The IRS has again failed the American taxpayer!
Tax preparers are required to obtain a Preparer Tax Identification Number (PTIN) from the IRS. PTINs, if used effectively, can be a very valuable resource used by the IRS to help it identify unscrupulous taxpayers and tax preparers.
The IRS has an office called the “Return Preparer Office” (RPO) whose mission is “To improve taxpayer compliance by providing comprehensive oversight and support of tax professionals.” One of RPO’s goals is to “Register and promote a qualified tax professional community.”
The Treasury Inspector General for Tax Administration (TIGTA) reported on Oct. 9 that 19,496 tax preparers who were given PTIN numbers by the IRS and allowed to practice in 2015 may have not filed their own tax returns and may have owed more than $367 million in taxes. The report focused on the IRS RPO’s practice of issuing and renewing PTINs first and asking questions about tax compliance later. TIGTA said this means that some preparers are doing other people’s taxes while not paying their own. The inspector general said the IRS has the authority to base the assignment of PTINs on tax compliance checks, but has opted instead to assign or renew PTINs before it checks a preparer’s suitability.
The TIGTA report identified 3,055 preparers who failed to file required tax returns for one or more tax years, eight tax return preparers who failed to file returns for five years, and one who failed to file returns for six years. While there is a RPO process to identify noncompliant return preparers, no actions were taken to resolve those cases according to TIGTA.
How did the IRS’s respond to this report? The IRS’s RPO response, which was included in the report, said there is no requirement in Treasury regulations that makes tax compliance a condition for getting a PTIN. (So it’s okay for the IRS to overstep its authority when it suits the IRS, but when it comes to protecting the American taxpayer from unscrupulous tax preparers, the IRS wants Congressional authority.) It gets worse – the IRS RPO office said that “Securing delinquent tax returns and collecting unpaid taxes from delinquent preparers is the Wage and Investment and Small Business/Self Employed Division’s job. Any RPO process would be supplemental and secondary.” We can only surmise that it would have been too much to ask of the RPO to cross check its database with that of another IRS department. The IRS added that 97 percent of all active PTIN holders are compliant with their federal tax obligations, and only 3 percent of paid preparers have potentially delinquent accounts.
The IRS did acknowledge in its response to the report that it did not timely revoke the PTINs of 65 confirmed prisoners and 15 individuals who were enjoined from preparing returns. Those 80 PTINs have now been revoked, it said. The error was attributed to one employee who “had an incomplete understanding of our procedures and didn’t take the appropriate closing actions in assigned cases.” (Perhaps this one person was ill the day the IRS held its Gilligan Island or Star Trek training programs). Based on the report’s recommendations, there will now be a quarterly match of all new PTIN applicants with the annual prisoner list. It is sad that the IRS sees this as an acceptable improvement step. As for TIGTA’s recommendation that the RPO ensure that tax compliance checks are completed in a timely way by issuing inquiry letters after noncompliance is identified, the RPO said it is conducting weekly tax checks on all PTIN holders. It will continue sending inquiry letters to preparers at the end of every filing season. Yes, you read that correctly, the IRS will send its letters of inquiry after the end of every tax season. The TIGTA report can be found HERE.
If you want to discuss your business or personal tax planning and tax preparation concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.