The IRS could improve the way it picks problematic paid preparers for further enforcement actions, according to a recent report.
The report was the result of a review conducted by the Treasury Inspector General for Tax Administration of the activities of the return preparer coordinators of the IRS’s Return Preparer Office, who provide oversight of paid preparers with patterns of preparing inaccurate returns.
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, TIGTA observed.
“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,” TIGTA said.
The inspector general 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 Inspector General J. Russell George, in a statement. “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.
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