizenship is small. |
|
|
All applicants should be subjected to credit and criminal
background checks before acceptance in the e-file Program. |
Disagreed – Experience shows credit checks are
ineffective. Case study showed
background investigations reveal information usually not of significance to
deny participation in the e-file Program. E-file
growth and return preparation for |
|
|
Perform subsequent credit/criminal checks at regular
intervals. |
Disagreed - report does not justify need. Regular monitoring of Providers occurs
ensuring compliance with rules, and the audit report does not show screening
and monitoring processes produce negative results, thus justifying additional
checks. |
|
Report Reference |
Recommendation |
Corrective Action per the IRS |
|
2002-40-111 June
2002 |
Guidelines for handling fingerprint cards returned as
unprocessable should be followed and individuals with unprocessable
fingerprint cards should be contacted and a new card provided for completion
of criminal check. |
Agreed - will request new fingerprint cards from applicants and
resubmit them to the Federal Bureau of Investigation. No need to contact those who were already
identified to date since those individuals are already participants in the
Program. Will issue interim guidance
on obtaining new fingerprint cards. |
Source: Prior TIGTA Reports as cited.
Appendix V
Examples of E-File Provider Requirements Verifiable Only
Through a Monitoring Visit
· Accepting tax returns from persons other than taxpayers or authorized e-file Providers.
· Conduct of a disreputable nature.
· Earned Income Tax Credit Due Diligence Checklist and Worksheet not on file.
· Failure to check identification of tax return filers.
· Failure to notify the IRS of changes in Application to Participate in the IRS e-file Program (Form 8633) (e.g., not notifying the IRS of business address and contact information changes).
· Failure to protect taxpayer information from potential misuse.
· Failure to retain required records.
· Knowingly employing a denied/suspended e-file Provider.
· Not complying with advertising standards (e.g., posting misleading advertising material).
·
Preparation of tax returns using leave and earnings statements rather than
required Wage and Tax Statement (Form W-2).
· Unethical practices in tax return preparation.
· Untimely, missing, or incomplete U.S. Individual Income Tax Declaration for an IRS e-file Return (Form 8453) (i.e., failure to adhere to taxpayer signature requirements).
Appendix VI
Management’s Response to the Draft Report
The response was removed due to its
size. To see the response, please go to
the Adobe PDF version of the report on the TIGTA Public Web Page.
[1] Improvements to the Electronic Return
Originator Monitoring Program Are Needed (Reference
Number 2003-30-039, dated January 2003), Improvements
Are Needed in the Screening and Monitoring of E-File Providers to Protect
Against Filing Fraud (Reference Number 2004-40-013, dated November 2003),
and E-File Providers Are Not Adequately
Screened (Reference Number 2002-40-111, dated June 2002).
[2] Electronic Return Originators (ERO) originate the electronic submission of income tax returns to the IRS. An ERO electronically submits income tax returns that are either prepared by the ERO firm or collected from a taxpayer.
[3]
A Principal includes the sole proprietor,
partners, or individuals authorized to act for the entity in legal and/or tax
matters. A
Responsible Official is the first point of contact with the IRS and has the
authority to sign revised IRS e-file applications and ensures the e‑file
Provider adheres to the provisions of the revenue procedure as well as all
publications and notices governing the IRS.
There were a total of 138 Principal and Responsible Officials on the 98 applications. One individual did not list a Social Security
Number on the application, so their tax compliance or citizenship status could
not be verified.
[4] E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 2002).
[5]
The
Data Master One (DM–1) File Data Store contains data from the Social
Security Administration used to verify taxpayers who do not have a
primary Master File account.
[6] When an e-filed return is transmitted to the IRS, it is run through a series of validity and error checks. These checks look for such things as names and Social Security Numbers that match IRS records, math errors, and other common errors. If errors are found, the return is rejected back to the e-file Provider to fix the error and resubmit the return.
[7] The filing season is the period from January through mid-April when most individual income tax returns are filed.
[8] Improvements to the Electronic Return Originator Monitoring Program Are Needed (Reference Number 2003‑30-039, dated January 2003), Improvements Are Needed in the Screening and Monitoring of E-File Providers to Protect Against Filing Fraud (Reference Number 2004-40-013, dated November 2003), and E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 2002).
[9]
Some of the preparer penalties include penalties
for failure to exercise due diligence in determining eligibility and/or the
amount of the earned income credit, aiding and abetting an understatement of
tax liability, and failure to sign a return or claim for refund. Fraud penalties result from violations of the
Internal Revenue Code with the intent to evade income taxes.
[10]
There were a total of 138 Principal and
Responsible Officials on the 98 applications.
One individual did not list a Social Security Number on the application,
so we could not verify their tax compliance.
[11] Improvements Are Needed in the Screening and Monitoring of E-File Providers to Protect Against Filing Fraud (Reference Number 2004-40-013, dated November 2003).
[12] Accuracy of the Social Security Administration’s Numident File (Reference Number A-08-06-26100, dated December 2006).
[13] E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 2002).
[14] E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 2002).
[15]
The Data Master One File Data
Store contains data from the Social
Security Administration used to verify taxpayers who do not have a
primary Master File account.
[16] Improvements to the Electronic Return Originator Monitoring Program Are Needed (Reference Number 2003‑30-039, dated January 2003).
[17] A geographic organizational level used by IRS business units and offices to help their specific types of taxpayers understand and comply with tax laws and issues.
[18] Monitoring
Coordinators develop annual monitoring visit plans including identification of
subject e-file Providers and train
territory office employees (i.e. monitors) responsible for performing the monitoring
visits. The Monitoring Coordinators also
review monitoring visit case files.
[19] Improvements Are Needed in the Screening and Monitoring of E-File Providers to Protect Against Filing Fraud (Reference Number 2004-40-013, dated November 2003).
[20]
The Third Party Data Store is an electronic
database that houses all pertinent information on third parties that interact
with the IRS through e‑Services.
For example, this database contains information on all registered users
and e‑file Providers, along with information on their e‑file
activity.
[21] A Principal includes the sole proprietor, partners, or individuals authorized to act for the entity in legal and/or tax matters. A Responsible Official is the first point of contact with the IRS and has the authority to sign revised IRS e‑file applications and ensures the e‑file Provider adheres to the provisions of the revenue procedure as well as all publications and notices governing IRS e-file.
[22] Improvements Are Needed in
the Screening and Monitoring of E-file Providers to Protect Against Filing
Fraud
(Reference Number 2004-40-013, dated November 2003).
[23] Improvements to the Electronic Return Originator Monitoring Program Are Needed (Reference Number 2003‑30‑039, dated January 2003)
[24] E-file Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 2002).