IRS should toughen e-file monitoring

Washington, D.C.

The Internal Revenue Service needs to screen and monitor electronic filing providers more carefully, according to a new report from the Treasury Inspector General for Tax Administration, which found that while the IRS has an effective process for ensuring applicants meet age requirements and have no tax compliance issues, TIGTA found that the IRS is not consistently verifying that new applicants are U.S. citizens or legal aliens authorized to work in the United States.

As of June 21, 2009, there were 207,419 electronic return originators who e-filed about 61 million (66 percent) of the approximately 92 million e-filed tax returns accepted in 2009. To become an e-file provider, an applicant must meet required screening and verification checks. Applicants must be U.S. citizens or legal aliens and at least 21 years of age. An applicant who is not an attorney, CPA or enrolled agent must supply a fingerprint card, which is used to conduct a criminal background check.

The report found that the IRS also needs to verify that some e-file providers claiming nonprofit status are indeed nonprofit organizations. Nonprofits are excluded from all e-file program requirements and suitability checks that for-profit organization must complete. The IRS did not verify the nonprofit status of some e-file providers participating in the IRS's Volunteer Program. The Volunteer Program provides no-cost federal tax return preparation and e-filing services to low- and moderate-income taxpayers who are elderly, disabled or have limited English proficiency.

TIGTA also found that the IRS does not always follow its procedures for monitoring e-file providers, such as properly identifying e-file providers for site visits, conducting follow-up visits or reporting trends to the IRS's Criminal Investigation Division to discuss issues or problems.

The IRS agreed with all but one of TIGTA's six recommendations. It disagreed with the recommendation that it verify citizenship because of concerns that pending legislation mandating e-file for most return preparers would require the IRS to modify current citizenship rules. TIGTA said the IRS should continue to ensure that all U.S.-based e-file providers should have a valid Social Security number and pass a citizenship test. AT

The Internal Revenue Service needs to screen and monitor electronic filing providers more carefully, according to a new report from the Treasury Inspector General for Tax Administration, which found that while the IRS has an effective process for ensuring applicants meet age requirements and have no tax compliance issues, the agency is not consistently verifying that new applicants are U.S. citizens or legal aliens authorized to work in the United States.

As of June 21, 2009, there were 207,419 electronic return originators who e-filed about 61 million (66 percent) of the approximately 92 million e-filed tax returns accepted in 2009. To become an e-file provider, an applicant must meet required screening and verification checks. Applicants must be U.S. citizens or legal aliens and at least 21 years of age. An applicant who is not an attorney, CPA or enrolled agent must supply a fingerprint card, which is used to conduct a criminal background check.

The report found that the IRS also needs to verify that some e-file providers claiming nonprofit status are indeed nonprofit organizations. Nonprofits are excluded from all e-file program requirements and suitability checks that for-profit organization must complete.

The IRS did not verify the nonprofit status of some e-file providers participating in the IRS's Volunteer Program. The Volunteer Program provides no-cost federal tax preparation and e-filing services to low- and moderate-income taxpayers who are elderly, disabled or have limited English proficiency.

TIGTA also found that the IRS does not always follow its procedures for monitoring e-file providers, such as properly identifying e-file providers for site visits, conducting follow-up visits or reporting trends to the IRS's Criminal Investigation Division to discuss issues or problems.

The IRS agreed with all but one of TIGTA's six recommendations. It disagreed with the recommendation that it verify citizenship because of concerns that pending legislation mandating e-file for most return preparers would require the IRS to modify current citizenship rules. TIGTA said the IRS should continue to ensure that all U.S.-based e-file providers have a valid Social Security number and pass a citizenship test.

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