Treasury Inspector General for Tax Administration
September 25, 2014
TIGTA - 2014-23
Contact: David Barnes
WASHINGTON – The Internal Revenue Service (IRS) could improve its selection of problematic paid preparers for further enforcement actions, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA.)
Since the majority of individual taxpayers pay someone to prepare their tax returns – nearly 60 percent of all individual taxpayers in 2013 – paid preparers’ impact on tax compliance can be significant. While most paid preparers can be trusted, a troublesome few have intentionally manipulated tax return information to generate excessive refunds for taxpayers, modified tax returns after the taxpayers signed them to steal the refunds, or used taxpayer identities to create fictitious returns to generate fraudulent refunds.
The Return Preparer Office coordinates the IRS’s strategy to provide oversight of noncompliant paid preparers with demonstrated patterns of preparing inaccurate tax returns. Return Preparer Coordinators in the Area Offices are the key control to ensure that the Examination function implements its part of the IRS’s Return Preparer Strategy.
The objective of TIGTA’s review was to determine if opportunities exist to enhance the compliance efforts of Return Preparer Coordinators.
TIGTA found that the IRS’s Return Preparer Coordinators effectively managed most of the paid preparer activities under their control and provided good audit leads for further enforcement actions. However, more actions could be taken to ensure that the Return Preparer Coordinators timely review referrals with allegations of inappropriate paid preparer behavior and that the referrals and complaints are shared among the various functions responsible for reviewing them.
TIGTA reviewed 2,134 paid preparer referrals received by three Area Offices during Fiscal Years 2010 through 2012, finding that the Return Preparer Coordinators had not evaluated 722 referrals (34 percent) to determine if a preparer case was warranted. This resulted primarily from limited resources and ineffective controls. In addition, due to a lack of guidance, many of the complaints processed by the Return Preparer Office are not shared with the Return Preparer Coordinators.
“Since the majority of individual taxpayers now rely on others to prepare their income tax returns, preparer accuracy, integrity, and reliability have never been more important,” said J. Russell George, Treasury Inspector General for Tax Administration. “The IRS must do everything it can to enforce the law and protect the taxpayer against inaccurate or fraudulent return preparation.”
TIGTA recommended that the IRS develop inventory controls and timeliness standards for the referral process to help ensure that problematic paid preparers are identified and considered for further enforcement actions. In addition, TIGTA recommended that the Small Business/Self-Employed Division work with the Return Preparer Office to develop a methodology for sharing information on paid preparer referrals and complaints to improve the identification of the most egregious paid preparers for further enforcement actions.
In their response to the report, IRS officials agreed with both recommendations and plan to take appropriate corrective actions.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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