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MSP #8: RETURN PREPARER OVERSIGHT

Taxpayers Are Harmed by the Absence of Minimum Competency Standards for Return Preparers

 

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #8-1

Conduct a robust outreach and education campaign on how to report suspected violations of Circular 230, with the targeted recipients of these outreach and education efforts to include taxpayers, tax professionals, and IRS employees.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement TAS recommendation in full.

The IRS intends to effect outreach and education efforts through the Office of Professional Responsibility’s Outreach Communications Plan to internal and external stakeholders. In addition, the Return Preparer Office and Stakeholder Liaison conduct outreach and education to return preparers, taxpayers, tax professionals, and IRS employees via the Servicewide Preparer Strategy.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: Outreach and education on how to report Circular 230 violations are important taxpayer protection measures. They will become even more important if Congress legislates minimum competency standards for return preparers and subjects non-credentialed return preparers to the standards of conduct in or similar to Circular 230.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #8-2

Strengthen its taxpayer awareness campaign immediately before and during the filing season to ensure that taxpayers understand what to expect from their return preparer (e.g., sign return, provide PTIN, furnish copy of return) and where to report preparers who violate the requirements.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in part.

In April 2022 the IRS finalized the Servicewide Preparer Strategy (SWPS) Communication Plan. The SWPS Communication Plan outlines the IRS’s intent to facilitate return preparer compliance through communication with return preparers and industry groups as well as taxpayers, using a variety of communication channels designed to reach these audiences where they are, such as IRS.gov, news releases, social media, filing season outreach, etc. To effectuate the SWPS Communication Plan, Stakeholder Liaison has engaged in filing season awareness campaigns targeted to business taxpayers through various industry organizations and individual taxpayers through community-based organizations. New for filing season 2023 are two related publications — P4717, Help your preparer get your tax return right, and P5610, How to Report Suspected Abusive Tax Promotions or Preparers. We will continue to monitor the results of the SWPS Communication Plan and filing season awareness campaign to determine if those efforts are effectively meeting our goals. These efforts and actions taken in accordance with the SWPS Communication Plan are relatively new and therefore it is premature to conclude that additional actions are necessary to strengthen the SWPS Communication Plan and filing season awareness campaign. However, the IRS will continue to monitor the effectiveness of our communications efforts in this space and implement improvements if determined necessary.

CORRECTIVE ACTION: We will continue to monitor the results of the SWPS Communication Plan and filing season awareness campaign to determine if those efforts are effectively meeting our goals. These efforts and actions taken in accordance with the SWPS Communication Plan are relatively new and therefore it is premature to conclude that additional actions are necessary to strengthen the SWPS Communication Plan and filing season awareness campaign. However, the IRS will continue to monitor the effectiveness of our communications efforts in this space and implement improvements if determined necessary.

TAS RESPONSE: IRS communications to taxpayers about return preparer issues both before and during the 2023 filing season were noticeably more comprehensive this year. It is encouraging that the IRS’s Servicewide Preparer Strategy Communication Plan incorporates a variety of communication channels to reach taxpayers where they are and, most importantly, plans to evaluate the effectiveness of such communications and adjust accordingly.

Update: TAS reviewed this recommendation and IRS has satisfied this recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): 

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3.

TAS RECOMMENDATION #8-3

Prioritize the assessment and collection of the IRC § 6695 return preparer penalties, especially the IRC § 6695(b) penalty for failure to sign the return and the IRC § 6695(c) penalty for failure to furnish a PTIN.

IRS RESPONSE TO RECOMMENDATION: ​IRS agrees to implement the TAS recommendation in part.

To prioritize the assessment of return preparer penalties, IRS implemented a Return Preparer Penalty Working Group (RPPWG) in SB/SE Examination, which began operations October 1, 2022. The group’s mission is to ensure return preparers understand and meet their programmatic compliance requirements and apply the tax law with integrity on behalf of their clients. The RPPWG is comprised of eight tax compliance officers and one dedicated return preparer coordinator. The group’s inventory consists of potential preparer violation referrals from SB/SE Field examiners, the Return Preparer Office, and internal data analytics. RPPWG examiners address return preparer penalties under IRC § 6694(a) and (b) and IRC § 6695(a) through (f), including penalties for failure to sign the return and failure to furnish a PTIN. Additionally, IRS Collection agrees with and currently prioritizes return preparer penalties as a “high-priority” for potential selection. Return preparer penalties are assessed by the Examination operations as a distinct liability of the preparer and contain unique civil penalty codes that align to sections of IRC § 6695. These civil penalty codes, along with other case attributes, are used to assign a “high-priority” for potential assignment by Field Collection.

CORRECTIVE ACTION: N/A – Actions have already been completed.

TAS RESPONSE: The recent implementation of the Return Preparer Penalty Working Group in SB/SE Examination is an important step. The prioritization of return preparer penalties in both Examination and Collection should effectively send a message to the return preparer community that the IRS is taking action against return preparer noncompliance. It is crucial that this message reaches the ghost preparer community to protect taxpayers from the harm this particular population of return preparers imposes.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A