The Screening and Monitoring of E‑File Providers Has Improved, but More Work Is Needed to Ensure the Integrity of the E-File Program
March 31, 2010
Reference Number: 2010-40-042
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.
Phone Number |
202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
March 31, 2010
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 – The Screening and Monitoring of E‑File Providers Has Improved, but More Work Is Needed to Ensure the Integrity of the E-File Program (Audit # 200940029)
This audit 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 review was included
in the Treasury Inspector General for Tax Administration’s Fiscal Year 2009
Annual Audit Plan and is a followup to a prior report.[1] This audit addresses the major management
challenges of Taxpayer Privacy and Protection, Leveraging Data to Improve
Program Effectiveness and Reduce Costs, and Providing Quality Taxpayer Service
Operations.
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 207,419 authorized Electronic Return Originators (a type of e-file Provider) as of June 21, 2009, who e-filed approximately 61 million (66 percent) of the 92 million e-filed tax returns accepted in Calendar Year 2009. 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.
The screening and monitoring
of e‑file Providers has improved,
but more work is needed to ensure the integrity of the e-file Program. In
response to our Fiscal Year 2007 report,
the IRS began validating existing e‑file
Providers as Not‑for-Profit organizations and verifying that existing e‑file Providers and new applicants
are either
For both existing and new applicants, if the citizenship
status is blank or unknown on the Social Security Administration’s Data Master-1 file, the IRS is not
requesting that the e-file Provider
verify citizenship status. The IRS found
that about 109,000 (52 percent) of 210,000 e-file
Providers do not have a citizenship code in the Data Master-1 file. Furthermore,
the criteria being used to identify new applicants who are not
For the 2009 Filing
Season, the IRS planned to conduct more than 1,500 e-file Provider monitoring visits, which accounted for
about 1 percent of the 143,000 e-file
Providers who e‑filed more than 50
tax returns in Fiscal Year 2008. The IRS
reported that IRS employees conducted 1,651 visits during the 2009 Filing
Season. As a result of these visits, 813
adverse actions were reported, including 102 (13 percent) proposed suspensions,
120 (15 percent) immediate suspensions, and 1 (0.1 percent) expulsion.
Although procedures have been developed to address recommendations from the Fiscal Year 2007 audit report regarding the monitoring of e-file Providers, they are not always being followed. Tests of three out of the seven Area Offices[2] showed that the changes have not been implemented. The Monitoring Coordinators are not contacting the IRS’ Criminal Investigation Division to discuss any trends or problems it is finding with e-file Providers, suspension logs that track proposed suspensions are not always maintained, and followups are not always conducted with the IRS’ Appeals Office to determine the outcome of appeals filed by the e-file Providers.
Furthermore, the IRS does not
always target visits based on the criteria of 100 or more returns filed in the
previous year and a 25 percent or higher reject rate, and the required followup
visits are not always performed. Some
referrals are tracked in the monitoring logs, but we were unable to verify if
there were any additional referrals received by the Monitoring Coordinators, other
than the referrals noted in the logs used to document all of the visits. Year-end reconciliations of the case files to
the monitoring logs and the reports sent to the Small Business/Self-Employed
(SB/SE) Division Headquarters are not conducted.
In addition, the SB/SE Division and the Electronic Tax Administration and Refundable Credits office are not using the results of the monitoring program to improve the e‑file Program. The individual results of the monitoring visits do not go beyond the monitoring coordinators. The monitoring visit case files are maintained at the Area Offices, and the information elevated is only the total number of visits conducted and the number of warnings, reprimands, suspensions, and expulsions issued.
Recommendations
The Commissioner, Wage and Investment Division, should ensure the citizenship and the 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. A process should also be established requiring the Stakeholder Partnerships, Education, and Communication function to notify the Electronic Tax Administration and Refundable Credits office when a volunteer site is closed or becomes inactive so that office can deactivate the Electronic Filing Identification Number.[3]
The Commissioner, SB/SE Division, should implement controls to ensure that the monitoring visit procedures are being followed, the information reported to SB/SE Division Headquarters is accurate, and the results of the monitoring visits are used to improve and measure the effectiveness of the e-file Program.
Response
IRS management agreed with five of our six recommendations. The IRS will improve procedures
to ensure compliance
with internal guidelines; initiate programming changes to include the
citizenship code for alien, student, restricted work authorization; and develop
guidance to deactivate Volunteer Program Electronic Filing Identification
Numbers. The IRS will also analyze its
control system for monitoring visit procedures, assess effectiveness of changes,
develop an action plan to assess the Monitoring Program, and update internal
guidelines with relevant changes.
The IRS did not agree to verify
the citizenship status of all e-file
Providers, stating that recent legislation mandating e-file for most return preparers will require the IRS to modify the
current citizenship rules. If this
recommendation was implemented in concert with the e-file mandate, the IRS believes it would effectively bar all
foreign preparers from completing
Office of Audit Comment
In its response, the IRS stated
that recent legislation mandating e-file
for most return preparers will require it to modify the current e‑file Provider citizenship rules. E‑file
Providers may no longer be required to be
However, as the IRS states, it shares our concern
of the need to accurately verify information about e-file Providers. Therefore, although there may no longer be a
requirement for e‑file
Providers to be
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 (Returns Processing and Account Services), at (202) 622-5916.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix V–
Prior Treasury Inspector General for Tax Administration Report Recommendations
Appendix
VI – Management’s Response to the Draft Report
Abbreviations
|
DM-1 |
Data Master - 1 |
|
e-file; e‑filed |
Electronic filing; electronically filed |
|
EFIN |
Electronic Filing Identification Number |
|
ERO |
Electronic Return Originator |
|
IRS |
Internal Revenue Service |
|
SB/SE |
Small Business/Self-Employed |
|
SPEC |
Stakeholder Partnerships, Education, and
Communication |
|
|
|
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 the 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 received 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 are 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.
As of June 21, 2009, there were 207,419 authorized EROs who electronically filed (e-filed) about 61 million (66 percent) of the approximately 92 million e-filed tax returns accepted in Calendar Year 2009. 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 meet required screening and verification checks before they are authorized to participate in the e-file 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 a 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:
Suitability checks may include:
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 into the e-file Program. If an individual does not meet the
requirements or fails a suitability check, the application will be denied. An applicant denied participation in the IRS e-file Program will be notified in writing and may
appeal the decision.
Once
approved, e-file Providers must
maintain strict adherence to e-file Program
requirements to ensure continued participation.
An e-file Provider may
continue to participate in the IRS e-file
Program if the business and its Principal(s) and Responsible Official(s) meet
and adhere to IRS e-file Program requirements. These requirements are included in Revenue Procedure 2007-40, Handbook
for Authorized IRS e-file Providers of Individual Income Tax Returns (Publication 1345), and in Publication 3112.
Requirements include the need to
ensure tax returns are accurately filed, appropriate documentation is maintained,
documentation is signed by the taxpayers,
and security
systems are in place to prevent unauthorized access to taxpayer accounts and
personal information by third parties.
The Wage and Investment Division is responsible for screening e-file Providers
Two functions within the Wage and Investment Division are involved in
the screening and certifying of e‑file
Providers. The Customer Account Services
function’s Electronic Products and Services Support (E-Help) office in the
Andover Campus[4] accepts and processes e-file Program applications
and performs the initial and periodic screening process to ensure applicants
meet the requirements of the e-file
Program. The Electronic Tax
Administration and Refundable Credits office sets the policies for the e‑file Program.
The
IRS uses the Automated Suitability
Analysis Program to analyze data included on applications to verify that
all requirements are met. Each day, information
is extracted from the new applications awaiting approval and matched against
Master File[5]
data to validate adherence with requirements.
For those applicants that have “hits” (concerns identified regarding one
or more of the factors validated), the information is added to a work list and
assigned to an assistor for review. The
system will also take those applicants with “no hits” and evaluate whether or
not fingerprint cards are required and, for those that are required, send the
fingerprint cards to the Federal Bureau of Investigation for a criminal
background check. For those applicants
with criminal records, reports are sent to the IRS Criminal Investigation
Division’s
For
those applicants accepted to participate in the e‑file Program, the IRS assigns an Electronic Filing Identification
Number (EFIN). The EFIN allows the IRS
to identify a specific Authorized e-file
Provider.
The Small Business/Self-Employed Division’s Examination function is responsible for monitoring e-file Providers
The Small Business/Self-Employed (SB/SE)
Division’s Examination Policy unit establishes the procedures for executing the
IRS’ monitoring visits of e-file
Providers. The Exam Planning and
Delivery unit coordinates and monitors the use of Examination function
resources in executing the visitations.
The visitations are conducted by field examiners located throughout all seven
Area Offices.[6] The
purpose of the monitoring program is to verify the e-file Providers’ compliance with the e-file Program requirements.
Monitoring visits include:
Violation(s)
identified during monitoring visits may result in a warning, written reprimand,
suspension, or expulsion of an e-file Provider.
This review is a followup review to previous audits the
Treasury Inspector General for Tax Administration performed assessing the
effectiveness of the IRS’ screening and monitoring of e‑file Providers.[7] Appendix V provides a list of the
recommendations and corrective actions associated with these reviews.
This review was performed at the Customer Account Services function’s E-Help office at the Andover
Campus and in the E-File Monitoring
Coordinator offices in
Although the Application Screening Process Has Improved, More Work Is Needed to Help Ensure the Integrity of the Individuals Applying for Participation in the E-File Program
In response
to TIGTA’s 2007 report, the IRS has implemented citizenship tests and checks
to ensure organizations claiming Not‑for‑Profit status are, in
fact, Not-for-Profit organizations.
As we reported in Fiscal Year 2007, the IRS has an effective process for ensuring applicants (Principals and Responsible Officials) meet age requirements and e‑file Providers meet certain suitability checks, such as tax compliance. The IRS verifies that all new applicants are at least 21 years of age and not using the identity of a deceased person. It has also developed an automated process to check and monitor tax compliance of both applicants and existing approved e-file Providers. Additionally, as of June 2009, the IRS stated that it is submitting 100 percent of the fingerprint cards, if one is required of the applicant, to the Federal Bureau of Investigation so that criminal background checks can be conducted. Prior to June 2009, the IRS was conducting limited background checks.
In
response to our Fiscal Year 2007 report, the
IRS began validating the Not‑for-Profit status of existing e‑file Providers and verifying
that all existing e‑file
Providers and applicants are either
In addition, we conducted a separate review to determine whether the IRS has established effective access and audit trail controls for the Registered User Portal[8] to protect taxpayer data from unauthorized disclosure.[9] That review found that the IRS does not perform suitability checks on all users with the ability to e-file tax returns. The IRS allows Principals and Responsible Officials to delegate their access rights to employees, partners, members of the firm, or any person with a business relationship with the firm. These “delegated users” are not required to undergo a suitability check. In addition, a Principal or Responsible Official can assign a special “Principal Consent” privilege to a delegated user that allows the delegated user to propagate his or her privileges to other individuals. IRS records show that there are 9,988 delegated users with the ability to e-file tax returns, and approximately 6,500 of these users also had access to the e-Services incentive products.
The IRS made a decision to allow Principals and Responsible Officials to assume the risks of delegating their access rights to other individuals, and it believes the risks are mitigated by requiring Principals and Responsible Officials to file a Power of Attorney[10] with the IRS. However, the Treasury Inspector General for Tax Administration believes that taxpayers expect the IRS to protect their personal data, and the Power of Attorney document does not provide the same assurance as the suitability check. The Treasury Inspector General for Tax Administration recommended that the Director of the Electronic Tax Administration and Refundable Credits office require suitability checks on delegated users who e-file tax returns.
The
review also found that the automated program used to systemically check the tax
compliance of an e-file applicant
does not provide a systemic check of the spouse’s tax compliance. Therefore, the spouse’s tax compliance check
is performed manually, which is inefficient and increases the risk of human
error. We recommended that the Chief
Technology Officer enhance the Automated Suitability Analysis Program to enable
systemic analysis of a spouse’s tax compliance.
More
improvements are needed to ensure applicants meet certain suitability checks,
such as Not‑for-Profit status and citizenship status. It is important that the IRS adequately screens
all e‑file Provider applicants
to protect both the taxpaying public and the Federal Government from the actions
of unscrupulous e‑file Providers.
Some
Not-for-Profit organizations were not validated
Not-for-Profit applicants are
excluded from all e-file Program
requirements and suitability checks.
Therefore, it is essential that the IRS verify the applicant is in fact
a Not-for-Profit organization.
The IRS conducted a one-time match of 85 percent of the e‑file Providers that claimed to
be Not-for-Profit organizations to validate their Not-for-Profit status
In response to our Fiscal Year 2007 report, in November 2008, the IRS conducted a one-time match to ensure that the current e‑file Providers claiming to be Not-for-Profit organizations were correctly claiming Not‑for‑Profit status. The IRS stated that 85 percent of the e‑file Providers that claimed to be Not-for-Profit were designated as “Stakeholder Partnerships, Education, and Communication (SPEC)-related,” indicating they were partners in the IRS’ Volunteer Program.[11] The IRS matched its list of SPEC-related Not‑for‑Profit e‑file Providers to the SPEC function’s database of organizations that participate in its Volunteer Program. The IRS determined that 1,217 Not-for-Profit organizations could not be validated to the SPEC function’s database. As a result, 1,185 EFINs were deactivated. Thirty-two e‑file Providers submitted a successful appeal and were reinstated. The IRS did not validate the approximately 15 percent of the Not-for-Profit e‑file Providers that were designated as Not-for-Profit organizations but were not SPEC-related.
As of November 2008, new applicants that indicate they are
Not-for-Profit organizations and claim to be part of the SPEC function are
required to enter a Site Identification Number[12]
when they apply to the e-file Program. The Site Identification
Numbers are systemically validated to the SPEC function database of volunteer
organizations. Also included in the
verification process are the IRS’ local walk-in offices, called Taxpayer
Assistance Centers. IRS employees verify
the Office Designation Number reflected on the e-file Program application to the
Tests show some Not-for-Profit
organizations have not been validated
A statistical sample of 97 e-file
Providers from a population of 13,797
that were active as of August 2009 and designated as
Not‑for‑Profit organizations showed that 18 (19 percent) were
erroneously designated as Not-for-Profit organizations. Twelve (12 percent of the total sample) of
the 18 were not subjected to suitability checks. Of these:
·
10 e‑file
Providers were designated as SPEC-related Not-for-Profit organizations, but
were either not on the SPEC function’s database or were in an inactive status
on the SPEC function list. Six are currently active e‑file
Providers and appear to be for-profit organizations. Four were placed in an inactive status after
our sample was selected. The IRS does
not have a process to notify the e-file Program to deactivate EFINs when
a SPEC function volunteer site closes or the SPEC function designates an EFIN
as inactive.
·
2 e‑file
Providers were erroneously input into the database as Not-for-Profit
organizations when they are actually for-profit organizations. They are still active e‑file
Providers.
Based on
the population of 13,797 e-file
Providers who are designated as Not-for-Profit organizations, there is a
potential that 2,560 of these e-file
Providers were improperly designated as Not-for-Profit organizations and that
1,707 of these Providers did not go through the suitability process, which is
required for all for-profit organizations.
The IRS is working toward validating the
citizenship of all e‑file Providers, but not all e‑file Providers
have had their citizenship status validated
In March 2009, the IRS began checking the citizenship and immigration status of new applicants. It is also checking the status of existing e‑file Providers. This is completed by systemically matching applicant data to the Social Security Administration’s Data Master-1 (DM-1) file. The DM-1 file should contain date of birth, date of death, gender, citizenship, and name control information for all issued Social Security Numbers.
If an
applicant indicates on the e‑file Provider application that he or she is a
The automated program
for verifying the citizenship status of new applicants needs to be adjusted
The criteria being used to identify new applicants who are
not
The IRS is currently determining the citizenship status of
existing e‑file Providers
In Fiscal Year 2007, we
reported that the IRS was not ensuring that all applicants were either
As a result, the IRS stated that it mailed 1,167 letters to e‑file Providers who did not have
a citizenship code A (
Sixteen percent (186
of 1,167) are unresolved—16 letters resulted in no responses
and 170 cases are still being worked.
A
statistical sample of 89 e‑file
Providers from a population of 961 e‑file
Providers active as of July 2009 showed that 73 (82 percent) e-file Providers
proved of their citizenship status. Of the 16 (18 percent) who did not:
·
1 (1
percent) e-file Provider was not
appropriately identified by the new applicant citizenship check. According to the IRS, this problem was fixed
by April 2009.
·
2 (2
percent) e-file Providers were
deactivated after we notified the IRS that the Providers did not meet the
criteria of the e-file Program
regarding citizenship status.
·
2 (2
percent) e-file Providers did not
meet the IRS’ criteria to be included in the citizenship verification check.
·
5 (6
percent) e-file Providers were not
·
6 (7
percent) e-file Provider files did
not contain any supporting citizenship documentation or the documentation was
not sufficient, even though the IRS had indicated that they received adequate
documentation to support citizenship status.
When we notified IRS management of the missing and/or incomplete
documentation, they reissued five citizenship letters to these e‑file Providers asking them to
provide supporting citizenship documentation.
They issued a letter to the sixth e‑file
Provider notifying the Provider that his or her EFIN would be deactivated.
As of October 2009,
the IRS stated that it will perform another mail-out of citizenship status verification
letters to existing e-file Providers
to include any applicants who were not identified in the first two
mailings. A date has not been
established.
There are 961 active e-file Providers listed who are not
If the citizenship status is blank or unknown on the DM-1 file, the IRS is not requesting that the e-file Provider verify citizenship status
There are instances for which the Social Security Administration does not know the citizenship or immigration status of an individual. Consequently, the IRS made the decision to not expend its resources to ask the e‑file Provider or applicant to verify citizenship status. The IRS found that about 109,000 (52 percent) of 210,000 e-file Providers do not have a citizenship code in the DM-1 file. As a result, the IRS cannot ensure the eligibility of these individuals for the e-file Program and does not have reliable information from which to make decisions.
Recommendations
The Commissioner, Wage and Investment Division, should:
Recommendation 1: Ensure the Not-for-Profit status is verified for all e-file Program applicants.
Management’s Response: The IRS agreed with this recommendation. In 2008 and 2009, the Electronic Tax
Administration and Refundable Credits office partnered with Not-for-Profit
business owners to establish and implement formal procedures for validating
existing Authorized IRS e-file
Providers as Not-for-Profit services. The
Electronic Tax Administration and Refundable Credits office will implement the
following steps to ensure continuing compliance: 1) produce regular Not-for-Profit e-file applicant reports categorized by
program types, including Volunteer Income Tax Assistance, Military, Tax
Counseling for the Elderly, Tax Assistance Center, State Government Agency,
Large Taxpayer, and Employee Benefit Program; 2) validate with Not-for-Profit business
owners that procedures are followed; and 3) perform regular quality reviews to
identify any manual deviations.
Recommendation 2: Ensure the citizenship status is verified for all new and
existing e-file Program applicants,
including updating the automated suitability program for new applicants to
include “alien, student, restricted work authorization” as criteria for not
meeting the citizenship check.
Management’s Response: The IRS agreed with this recommendation and has already
initiated programming to include the additional Citizenship Code E (alien,
student, restricted work authorization) to the existing Citizenship Analysis of
the Automated Suitability Analysis Program.
However, recent legislation mandating e-filing for most return preparers will eventually require the IRS
to change the current e‑file
Provider rules with respect to citizenship status.
Recommendation 3: Ensure the citizenship status is verified for all e-file Providers who show a blank or unknown citizenship status in the DM-1 file.
Management’s
Response:
The IRS did not
agree with this recommendation. Recent
legislation mandating e-file for most
return preparers will require the IRS to modify the current citizenship rules. If this recommendation was implemented in
concert with the e-file mandate, it would effectively bar all foreign
preparers from completing
The IRS
stated that it shares our concern of the need to accurately verify information
about e‑file Providers, but the
new law will require it to change the current e-file Provider rules with respect to citizenship status. The IRS is currently evaluating ways to
address this challenge under the auspices of the Return Preparer Implementation
team, which has a similar issue with respect to foreign-based preparers. The IRS’ goal is to develop a comprehensive
and complimentary set of requirements for both e-file Providers and return preparers. The team’s current objective is to finish the
policy development in this area by May 2010 and to then develop an
implementation timeline.
Office of Audit Comment: In its response, the IRS stated that recent
legislation mandating e-file for most
return preparers will require it to modify the current e‑file Provider citizenship rules. However,
as the IRS states, it shares our concern of the need to accurately
verify information about e-file Providers. Therefore, although there may no longer be a
requirement for e‑file
Providers to be
Recommendation 4: Establish a process requiring the SPEC function to notify the Electronic Tax Administration and Refundable Credits office when a SPEC-related volunteer site is closed or becomes inactive so that office can deactivate the EFIN.
Management’s Response: The IRS agreed with this recommendation. The SPEC function e‑team coordinated
with the Electronic Tax Administration and Refundable Credits office and
Submission Processing function to develop guidance on deactivating a Volunteer
Income Tax Assistance/Tax Counseling for the Elderly EFIN. On January 28, 2010, the SPEC function issued
Policy Directive 22.30.1-09.1, which stated effective immediately, a Volunteer Income
Tax Assistance and/or Tax Counseling for the Elderly EFIN will be deactivated
when a partner refuses to comply with the SPEC function’s Quality Site
Requirements and/or when sites are closed as a result of partner choice or
termination of SPEC function support.
The Monitoring Program Is Still Not Ensuring E‑File Providers Are Compliant With Program Requirements
In response to our Fiscal Year 2007 audit report, the IRS has:
· Added procedures requiring that the Monitoring Coordinator check with the Criminal Investigation Division to ensure results of e-file Provider criminal cases are used to identify potential risk factors or indicators that can be built into the screening and monitoring process.
· Developed a process to ensure established risk-based selection criteria are used to identify e‑file Providers for targeted monitoring visits.
· Clarified procedures regarding when followup visits should be performed and implemented a process to ensure followup visits are conducted in accordance with the clarified guidelines.
· Developed a process to record the receipt and disposition of referrals from internal and external sources.
· Developed a process for the Monitoring Coordinators to track results and forward them to the SB/SE Division Headquarters analyst.
· Developed a process for the Monitoring Coordinators to track e-file Provider suspension cases using a new control log. The Monitoring Coordinator is to perform followups to ensure the e-file Providers are suspended and documentation is placed in the case file.
· Developed 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.
Although procedures have
been developed, they are not always being followed. 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.
Although procedures have been developed, they are
not always being followed
For the 2009
Filing Season, the IRS planned to conduct more than 1,500 e-file Provider monitoring visits, which is
about 1 percent of the 143,000 e-file Providers who
e-filed more than 50 tax returns in Calendar Year
2008. The IRS reported that it conducted
1,651 visits during the 2009 Filing Season.
Monitoring
visits are a combination of referrals, followups, targeted visits, and random
visits.
For
targeted visits, only active e-file Providers who have e-filed
at least 100 tax returns and have a reject rate of 25 percent or more
are selected.
Referrals
can be from internal or external sources.
The referral is reviewed by the monitor and, if warranted, a monitoring
visit is conducted within 5 business days.
If
a followup visit is designated, it should be conducted in the subsequent
year.
After
all of the referral, followup, and targeted visits are scheduled, if there are
still more visits that need to be conducted, based on a predetermined number of
visits for the year for each office, random visits are selected.
The IRS also
conducted a pilot program during the 2009
Filing Season. The pilot focused on e-file Providers that may be using pay stubs or Earning and
Leave Statements to prepare tax returns instead of the taxpayers’ Wage and Tax
Statement (Form W-2). The IRS requires
that a tax return be submitted using income reported on a Form W-2. Twenty percent of the more than 1,500 planned
visits for the 2009 Filing Season were to focus on e‑file Providers with the highest e-file reject rates of “Employer Identification Number is
incorrect or invalid,” which is an indication that the tax return might have
been filed using a pay stub.
As a result of the 1,651 visits to e-file Providers by IRS employees during the 2009 Filing Season, 813 adverse actions were reported to SB/SE Division Headquarters, including 102 (13 percent) proposed suspensions, 120 (15 percent) immediate suspensions, and 1 (0.1 percent) expulsion. As of April 24, 2009, 390 Forms W-2 monitoring visits were completed. Based on these visits, 22 suspensions were proposed, 58 e‑file Providers were suspended, 66 were provided written reprimands, and 66 were provided warnings.
Seven recommendations
in our Fiscal Year 2007 audit report related to the monitoring of e‑file Providers. As a result of those recommendations, the IRS’
manual was updated. However, tests in three
of the seven Area Offices showed that not all changes have been implemented.
·
The Monitoring
Coordinators are not contacting the IRS’ Criminal Investigation Division to
discuss any trends or problems it is finding with e-file Providers that might help the Monitoring Coordinators select
high-risk Providers to visit. None of
the three Monitoring Coordinators interviewed had discussed selection criteria
for targeted cases with the Criminal Investigation Division.
·
The IRS does not
always target visits based on the criteria of 100 or more returns filed in the
previous year and a 25 percent or higher reject rate. Two of the three Monitoring Coordinators did
not target visits for the 2009 Filing Season.
For 1 office, 66 (46 percent) of the 145 targeted visits did
not meet the established criteria.
·
The Form W-2 visits
were also not always correctly selected by the Monitoring Coordinators based on
the criteria provided by SB/SE Division Headquarters. One office conducted only 17 (55 percent)
of the required 31 Form W-2 visits and none of these visits were correctly
selected based on the criteria established by SB/SE Division Headquarters.
·
The IRS does not
always perform the required followup visits.
One office visited did not perform any of the 44 followup visits required
during the 2009 Filing Season. For the
other 2 offices visited, 6 (11 percent) of 57 and 7 (32 percent) of 22
followup visits from the 2008 Filing Season were not conducted during the 2009 Filing
Season.
·
The IRS does track some
referrals it receives. The referral
visits that were conducted by the Monitoring Coordinators are noted on the
monitoring log by each office; however, we were unable to verify if any
additional referrals were received by the Monitoring Coordinators other than
what was noted on the log used to document all of the visits. For example, one office stated that it
received a few telephone referrals. The Monitoring
Coordinator stated that the information was passed on to another area to be
reviewed, but there was no documentation that the telephone referrals were
received or that they were sent elsewhere to be worked.
·
The IRS does not
conduct year-end reconciliations of the case files to the monitoring logs and
the reports that are sent to the SB/SE Division Headquarters. Without this reconciliation, inaccurate
statistics are being recorded for the e-file
Program and there is a potential that e-file
Providers that should have followup visits in the next year or be suspended
in the current year will be overlooked.
Additionally, for two of the three offices visited,
statistics reported to SB/SE Division Headquarters included visits that were
not actually conducted. One office
reported that 168 visits were conducted during the 2009 Filing
Season. However, 35 (21 percent) of
these visits were not conducted. The
reasons the visits were not conducted included inclement weather or the
inability of the Monitoring Coordinator to locate the e‑file Provider. For 6
(60 percent) of the 10 visits that were not conducted because the Coordinator was
unable to locate the e‑file
Provider, the EFINs were still active as of July 2009 and the Providers
had e-filed tax returns during the
2009 Filing Season.
·
The Monitoring
Coordinators are not always maintaining accurate suspension logs to track
proposed suspensions and the date by which the e-file Provider has to respond to appeal the proposed
suspension. If the Coordinators do not review
the deadline dates to appeal the proposed suspension, the e‑file Provider may remain in the Program instead of being
suspended. The 3 Area Offices visited showed
that 15 (23 percent) of the 65 e‑file Providers
that were recommended for suspension in Fiscal Years 2008 or 2009 were not
removed from the Program as required.
·
The Monitoring
Coordinators are not always following up with the IRS’ Appeals Office to
determine the outcome of appeals filed by the e-file Providers. The
required quarterly followups are not being done to determine the status of the
appeals cases, so the case files are not being updated and the Coordinators are
not able to ensure that the e-file Providers
who should be suspended from the Program are suspended.
In addition, the SB/SE Division and the Electronic Tax Administration and Refundable Credits office are not using the results of the monitoring program to improve the e‑file Program. The individual results of the monitoring visits do not go beyond the Monitoring Coordinators. The monitoring visit case files are maintained at the Area Offices, and the only information elevated to the SB/SE Division Headquarters and then to the Electronic Tax Administration and Refundable Credits office is the total number of visits conducted and the number of warnings, reprimands, suspensions, and expulsions issued.
Recommendations
The Commissioner, SB/SE Division, should:
Recommendation 5: Implement controls to ensure that the monitoring visit procedures are being followed.
Management’s Response: The IRS agreed with this recommendation. A conference call was held during the current filing season on February 3, 2010, with its Area Coordinators and managers. Topics included re-emphasis of current procedures for monitoring the program and changes to final report requirements to include the type of violation and method of disposition for all visitations. In addition, final reports will require managerial approval before submission to Headquarters.
The IRS will take additional corrective actions:
1. It will further analyze its control system for monitoring visit procedures, review and formulate appropriate changes, create an action plan, and make changes to its control system.
2. It will assess the effectiveness of the changes at the end of the Fiscal Year 2011 filing season and update the Internal Revenue Manual 4.21.1, Electronic Filing Program ‑ Monitoring the IRS e-file Program, to reflect changes to the program.
Recommendation 6: Ensure information reported to SB/SE Division Headquarters is accurate and the results of the monitoring visits are used to improve and measure the effectiveness of the e-file Program.
Management’s Response: The IRS agreed with this recommendation and will take the following corrective actions:
1. Develop an action plan to assess the Monitoring Program and formulate appropriate recommendations to improve its effectiveness on an annual basis.
2. Update internal guidelines to reflect changes to the program, if any.
Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to determine whether the IRS’ screening and
monitoring of its e‑file Providers
is effective. To accomplish this objective, we:
I.
Assessed the effectiveness of the IRS corrective
actions to confirm Not-for-Profit organizations’ claims and ensure applicants
are
A. Determined if the IRS’ corrective actions to confirm the Not-for-Profit status of existing e-file Providers were adequate. We selected a statistically valid sample of 97 of the 13,797 Not-for-Profit organizations that were active as of August 2009 from an extract of the Third Party Data Store.[17] The sample was selected based on a 10 percent error rate, 5 percent precision rate, and 90 percent confidence level. To validate the Third Party Data Store information, we selected six EFINs[18] from the extract and validated the extract information to printouts from the Third Party Data Store.
B. Determined if the IRS has an effective process to ensure new e-file Provider applicants selecting Not-for-Profit status are, in fact, Not-for-Profit organizations.
C. Determined
if the corrective actions taken by the IRS to confirm that existing e‑file Providers are
D.
Determined if the IRS has an adequate process to ensure
new e-file Provider applicants are
II. Assessed the effectiveness of the IRS’ corrective actions to ensure the e-file Program monitoring process is effectively identifying those e-file Providers that are not in compliance with Program requirements.
A. Judgmentally
selected and performed field visits at three of seven e-file Monitoring Coordinator offices (
1. Assessed the effectiveness of the process followed for selecting e-file Providers for monitoring visits by interviewing appropriate IRS personnel and obtaining a list of the visits conducted during the 2009 Filing Season to determine if the selection process included referrals, targeted visits, and random visits based on the e-file Program requirements.
2. Determined if the e-file Monitoring Coordinators correctly reported the results of the monitoring visits.
3. Determined if mandatory followup visits were conducted.
4. Determined if referral visits were conducted.
5. Determined if recommended disciplinary actions were correctly taken.
6. Determined if the IRS maintains adequate documentation supporting an e‑file Provider’s request for an appeal, as well as documentation supporting the review and outcome of an appeal.
7. Determined if the Monitoring Coordinators are using information from the Criminal Investigation Division to improve the screening checks and monitoring selection criteria of e‑file Providers.
B. Determined what the IRS does with the information gathered during the monitoring visits to improve the e-file Program.
C. Reviewed the effectiveness of the IRS’ e-file Provider monitoring process and identified any control breakdowns, assessed the risk for fraud, and attempted to assess the impact on taxpayers and the IRS.
Internal controls methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined the following internal controls were relevant to our audit objective: the IRS’ policies, procedures, and practices for verifying the citizenship status and Not‑for‑Profit status of e-file Program applicants and the monitoring of e-file Providers. We evaluated these controls by interviewing management, performing queries on related data, and reviewing case files.
Appendix II
Major Contributors to This Report
Michael E. McKenney, Assistant Inspector General for Audit (Returns
Processing and Account Services)
Augusta R. Cook, Director
Pamela DeSimone, Lead Auditor
Wilma Figueroa, Senior Auditor
Robert Howes, Senior Auditor
James Allen, Information
Technology Specialist
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Chief
Technology Officer OS:CTO
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:W:CP
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 and Refundable Credits, Wage and Investment
Division SE:W:ETARC
Director, Strategy and Finance, Wage and Investment Division SE:W:S
Senior Operations Advisor, Wage and Investment Division SE:W:ETARC
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: Chief, Program Evaluation and
Improvement, Wage and Investment Division SE:W:S:RPA:
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. This benefit will be incorporated into our Semiannual Report to Congress.
Type
and Value of Outcome Measure:
· Reliability of Information – Potential; 111,733 e-file Providers; 2,560 e-file Providers are improperly designated as Not-for-Profit organizations, 173 active e-file Providers did not have their citizenship status properly validated and may not meet the citizenship requirements of the e-file Program, and the IRS is unable to determine whether approximately 109,000 active e-file Providers meet the citizenship requirements of the e‑file Program (see page 5).
Methodology
Used to Measure the Reported Benefit:
As of August 2009, there were 13,797 e-file Providers designated as Not‑for‑Profit organizations. We selected a statistically valid sample of 97 of the 13,797 e-file Provider organizations designated as Not‑for‑Profit. The sample size was based on a 10 percent error rate, 5 percent precision rate, and 90 percent confidence level. We found that 18 (18.5567 percent) of the 97 Providers were improperly designated as Not-for-Profit organizations. Twelve (12.3711 percent) of the 97 Providers did not go through the suitability process required for all for-profit organizations. Based on the population of 13,797 e-file Providers designated as Not-for-Profit organizations, there is a potential that 2,560[20] of these e-file Providers were improperly designated as Not-for-Profit organizations and that 1,707[21] of these Providers did not go through the suitability process that is required for all for-profit organizations.
There were 961 active e‑file
Providers as of July 2009 who did not have a citizenship code of A (
The IRS performed a match of the 210,000 Social Security
Numbers of active e‑file Providers
as of June 2008 to the Social Security Administration’s DM-1 file. The results showed that 109,000 (52
percent) Social Security Numbers had a blank or unknown citizenship status on
the DM-1 file. For the 1,167 Social
Security Numbers that had a citizenship status other than a
Appendix V
Prior Treasury Inspector General for Tax
Administration Report Recommendations
|
Report Reference |
Recommendation |
Corrective Action |
|
2007-40-176 September 2007[23] |
Verify Not-for-Profit applicants are a
Not-for-Profit organization. |
Agreed – Procedures developed. |
|
|
Validate an applicant’s citizenship
status. |
Agreed – Reviewed the citizenship verification process and developed
a solution. |
|
|
Develop a process that ensures
established risk-based selection criteria is used to identify e-file Providers for monitoring
visits. |
Agreed – A “risk-based” selection criterion has been developed. |
|
|
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. |
Agreed – Clarified procedures
regarding followup visits. |
|
|
Develop a process to record the
receipt and disposition of referrals from internal and external sources. |
Agreed – Developed a process. |
|
|
Develop a process to ensure e‑file Provider privileges are
suspended, as appropriate, and removed from the e-file Program when they do not adhere to the e‑file Program requirements. |
Agreed – Developed a process. |
|
2007-40-176 September 2007 (continued) |
Develop procedures requiring the
maintenance of adequate documentation supporting an e‑file Provider’s request for an appeal and the review and
outcome of an appeal. |
Agreed – Clarified procedures. |
|
|
Develop a process to ensure management
information accurately reflects the results of the e-file monitoring program. |
Agreed – Process developed. |
|
|
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. |
Partially Agreed – Will study the feasibility of using results of
criminal cases involving e‑file
Providers to identify risk factors or indicators for the suitability
process. |
|
2004-40-013 November 2003[24] |
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 will not
occur before the |
|
|
For unprocessable fingerprint cards, a
name check should be used as the basis for the criminal background check. |
Agreed – Guidelines revised. |
|
|
Ensure individuals who provide
professional certifications are in current standing. |
Agreed – Revised IRS
e-file Application and Participation (Publication 3112) as well as
guidelines and procedures. |
|
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[25] |
Establish a goal and method for
measuring monitoring 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 a process for proper mix of random/mandatory visits
and a 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. |
|
2003-30-039 January 2003 (continued) |
Revise e-file
Program monitoring guidelines to consider Earned Income Tax Credit due
diligence when determining e-file
Provider compliance with e-file Program requirements. |
Agreed – Instructed Monitoring Coordinators to
pursue due diligence penalties when appropriate. |
|
|
Ensure complete case documentation is maintained. |
Agreed – Guidance issue. |
|
2002-40-111
June 2002[26] |
Screening procedures should
include an 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. E-file Program growth and return preparation for low-income
taxpayers would be adversely affected with checks at volunteer sites. |
|
|
Perform subsequent credit/criminal checks at regular
intervals. |
Disagreed – Report does not justify need. Regular monitoring of e-file Providers occurs, which ensures compliance with
rules. The audit report does not show
screening and monitoring processes produce negative results, which would
justify additional checks. |
|
|
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. |
Source: Prior Treasury
Inspector General for Tax Administration audit reports as cited.
Appendix VI
Management’s
Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
COMMISSIONER
WAGE AND
INVESTMENT DIVISION
MAR 10 2010
MEMORANDUM FOR MICHAEL R. PHILLIPS
DEPUTY INSPECTOR GENERAL FOR AUDIT
FROM: Richard Byrd. Jr. /s/Richard Byrd
Commissioner, Wage and Investment Division
SUBJECT: Draft Audit Report - The Screening and Monitoring of E-File Providers Has Improved, but More Work Is Needed to Ensure the Integrity of the E-File Program (Audit # 200940029)
Thank you for the opportunity to comment on the draft audit report concerning screening and monitoring of IRS electronic filing (e-file) Providers. Your report methodically details the many improvements in IRS' e-file screening and monitoring program since the Fiscal Year (FY) 2007 report' and identifies several process refinements which build upon these e-file Program advances. In brief, we agree with five of the six recommendations and, where appropriate, have delineated specific actions to further improve IRS' e-file screening and monitoring practices. Our concerns with Recommendation 3 on citizenship status are discussed in more detail below.
The integrity of the IRS e-file Program depends, in large
part, on the caliber of authorized IRS e-file Providers. Ensuring applicants
and authorized Providers fully satisfy IRS e-file requirements are vital to
Specifically, to strengthen IRS e-file Program screening processes, IRS will improve verification procedures for Not-for-Profit entities and implement automated suitability program criteria to include "alien, student, restricted work authorization". To improve IRS e-file Program monitoring practices, IRS has already implemented enhanced Electronic Filing Identification Number deactivation practices for Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites. Also, IRS will continue to improve e-file Provider monitoring visit management controls and reporting.
We do not agree with your recommendation to verify the citizenship status of all e-file Providers because it would create untenable e-file Program eligibility conflicts with impending IRS Return Preparer Review[28] and IRS e-file Mandate[29] provisions especially with respect to foreign preparer e-file Program participation. The IRS is currently evaluating ways to address these challenges under the auspices of the Return Preparer Implementation team. By May 2010, the Return Preparer team will recommend comprehensive Preparer eligibility standards that fully integrate Return Preparer Review and IRS e-file Program requirements.
In summary, we are committed to continually improving IRS e-file Provider screening and monitoring to ensure all Providers fully satisfy IRS e-file Program requirements. Attached are our specific comments to your recommendations. If you have any questions, please contact me, or a member of your staff may contact David Williams, Director, Electronic Tax Administration and Refundable Credits, Wage and Investment Division, at (202) 622-7990.
Attachment
Attachment
The Commissioner, Wage and Investment Division, should:
RECOMMENDATION 1
Ensure the Not-for-Profit status is verified for all e-file Program applicants.
CORRECTIVE ACTION
We agree with this recommendation. In 2008 and 2009, the Electronic Tax Administration (ETA) partnered with Not-for-Profit business owners to establish and implement formal procedures for validating existing Authorized IRS e-file Providers as Not-for-Profit services, including the establishment of Internal Revenue Manual (IRM) 3.42.10.12, Validating Not-for-Profit Business Activities. Going forward, ETA will implement the following steps to ensure continuing IRM 3.42,10,12 compliance: 1) Produce regular Not-for-Profit e-file applicant reports categorized by program types, including Volunteer Income Tax Assistance, Military, Tax Counseling for the Elderly, Tax Assistance Center, State Government Agency, Large Taxpayer, and Employee Benefit Program, 2) Validate with Not-for-Profit business owners that IRM 3.42.10.12 procedures are followed, 3) Perform regular quality reviews to identify IRM 3.42.10.12 deviations.
IMPLEMENTATION
DATE
November 15, 2010
RESPONSIBLE OFFICIAL
Director, Electronic Tax Administration and Refundable Credits, Wage and Investment Division
CORRECTIVE ACTION
MONITORING PLAN
We will monitor this corrective action as part of our internal management control system.
RECOMMENDATION 2
Ensure the citizenship status is verified for all new and existing e-file Program applicants, including updating the automated suitability program for new applicants to include "alien, student, restricted work authorization" as criteria for not meeting the citizenship check.
CORRECTIVE ACTION
We have already initiated programming changes to include the additional Citizenship Code E (alien, student, restricted work authority) to the existing Citizenship Analysis of the Automated Suitability Analysis Program. However, recent legislation mandating electronic filing for most return preparers will eventually require the IRS to change the current provider rules with respect to citizenship status.
IMPLEMENTATION
DATE
May 15, 2010
RESPONSIBLE
OFFICIAL
Director, Electronic Tax Administration and Refundable Credits, Wage and Investment Division
CORRECTIVE
ACTION MONITORING PLAN
We will monitor this corrective action as part of our internal management control system.
RECOMMENDATION
3
Ensure the citizenship status is verified for all e-file Providers who show a blank or unknown citizenship status in the DM-1 file.
CORRECTIVE
ACTION
We
cannot agree to this recommendation. In fact, recent legislation mandating electronic
filing for most return preparers will require the IRS to modify the current citizenship
rules. If this recommendation were implemented in concert with the e-file mandate,
it would effectively bar all foreign preparers from completing
While we share the Treasury Inspector General for Tax Administration's concern with the need to accurately verify information about e-file providers, the new law will require the IRS to change the current provider rules with respect to citizenship status. The IRS is currently evaluating ways to address this challenge under the auspices of the Return Preparer Implementation team which has a similar issue with respect to foreign-based preparers. Our goal is to develop a comprehensive and complimentary set of requirements for both e-file providers and return preparers. The team's current objective is to finish the policy development in this area by May 2010 and to then develop an implementation timeline.
IMPLEMENTATION
DATE
N/A
RESPONSIBLE
OFFICIAL
N/A
CORRECTIVE
ACTION MONITORING PLAN
N/A
RECOMMENDATION 4
Establish a process requiring the SPEC function to notify the Electronic Tax Administration and Refundable Credits office when a SPEC-related volunteer site is closed or becomes inactive so that office can deactivate the EFIN.
CORRECTIVE ACTION
We agree with this recommendation. The Stakeholder Partnerships, Education and Communication (SPEC) e-team coordinated with ETA and Submission Processing to develop guidance on deactivating a Volunteer Income Tax Assistance Tax Counseling for the Elderly (VITA/TCE) Electronic Filing Identification Number (EFIN). During Fiscal Year (FY) 2009, SPEC began deactivating EFINs when a site was closed for non-compliance with its Quality Site Requirements. This action was expanded to include sites that are closed by partner choice or due to termination of SPEC's support (such as SPEC no longer providing computers or software). In addition, on January 28, 2010, SPEC issued Policy Directive 22.30.1-09.1, which stated effective immediately, a VITA and/or TCE EFIN will be deactivated when a partner refuses to comply with SPEC's Quality Site Requirements and when sites are closed as a result of partner choice or termination of SPEC support. The request for deactivation is made through the Andover Campus. This process serves as notification to ETA regarding EFIN deactivation.
IMPLEMENTATION DATE
Completed January 28, 2010
RESPONSIBLE OFFICIAL
Director, Stakeholder Partnerships, Education, and Communication, Wage and Investment Division
CORRECTIVE ACTION MONITORING PLAN
N/A
The Commissioner, SB/SE Division, should:
RECOMMENDATION 5
Implement controls to ensure that the monitoring visit procedures are being followed.
CORRECTIVE ACTION
We agree with this recommendation. A conference call was held during the current filing season on February 3, 2010, with our Area Coordinators and their managers. Topics included re-emphasis of current procedures for monitoring the program and changes to final report requiring the results of all visitations including the type of violation and method of disposition. In addition, final reports will require managerial approval before submission to Headquarters.
We will take the additional following corrective actions:
IMPLEMENTATION
DATE
RESPONSIBLE
OFFICIAL
Director, Examination Policy, Small Business/Self-Employed Division
CORRECTIVE
ACTION MONITORING PLAN
The Director, Examination Policy, Small Business/Self-Employed Division (SB/SE) will advise the Director, Examination SB/SE of any delays in implementing this corrective action.
RECOMMENDATION
6
Ensure information reported to SB/SE Division Headquarters is accurate and the results of the monitoring visits are used to improve and measure the effectiveness of the e-file Program.
CORRECTIVE
ACTION
We agree with this recommendation. A conference call was held during the current filing season on February 3, 2010, with our Area Coordinators and their managers. Topics included re-emphasis of current procedures for monitoring the program and changes to final report requiring the results of all visitations including the type of violation and method of disposition. In addition, final reports will require managerial approval before submission to Headquarters.
We will take the additional following corrective actions:
IMPLEMENTATION DATE
RESPONSIBLE OFFICIAL
Director, Examination Policy, Small
Business/Self-Employed Division
CORRECTIVE ACTION MONITORING PLAN
The Director, Examination Policy, SB/SE will advise the Director, Examination SB/SE of any delays in implementing this corrective action.
[1] 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).
[2] 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.
[3] For those applicants accepted to participate in the e‑file Program, the IRS assigns an Electronic Filing Identification Number. This number allows the IRS to identify a specific Authorized e-file Provider.
[4] The data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to taxpayer accounts.
[5] The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.
[6] 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.
[7] 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), Improvements to the Electronic Return Originator Monitoring Program Are Needed (Reference Number 2003‑30-039, dated January 15, 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 3, 2003), and E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 27, 2002).
[8] The Registered User Portal allows access to the IRS’ e-Services suite of applications.
[9] Additional Security Is Needed for Access to the Registered User Portal (Reference Number 2010-20-027, dated March 31, 2010).
[10] A Power of Attorney is a written authorization to act on someone else’s behalf in a legal or business matter.
[11] The SPEC function is responsible for the IRS’ Volunteer Program, which provides no-cost Federal tax return preparation and electronic filing directed toward underserved segments of individual taxpayers, including low‑income to moderate-income, elderly, disabled, and limited-English-proficient taxpayers. The Volunteer Program includes the Volunteer Income Tax Assistance Program, the Tax Counseling for the Elderly Program, and the Volunteer Income Tax Assistance Grant Program.
[12] The identification number of the Volunteer Program tax preparation assistance site.
[13] Companies that file their own tax returns electronically.
[14] Employers who choose to offer electronic filing as an employee benefit.
[15] IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer’s account records.
[16] The Individual
Taxpayer Identification Number was created to provide individuals who are not
eligible to obtain a Social Security Number with an identification number for
tax purposes. It does not change the
recipient’s immigration status or confer the right of employment in the
[17] A database that is used to store and update all IRS e-file application information and generate electronic filing and transmitting identification numbers, letters, and reports. The database is also used to store information for other e‑Services products as well.
[18] For those applicants accepted to participate in the e‑file Program, the IRS assigns an EFIN. This number allows the IRS to identify a specific Authorized e-file Provider.
[19] IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer’s account records.
[20] 13,797 x 18.5567 percent = 2,560.
[21] 13,797 x 12.3711 percent = 1,707.
[22] 961 x 18 percent = 173.
[23] 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).
[24] Improvements Are Needed in
the Screening and Monitoring of E-File Providers to Protect Against Filing
Fraud
(Reference Number 2004-40-013, dated November 3, 2003).
[25] Improvements to the Electronic Return
Originator Monitoring Program Are Needed (Reference
Number 2003‑30‑039, dated
January 15, 2003).
[26] E-File Providers Are Not Adequately Screened (Reference Number 2002-40-111, dated June 27, 2002).
[27]
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).