Over the last year, we have extensively covered issues relating to the IRS’s efforts to leverage preparers to combat the tax gap. Post-Loving, in the last couple of months there are many interesting developments relating to practitioners. In this brief post, I highlight some of the developments and point to some areas where we are likely to see some more developments.
read more...Earlier today I saw the link on Tax Prof to the 60 Minute piece where a federal prosecutor complained about how easy it is for preparers to get id numbers to prepare and electronically file tax returns. The point the prosecutor made was that the lack of barriers to entry made it easier for those who wish to game the system and juice up phony refund bloated returns.
TIGTA also recently released a report criticizing IRS’s failure to manage the flow of complaints relating to preparer misconduct. The TIGTA report, which did describe some progress IRS has made in its processing and review of potentially misbehaving preparers, also showed that IRS is not fully using the information it has to combat preparer misconduct. Juxtaposing that with the IRS’s efforts to expand its oversight through testing and education does not lead to a pretty picture and opens IRS up to criticism along the lines of the following: IRS has information and powers at its disposal; IRS is failing to use either properly; IRS should at least manage what it has before expanding powers and imposing costs on preparers and taxpayers
Tax Girl has a nice discussion of the class action suit alleging the IRS has improperly collected user fees from preparers seeking initial or renewed PTINs. The user fees were imposed ostensibly to help defray the costs of the thrown-out unlicensed preparer education and testing regime.
Last month IRS released National Research Project compliance data as it relates to EITC returns; I wrote about that here. The information in that report relating to preparers is interesting, though incomplete. The report details higher error rates associated with unenrolled preparers, the class of preparers the IRS has sought to impose additional oversight, and the group likely most impacted by the IRS’s voluntary plan that the AICPA has challenged in federal court.
Moreover, as we discussed this past July, in Ridgely v. Lew a federal district court relied on Loving to invalidate Treasury Circular 230 10.27 insofar as it prevents the charging of contingent fees for refund claims practitioners charge for preparing and filing refund claims after an original filing and before the Service has commenced an audit. The recent ABA Tax Section meeting in Denver had a panel discussing the case and its potentially broad implications on OPR oversight of practitioner activities. We hope to highlight some of the panel’s insights in the near future.
What to make of the above developments? The judicial spotlight is on IRS and OPR, with courts likely weighing in on the legality of IRS actions with respect user fees and the reach of Circular 230, with Congress on the sideline unless it resolves what it views as the appropriate IRS role when it comes to preparers. Stay tuned, as preparers are still in the tax administration spotlight.
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And today there is yet another TIGTA report showing that whatever powers IRS already has to regulate tax preparers, it lacks the resources and skills to use them:
TIGTA reviewed 2,134 paid preparer referrals received by three Area Offices during Fiscal Years 2010 through 2012 and found that the Return Preparer Coordinators had not evaluated 722 referrals (34 percent) to determine if a preparer case was warranted. This resulted primarily from limited resources and ineffective controls. In addition, due to a lack of guidance, many of the complaints processed by the Return Preparer Office are not shared with the Return Preparer Coordinators