The Internal Revenue Service has not been revoking the Preparer Tax Identification Numbers of thousands of tax preparers who fail to comply with IRS rules and their own tax-filing and payment obligations, according to a new report.
The report, from the Treasury Inspector General for Tax Administration, pointed out the IRS has a Return Preparer Office, or RPO, that oversees tax preparers and has established processes and procedures to ensure they meet the requirements to obtain and renew a PTIN.
In January 2015, the RPO identified 19,496 preparers with PTINs who were potentially noncompliant with their tax-filing and payment obligations. These preparers had over $367 million in taxes due as of Jan. 26, 2015. In addition, the RPO identified 3,055 preparers who failed to file required tax returns for one or more tax years and eight tax return preparers who failed to file required tax returns for five years.
TIGTA’s review of PTIN holders as of Sept. 30, 2014, identified 3,001 preparers who self-reported a felony conviction on their application, while 87 reported a crime related to federal tax matters. TIGTA found, however, that processes do not ensure that PTINs assigned to prisoners or individuals barred from preparing tax returns are revoked. Specifically, the RPO did not revoke the PTINs assigned to 65 of 445 confirmed prisoners and 15 of 87 individuals who the IRS identified as barred from preparing tax returns.
Effective September 2010, the IRS issued regulations requiring preparers to register for a PTIN to be used to sign all tax returns prepared. As of April 1, 2015, more than 696,000 individuals were assigned an active PTIN for calendar year 2015.
The Return Preparer Office has established processes and procedures to ensure that individuals assigned a PTIN were at least 18 years of age, were not using identifying information associated with a deceased individual, and correctly reported professional credentials. In addition, the RPO ensured that individuals participating in the new Annual Filing Season Program met educational requirements and consented to be subject to the duties and restrictions of practicing before the IRS under Treasury Department Circular 230.
The voluntary program was initiated in an effort to ensure that unlicensed tax return preparers have a basic competency level and adhere to professional standards. The IRS introduced the voluntary program after a federal court ruled the agency exceeded its statutory authority when it tried to impose a requirement for competency testing and continuing education for tax preparers.
TIGTA recommended the IRS complete tax compliance checks by issuing inquiry letters to preparers on a timely basis after identifying noncompliance with federal tax laws and take appropriate actions to revoke PTINs when warranted. The IRS should also assess all self-reported felony convictions and revoke PTINs when warranted, ensure that review processes are followed to revoke PTINs for incarcerated and enjoined tax return preparers, and complete the prisoner check quarterly and revoke prisoners’ PTINs as warranted, the report suggested.
The IRS agreed with three recommendations and partially agreed with another. In response to the second recommendation, the IRS said it plans to continue assessing self-reported felony convictions of enrolled agents and Annual Filing Season Program applicants. TIGTA said it believes the IRS should assess the self-reported felony convictions of all tax return preparers who disclose this information on their PTIN applications and revoke PTINs when warranted.
“We appreciate TIGTA’s recognition that the majority of PTIN processes and procedures are consistent with program requirements, requirements for participation in the Annual Filing Season Program are being adhered to, and listings in our first Directory of Federal Tax Return Preparers with Credentials and Select Qualifications are accurate,” wrote Carol Campbell, director of the IRS’s Return Preparer Office, in response to the report. “Given that more than 700,000 preparers have active PTINs, 44,000 preparers participated in the Annual Filing Season Program and more than 300,000 preparers are listed in the new Directory, this is not a small undertaking. Ensuring that program requirements are met and that the information in our systems is accurate requires a significant investment of time and resources, and confirmation that we are doing well with these efforts is gratifying.”
Campbell confirmed TIGTA’s finding that 65 prisoners, and 15 enjoined preparers whose PTINs should have been revoked, nonetheless retained active PTINS. But she said the error had been corrected and the 80 PTINs have been revoked. She attributed the error to one employee who had an incomplete understanding of the RPO’s procedures and did not take the appropriate actions in those cases. The RPO has now added more quality controls, conducted refresher training for all employees and is doing quality reviews and managerial reviews. In addition, based on TIGTA’s recommendation, her office has instituted a quarterly match of all new PTIN applicants with the annual prisoner list to prevent inmates filing tax returns from behind bars, typically with the stolen identities of other inmates.
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