In response to a recent government
report, the IRS will be improving its procedure for determining and enforcing
penalties on paid tax preparers.
The report from the Treasury
Inspector General for Tax Administration was requested by the IRS Oversight
Board to determine how effective the IRS is in using the existing requirements
and penalty regime that applies to unenrolled paid tax return preparers. The
overall objective was to determine whether controls are in place to ensure that
the IRS effectively enforces and applies penalties to paid preparers as
required by Internal Revenue Code Section 6694, which provides penalty
standards for paid preparers who take unreasonable positions or intentionally
prepare inaccurate tax returns.
TIGTA reviewed a statistical sample
of 98 closed Section 6694 preparer penalty cases from a population of 2,345
cases with penalties totaling $9.35 million that were closed during fiscal
years 2009 through 2011. In eight cases, the immediate managers did not
properly approve $19,000 in preparer penalty assessments as required.
Section 6751(b) requires that no
penalty shall be assessed unless the initial determination of such assessment
is personally approved in writing by the immediate supervisor. The lack of
proper approval could hinder the IRS’s ability to successfully litigate these
penalty assessments in court if necessary. When this issue was brought to their
attention, IRS officials took immediate corrective actions by emphasizing the
importance of properly approving, in writing, preparer penalty assessments.
TIGTA also analyzed the IRS’s
quality reviews for civil penalty determinations to evaluate whether preparer
penalties were properly considered and documented. IRS quality reviewers found
that examiners did not always adequately document the examination case files
with the facts that supported whether or not they considered paid preparer
penalties. This appeared to be attributable to management’s interpretation of
procedures regarding proper documentation in the examined cases.
In addition, TIGTA analyzed the
Master File to determine whether the IRS is effectively enforcing paid preparer
penalties, and found that current enforcement practices do not treat paid
preparers with unpaid penalties as a priority, which could impact whether
penalties achieve their intent of changing preparer behavior and increasing
voluntary compliance.
TIGTA recommended that the IRS
update the Internal Revenue Manual and implement improvements to ensure that
managers and employees adhere to internal procedures for documenting actions
and results in the preparer penalty case files. TIGTA also recommended that the
IRS develop procedures to expedite assigning Section 6694 preparer penalty tax
accounts to a revenue officer, as well as to give more consideration before
suspending collection actions on these types of accounts.
IRS officials agreed with all of the
recommendations and said that they plan to take corrective actions.
Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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