IRS Has Trouble Tracking Paid Tax Preparers

The Internal Revenue Service cannot easily keep track of the activities of paid tax preparers, nor of their compliance with tax laws, according to a new report by the Treasury Inspector of Tax Administration.

To track their activities, TIGTA recommended that the IRS should require paid preparers to use unique identification numbers when filing their clients’ tax returns. Preparers currently are required to identify themselves on tax returns they file on behalf of clients by using either their Social Security or Preparer Tax Identification Numbers. However, IRS data on the preparers is stored on 22 different systems that do not integrate with each other.

“The IRS currently is not able to track, monitor or control preparers’ activities and compliance, or even determine the total number of paid tax return preparers,” said TIGTA Inspector General J. Russell George in a statement. “As a result, the IRS currently is not capable of ensuring that paid preparers adhere to professional standards and follow the law.”

TIGTA found that tax preparers are using multiple ID numbers, making it difficult to keep track of them. Even when the IRS does have tracking data, it may not be accurate. Using a statistical sample of 139 tax preparers, TIGTA found that multiple identifying numbers were used by 93 of them. The names of the 139 preparers in various systems were inconsistent 45 percent of the time. There were inconsistencies in 24 percent of the preparers’ street addresses listed in the various systems, while telephone numbers varied 40 percent of the time. In 10 instances, IRS records showed the preparers were attorneys, although TIGTA’s research showed that only two of them were members of their state bar association. Seven preparers were listed as being both attorneys and CPAs, but TIGTA could verify that only one of them held both designations.

TIGTA also recommended that the IRS require tax return preparers to comply with their own federal tax-filing requirements, enforce existing penalties on preparers who do not provide identification numbers on the returns they prepare, and develop a database management system that would allow the IRS to identify all preparers.

In response to the report, the IRS said it would develop a preparer database and begin imposing penalties on preparers who do not provide identification numbers. It agreed in principle with TIGTA’s other recommendations.

The IRS also noted that it has recently launched a tax return preparer review that is expected to cover a broad range of areas. “By the end of this year, the commissioner intends to propose a comprehensive set of recommendations designed to better leverage the tax return preparer community with the service’s dual goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers,” wrote IRS Small Business/Self-Employed Division Commissioner Christopher Wagner in a letter to TIGTA.

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