Better controls are needed to ensure tax preparers filing electronically are complying with new preparer regulations, according to a report released Thursday by the Treasury Inspector General for Tax Administration.

More than one-half of all tax preparers pay someone to prepare their federal income tax returns every year. During the 2011 filing season, 90 percent of the 66.9 million individual federal income returns prepared by paid return preparers were e-filed.

TIGTA’s report was in response to the IRS’s new e-file mandate that, grouped with other reforms, introduced new oversight responsibilities for the IRS over the regulation of tax preparers, which were previously mostly unregulated.

TIGTA found determining preparers’ compliance with the e-file mandate to be difficult, given the continued use of multiple Preparer Identification Numbers that complicate the matching of tax returns to the preparers that filed them. Overall, TIGTA did find more preparers e-filed during the 2011 filing season and that there are ongoing improvements for effective controls and validations in the preparer registration process.

Additionally, TIGTA reported that more than 300 prisoners received PTINS and 43 PTIN applicants are serving life sentences and received active/provisional PTINs. While current regulations do not prohibit prisoners from registering and obtaining PTINs, the IRS has since decided to no longer issue PTINs to prisoners and suspend those that have been issued.

"While the e-file mandate for paid preparers is helping the IRS with its goal to electronically receive 80 percent of individual tax returns by Calendar Year 2012, our review found that improvements are necessary to be sure that there is sufficient oversight over the use of PTINs and to ensure preparers' compliance with all aspects of the new e-file requirements," said J. Russell George, the treasury inspector general for tax administration, in a statement.

The IRS plans a “soft” approach of educating and collaborating with preparers in the fist few years of implementing e-file requirements, with improvements underway for the controls and system validations over the preparer registration process.

The IRS agreed with the recommendations offered by the TIGTA report to improve implementation of the e-file mandate, stating that corrective actions have been taken or are planned.

The full TIGTA report is available in PDF form here


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