IRS Lax in Enforcement Against Tax Preparers

The Internal Revenue Service is not doing enough to crack down on tax preparers who use illegal tax shelters and to keep track of complaints against them by clients, according to two new reports.

The Treasury Inspector General for Tax Administration issued the reports to assess whether the IRS’s Office of Professional Responsibility is taking action against unlicensed tax practitioners who have employed abusive tax shelters, and whether the process used by taxpayers to report complaints against paid tax preparers is effective. The OPR is able to impose disciplinary actions against practitioners through private or public reprimand, suspension or disbarment.

In the first report, TIGTA found that IRS divisions are not consistently referring to OPR licensed practitioners who have been assessed penalties, sentenced in a criminal proceeding, or enjoined for tax shelter violations. As a result, these tax practitioners were still eligible to represent taxpayers before the IRS. Taxpayers who use a licensed tax practitioner who has been identified by the IRS for tax shelter violations could face additional taxes, penalties and interest.

“Abusive tax shelters continue to present formidable challenges to the IRS,” said TIGTA inspector general J. Russell George in a statement. “The IRS agreed with TIGTA’s recommendations to improve its procedures for referring to OPR licensed tax practitioners who have been identified by the IRS for tax shelter violations for appropriate disciplinary action.”

In the second report, TIGTA concluded that the IRS cannot determine how many complaints against paid preparers it receives, how many complaints it works, and the total number of multiple complaints against a specific firm or preparer. The IRS’s guidelines on how to file a complaint are difficult to understand and IRS employees do not consistently provide taxpayers with sufficient information or what information to include in a complaint. As a result, many complaints cannot be investigated. The IRS does track some complaints filed by taxpayers against tax practitioners, such as CPAs, attorneys and enrolled agents, but complaints against unlicensed and uncertified preparers are not tracked.

TIGTA recommended that the IRS improve the guidance provided to taxpayers about the complaint-filing process and develop a form, both Web-based and paper-based, for use by taxpayers in filing preparer complaints. The IRS said it would clarify the preparer complaint information posted on its IRS.gov site and agreed to review the complaint process.