Treasury
Inspector General for Tax Administration
Office of Audit
THE SCREENING AND MONITORING OF E-FILE PROVIDERS HAS IMPROVED, BUT MORE
WORK IS NEEDED TO ENSURE THE INTEGRITY OF THE E-FILE PROGRAM
Issued on March 31, 2010
Highlights
Highlights of
Report Number: 2010-40-042 to the
Internal Revenue Service Commissioner for the Small Business/Self-Employed
Division and the Commissioner for the 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. 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.
WHY TIGTA DID THE AUDIT
The overall objective of this review was to determine whether the
IRS’ screening and monitoring of e‑file
Providers is effective. This review
was a followup to TIGTA’s report Better
Screening and Monitoring of E‑File Providers Is Needed to Minimize the
Risk of Unscrupulous Providers Participating in the E-File Program
(Reference Number 2007-40-176, dated September 19, 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 the e-file Providers’ compliance with many of the e‑file Program requirements.
WHAT
TIGTA FOUND
The screening and monitoring of e‑file Providers has improved, but
more work is needed to ensure the integrity of the e-file Program. The IRS is
now validating existing e‑file
Providers as Not‑for-Profit organizations and verifying that existing e‑file Providers and new
applicants are either
Monitoring procedures are not always being
followed. Tests of three out of the
seven Area Offices showed that the Monitoring Coordinators are not contacting
the IRS’ Criminal Investigation Division to discuss any trends or problems it
is finding with e-file Providers. In addition, the IRS does not always target visits based on the set
criteria, and the required followup visits are not always performed. Year-end reconciliations of the case files to
the monitoring logs and the reports are not conducted. In addition, the results of the Monitoring Program
are not being used to improve the e‑file
Program.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS ensure the
citizenship and Not‑for‑Profit statuses are verified for all e-file Program applicants and that both
applicants and current e‑file
Providers who are identified with a blank or unknown citizenship status in the
Data Master-1 file are verified as being a United States citizen or a
legal alien. The IRS should implement
controls to ensure that the monitoring visit procedures are being followed, the
information reported to Small Business/Self-Employed Division Headquarters is
accurate, and the results of the monitoring visits are used to improve and measure
the effectiveness of the e-file
Program.
The IRS agreed with five of six
recommendations. It plans to improve
verification procedures for Not-for-Profit entities and implement automated
suitability program criteria to include “alien, student, restricted work authorization.” The IRS has already implemented enhanced
Electronic Filing Identification Number deactivation practices for Volunteer
Income Tax Assistance and Tax Counseling for the Elderly sites and plans to
continue to improve e-file Provider
monitoring visit management controls and reporting.
The IRS did not agree to verify the citizenship
status of all e-file Providers
because it would create e‑file
Program eligibility conflicts with impending legislation mandating e-file for most return preparers. However, even if e-file is mandated,
any
READ THE FULL REPORT
To view the report, including
the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2010reports/201040042fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov