4.1.10  Return Preparer Program Coordinator

4.1.10.1  (01-14-2011)
Overview of Return Preparer Program

  1. Each Area Planning and Special Programs (PSP) Territory Manager will designate staff members to coordinate on an area basis all SB/SE compliance aspects of the Return Preparer Program.

  2. The Area Return Preparer Coordinator (RPC) will be responsible for planning and coordinating the implementation of Area and National Headquarters Return Preparer Strategy.

4.1.10.1.1  (01-14-2011)
Area Return Preparer Coordinator Responsibilities

  1. The RPC will be responsible for:

    1. Planning and coordinating compliance activities related to return preparers with other functions, areas, and campuses.

    2. Ensuring uniformity in the application of the return preparer provisions by making himself/herself available to advise compliance personnel on penalty issues and through educational outreach activities.

    3. Monitoring activities of the Return Preparer Program and the application of civil preparer penalties, identifying problems within the program and notifying area offices and National Headquarters of appropriate solutions.

    4. Accumulate and maintain files on potentially abusive preparers from referrals received from area office functions, Electronic Return Originator (ERO) site visits, Earned Income Tax Credit (EITC) Due Diligence Visits, campus compliance and Criminal Investigation (CI) both area and campus.

    5. Accumulating, monitoring, and reporting all on-going penalty investigations.

    6. Communicating with the examiner and the fraud technical advisor (FTA) when a return preparer is in fraud development status (Audit Information Management System (AIMS) Status Code 17).

    7. Evaluate referral information for development of Program Action Cases.

    8. Chairing the area Preparer Steering Committee (PSC).

    9. Preparing summarization of potential Program Action Cases (PAC) for the area PSC.

    10. Preparing requests for PAC approval.

    11. Coordinating all compliance activity of income tax returns prepared by return preparers approved for program action.

    12. Reviewing preparer penalty cases closed by compliance.

    13. Working with Disclosure Office and Government Liaison to obtain leads from local state tax agencies on abusive preparers.

    14. Serving as the area contact with the Office of Professional Responsibility (OPR).

    15. Initiating compliance activity for certified public accountants (CPA), attorneys or enrolled agents who misrepresent their status before the Service.

    16. Serving as area contact with the Centralized Authorization File (CAF) unit.

    17. Interacting with the Criminal Investigation (CI) Field Office Return Preparer Program (RPP) Coordinator and the Scheme Development Centers (SDC).

    18. Initiating compliance activity under Rev. Proc. 81–38.

    19. Serving as liaison with Stakeholder Liaison and Stakeholder Partnerships, Education and Communication (SPEC) employees on programs/issues that impact return preparers.

    20. Other duties as assigned.

4.1.10.1.2  (01-14-2011)
Return Preparer Program Priorities

  1. The overall priority of the Return Preparer Program as part of the exam plan will vary from year to year. General priorities within the program are as follows:

    1. Program Action Cases - Development, approval, and delivery of local project work as the exam plan allows.

    2. National priority programs as developed including, but not limited to, National PAC Programs, EITC Due Diligence Program, and programs such as E-file Monitoring that have seasonal priority.

    3. Return Preparer Penalties - Employee education, assistance, monitoring, and reviewing of civil preparer penalties.

    4. Other Return Preparer Compliance activities including Rev. Proc. 81–38; 1981–2 C.B. 592, issues, CAF related issues, referrals to OPR, etc.

4.1.10.2  (01-14-2011)
Preparer Steering Committee

  1. In SB/SE each Area Planning and Special Programs (PSP) Territory Manager will establish a multi-functional PSC. See IRM 4.1.10.2.1 for SB/SE and IRM 4.1.10.2.2 for LB&I PSC members.

4.1.10.2.1  (01-14-2011)
Preparer Steering Committee -SB/SE

  1. The SB/SE preparer steering committee members should include the SB/SE - Return Preparer Coordinator(s), SB/SE - E-File Monitoring Coordinator(s) (EMC), SB/SE EITC Coordinator, Criminal Investigation (CI) - Questionable Refund Program Coordinator (QRPC), designated FTA and a representative designated by the Area Director, if desired.

  2. The PSC will be responsible for:

    1. Establishing communication between Planning and Special Programs, the CI Field Office RPP Coordinator, and the Campus Compliance RPC.

    2. Reviewing information, sample results, and referral to recommend approval of Program Action Case by the Territory Manager, PSP and the SB/SE Area Director.

    3. Periodically reviewing all active Program Action Cases and recommending continuation or termination.

    4. Reviewing all closed Program Action Case reports.

    5. Reviewing all Appeals of sanctions from the e-file monitoring program and recommend sustaining or rescinding the sanctions.

    6. Scheduling meetings as program needs demand.

    7. Contacting the designated FTA when a preparer case is presented to the PSC (if the FTA is not a member of the PSC) for consideration of a PAC and preparing Form 11661, Fraud Development Recommendation – Examination, if indicators of fraud warrant fraud development or affirmative acts of fraud have been established. See IRM 25.1.2, Recognizing and Developing Fraud.

    8. Preparing Form 2797, Referral Report of Potential Criminal Fraud Cases, when CI requests a preparer case that is presented to the PSC for consideration of a PAC. See IRM 25.1.3, Criminal Referrals.

4.1.10.2.2  (01-14-2011)
Preparer Steering Committee - LB&I

  1. The PSC members are the LB&I RPC, the RPC’s manager, the LB&I Office of Professional Responsibility (OPR) analyst, an Office of Tax Shelter Analysis (OTSA) representative, a representative of Financial Crimes (CI), and the impacted Industry Planning and Special Programs (PSP) analyst.

4.1.10.3  (01-14-2011)
Program Action Cases Overview (PAC)

  1. PACs are preparer investigations where clients of questionable preparers are examined to determine whether preparer penalties and/or injunctive actions against the preparers are warranted. If a preparer’s misconduct appears to be pervasive and not isolated to a single taxpayer, consideration should be given to opening a PAC.

  2. PACs should be limited to situations where information indicates a return preparer has engaged in a widespread practice of making material errors that demonstrates intentional misconduct or clear incompetence in preparing tax returns.

4.1.10.3.1  (01-14-2011)
PAC Inventory Sources

  1. PACs are originated using referrals and leads from a variety of sources:

    1. Form 3449, Referral Report, - internal referral report originating from within the Service.

    2. Referrals from Criminal Investigation.

    3. Inquiry Referral, Form 4442 - Taxpayer Service Assistors Referrals.

    4. Referrals from IRS's e-file Monitoring Visits.

    5. Referrals from EITC Due Diligence Program visits.

    6. Referrals from SB/SE Lead Development Center (LDC).

    7. Referrals from Campus processing.

    8. Referrals from OPR.

    9. Information Referrals, Form 3949-A, Information Referral, - Referrals from the public).

    10. Referrals of problem preparers identified during workload classification.

    11. Treasury Inspector General Tax Administration (TIGTA) assistance requests - TIGTA usually provides the returns that will be examined.

    12. Benford’s Law Analysis - used to identify problematic preparers.

    13. Referrals from Large Business & International (LB&I) and Tax Exempt and Governmental Entities (TE/GE).

    14. SDC Overflow - provided by SB/SE EPD Return Preparer Analyst.

    15. Return Preparer Analysis Tool (RPAT) – provided by SB/SE EPD Return Preparer Analyst.

    16. Corporate Fraud Program for Business Master File (BMF) problem preparers – provided by SB/SE EPD Return Preparer Analyst.

    17. Referrals from other sources.

4.1.10.3.1.1  (01-14-2011)
Routing of Return Preparer Referrals

  1. Referrals will be routed through IRS on one of two forms:

    1. Form 3949-A, received from the public.

    2. Form 13649 is used internally.

  2. Regardless of the form used, the routing process will be followed as reflected in IRM 4.1.10.3.1.1.1 below, and each office will make a determination about the referral within 30 days of receipt.

4.1.10.3.1.1.1  (01-14-2011)
Return Preparer Referrals Routing Priority

  1. CI will be allowed first review of all return preparer complaints received by the Service, with the exception of complaints filed with OPR. Upon receipt of the complaint, the CI Analyst responsible for reviewing the leads will make a decision as to the criminal potential of the lead. If the lead has insufficient criminal potential, then the lead will follow one of two paths for evaluation at the civil level:

    • If the main issue alleged in the complaint is abuse of the EITC, then the complaint will be forwarded to the HQ EITC Office in W & I .

    • If the main issue involves something other than EITC, then the complaint will be forwarded to the SB/SE LDC (go to paragraph 3).

  2. If the HQ EITC Office receives the lead first, but decides not to work it, they will forward the lead to the SB/SE LDC.

  3. If the LDC determines that the lead does not warrant an IRC 6701 investigation, then they will send it to the SB/SE Examination Planning and Delivery (EPD) Return Preparer HQ Analyst to be forwarded to the appropriate SB/SE Area RPC for further evaluation.

  4. Upon receipt of a referral, the SB/SE Area RPC will determine whether or not to accept the referral for a PAC investigation. If the area accepts the referral, the RPC will notify the EPD Return Preparer Analyst via e-mail that the referral has been accepted for PAC development.

  5. If the RPC declines the return preparer referral, the RPC will note the declination on the Form 13649 and provide the reason for the declination. The Form 13649 will then be routed back to the EPD Return Preparer HQ Analyst for inclusion in the next Servicewide Enforcement Preparer Strategy (SWEPS) team meeting agenda.

4.1.10.3.1.2  (01-14-2011)
Criminal Investigation Referrals

  1. Discontinued subject and closed primary return preparer investigations – provided by CI.

    1. All criminal investigations do not result in prosecution recommendations. SB/SE can accept for penalty consideration discontinued subject investigations and closed primary investigations. In addition, discontinued grand jury investigations can be referred as long as the referral does not contain grand jury information.

    2. To avoid delays in classification and assignment, these cases should not be referred as prime leads. Instead, upon closure of these investigations, the Special Agent in Charge (SAC) will forward a memorandum "Closed CI Investigation Forwarding Memo" with the scheme package and/or appropriate files through the designated Area Return Preparer Coordinator and e-mail a copy to the CI Office of Refund Crimes Management Analyst and the SB/SE EPD Return Preparer Analyst. Visit My SB/SE Return Preparer Contacts at http://mysbse.web.irs.gov/exam/tip/rp/contacts/default.aspx for e-mail and other contact information. See Exhibit 4.1.10-1, Closed CI Investigation Forwarding Memorandum, for sample memorandum.

    3. Pertinent non-grand jury information included with the Form 9131, Request for Grand Jury Investigation, will be used to refer discontinued grand jury investigation. Copies of returns should be included in the referral package. Originals should be returned to the proper campus.

4.1.10.3.1.3  (01-14-2011)
CI Request for a "Parallel" PAC

  1. A Parallel PAC is an investigation to assist in determining harm to the government from a return preparer who is the subject of an ongoing criminal investigation.

  2. CI usually provides the returns that will be examined.

  3. The request template (see Exhibit 4.1.10-2, CI Request for Audit Support Memorandum,) serves three functions:

    1. Request initiation of PAC in support of a criminal investigation involving return preparers.

    2. Determine the number of returns to be examined. See comment at paragraph 4 below regarding scope.

    3. Provide the name of the cooperating revenue agent on the criminal investigation (if assigned).

  4. The limit for the initial sample of returns to be audited under the PAC is 30. If extenuating circumstances exist, that require the initial sample to exceed 30 returns, please indicate the reason in the PAC Referral Request Letter. The PAC Referral Request Letter should be routed to the local SB/SE Return Preparer Coordinator who will initiate the audit process. See Exhibit 4.1.10-2, CI Request for Audit Support Memorandum.

  5. At the completion of the initial sample, SB/SE will determine if additional audits should be initiated and how they should be completed, i.e. correspondence audits, etc. Criminal Investigation will be notified by the SB/SE Return Preparer Coordinator of the audit results from the sampling and can provide input toward the determination of the civil plan for additional audits. The current list of SB/SE return preparer coordinators can be found at http://mysbse.web.irs.gov/exam/tip/rp/contacts/default.aspx.

  6. Criminal Investigation requests for additional audits must be approved by SB/SE‘s PSP. A PAC Referral Request Template, see Exhibit 4.1.10-2, Request for Audit Support Memorandum, can be used to request additional audits when it is necessary for the success of the criminal investigation. This template should not be used for Schedule-A deduction schemes. In those investigations, case agents should coordinate with their assigned Scheme Development Center analyst who will provide the referral information to The Management and Program Analyst, Refund Crimes.

  7. The Management and Program Analyst, Refund Crimes, is responsible for referring Schedule A client audits to W&I or SB/SE Campuses for correspondence audits. A duplicate request should not be sent to SB/SE PSP. Audit resources are extremely limited and CI must work with the examination function to optimize IRS resources. The following is a link to the SB/SE return preparer web site: http://mysbse.web.irs.gov/exam/tip/rp/default.aspx.

4.1.10.3.2  (01-14-2011)
PAC Development Factors

  1. The RPC should review available information about the preparer to determine if a PAC is warranted.

  2. Factors for consideration of PAC action should include, but not be limited to:

    • The egregious nature of the questionable conduct – i.e., does the preparer engage in a widespread practice of making material errors and/or demonstrate intentional misconduct.

    • The number of client taxpayers affected by the preparer’s conduct.

    • The post of duty in which the preparer is located and the examination group’s available resources.

    • The type(s) of returns involved (i.e. 1040) and the tax years available.

    • The dollar amounts and materiality of potential adjustments.

  3. Additional factors to be coordinated with PSP management include:

    • Exam Plan workload and planning needs.

    • Examination activity codes available in the PAC.

    • Area resources available.

    • Availability, type, and quantity of other priority examination work in the group or POD.

4.1.10.3.3  (01-14-2011)
Pre-PAC Contact with Criminal Investigation

  1. In SB/SE when a preparer has been identified for a potential PAC, the RPC must contact the local CI Return Preparer Coordinator and/or the CI Questionable Refund Coordinator to ensure that any civil action will not conflict with an open criminal investigation.

  2. In LB&I, when the return preparer’s activity warrants the initiation of a PAC, the RPC will contact the OTSA for coordination to ensure there is no conflict with an open criminal investigation or tax promoter investigation. The RPC will also coordinate with SB/SE to ensure there is no conflict.

4.1.10.3.4  (01-14-2011)
Lead Development Center (LDC) Clearance for PAC

  1. Because a return preparer can violate both IRC 6694 and IRC 6701, it is important that coordination between the RPC and the LDC occurs at various stages of the process. Before developing a PAC, the RPC will refer the preparer to the LDC using the LDC Referral form. See Exhibit 4.1.10-3, LDC Referral Form. The LDC will determine if IRC 6700 or IRC 6701 investigation is currently ongoing, if one should be initiated, or if none is planned.

    Note:

    Under IRC 6701(f)(2), no penalty shall be assessed under IRC 6694(a) or (b) on any person with respect to any document for which a penalty is assessed under IRC 6701(a).

  2. If an IRC 6700 or IRC 6701 promoter investigation has been approved or approval is pending, the PAC will NOT be developed and the RPC will provide support and evidence to the person conducting the investigation.

  3. If an IRC 6700 or IRC 6701 promoter investigation is not already approved or pending approval but there is indication of promoter activity, the LDC will review the lead on an expedited basis to determine if a promoter investigation is warranted. If so, the preparer will be approved as an IRC 6700 or IRC 6701 promoter investigation. The PAC will NOT be developed, and the RPC will provide support and evidence to the person conducting the investigation.

  4. If an IRC 6700 or IRC 6701 promoter investigation has not been approved, but there is a history of egregious, non-compliant preparer behavior evidenced by, among other indications, prior civil penalty actions, significant tax deficiency implications and/or widespread geographic compliance impact, the LDC may initiate an IRC 6700 or IRC 6701 investigation in lieu of a PAC.

  5. If an IRC 6700 or IRC 6701 promoter investigation has not been approved or is not pending approval and the LDC determines there is no indication of promoter activity or prior egregious non-compliant behavior, the LDC will provide clearance to the RPC and add the preparer’s name to the database or update an existing record to reflect the PAC. The LDC will annotate the database indicating the RPC is the assigned contact.

4.1.10.3.5  (01-14-2011)
PAC Approval Process

  1. The RPC must secure approval from the appropriate management official. See .

4.1.10.3.5.1  (01-14-2011)
PAC Approval Process for SB/SE

  1. After clearance of the PAC from LDC and CI, the RPC will prepare a memorandum summarizing the PAC and present it for review and approval by the PSC.

  2. The memorandum should include some or all of the following PAC information, as appropriate:

    1. The name(s), dba(s), address(es), and TIN(s) of the preparer.

    2. Statements discussing the referral or lead and relevant related information.

    3. Statements discussing the questionable issues, schemes and/or misconduct.

    4. A summary of the client return quantities prepared in each of the available tax years.

    5. The number of client returns to be examined in the initial PAC sample.

    6. Statements relating to clearance by the LDC and by CI.

    7. Statements discussing potential harm to the Government.

    8. The number and percentage of client returns with refunds and/or earned income tax credits.

    9. Client and/or witness affidavits.

    10. Copies of RAR’s, tax returns and other relevant documents reflecting significant and/or material adjustments.

    11. Statement as to the professional status of the preparer CPA, enrolled agent, attorney, unenrolled agent, etc.)

  3. The PSC will carefully consider all relevant information to ensure that there is strong evidence of the preparer’s misconduct.

  4. Following a recommendation by the PSC to initiate the PAC, the PSP Territory Manager will submit the memorandum to the Exam Area Director for approval. If a separate memorandum is prepared for the Area Director’s signature, it must include a full disclosure discussion of the PAC information presented to the PSC.

    Note:

    A single memorandum (or signature document) may be used to record both the PSC recommendation and the Area Director’s approval. Attaching the signed PSC recommendation memo to the Area Director’s Memorandum will satisfy the full disclosure requirement.

  5. Following approval of the PAC by the Area Director, the RPC will:

    1. Inform the LDC of the PAC’s approval and forward to the LDC a copy of the approval documents. The LDC will update their promoter/preparer database accordingly.

    2. Prepare and mail the Letter 3164-N, Third Party Contact, to the return preparer per the procedures in IRM 4.1.10.5.

    3. Assign the appropriate National Return Preparer Project Code to the PAC. See Exhibit 4.1.10-4, PAC National Project Codes Based on Source of Referral.

    4. Request a unique and separate local Examination Returns Control System (ERCS) tracking code for each new PAC. The Area AIMS/ERCS Unit usually assigns and controls local tracking codes.

    5. PACs that have earned income tax credit as a classified issue must use a national Tracking Code 9696.

4.1.10.3.5.2  (01-14-2011)
PAC Approval Process for LB&I

  1. The RPC, with the assistance of the field agent(s) who identified the preparer’s misconduct, will prepare a briefing package documenting the abusive behavior of the preparer. The RPC and Territory Manager of the agents who identified the misconduct will brief the Director of Field Operations (DFO) about the preparer’s abusive behavior. If the DFO concurs with the initiation of a PAC, the DFO and the RPC, if necessary, will brief the Industry Director to obtain their approval. Once obtained, the DFO, RPC and RPC’s manager will request that the Penalty Steering Committee approve the initiation of a PAC.

4.1.10.3.6  (01-14-2011)
Program Action Case Return Identification and Selection

  1. The RPC will identify, classify, and select the initial sample of 30 client returns from the preparer’s client list.

  2. These cases will generally be worked by tax compliance officers or tax auditors unless the complexity of the issues require assignment to a revenue agent.

    Note:

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4.1.10.3.6.1  (01-14-2011)
Sources to Identify Returns

  1. "RPVUE" - IDRS command code RPVUE provides Individual Master File (IMF) and BMF preparer client volume information and client lists. RPVUE lists nine data fields for each IMF client (Forms 1040 only) and, therefore, is only of limited usefulness in classifying individual returns. Since RPVUE does not list any BMF data, it cannot be used to classify business returns. Identification and classification can be done on-screen or using hardcopy screen-prints.

  2. "CDE" -The Compliance Data Environment (CDE) searches the entire filed tax return population against user-specified filter criteria to identify a preparer's client returns. Results can be summarized, stratified or sampled. The returns are hardcopy printouts of selected return information in single year and 3 years "return like" format. Tax return data provided by CDE includes the same data as command code RTVUE plus other CDE calculated fields. CDE is acceptable for classification, but it may not always be as useful as TRPRT or original returns. Classification can be done on-screen or using printouts.

    1. A CDE research request is required before CDE can be used in support of a PAC. CDE prints can be used in lieu of original tax returns to establish exam controls, build case files and conduct examinations. Any non-selected CDE prints should be destroyed. See IRM 4.3.4.13, Proper Handling of MACS Facsimiles and Other MACS Documents (MACS is the precursor to CDE).

  3. "TRPRT" - Available on IDRS for electronically filed returns. TRPRT prints are extremely "return like" and include most line items on the return. When available, TRPRT prints – considered "original returns" - are the best document to use for classifying and selecting returns for exam. Any non-selected TPRPT prints should be destroyed.

  4. Original Returns - Using original returns to identify and classify clients for examination should be done on a limited basis since extra costs are incurred to secure an original return. Exam controls must also be closed on any original returns not selected for examination and the returns then re-filed. Exhibit 4.1.10-1, Closed CI Investigation Forwarding Memorandum, and for the Source Code Job Aid and Related Return Source Codes go to the AIMS website at: http://mysbse.web.irs.gov/exam/mis/data/default.aspx.

    1. To order original returns to be considered for a PAC, use Form 5347, Examination Multiple Request Master File.

  5. Examination Controls - Establish exam controls for original returns ordered using the following:

    1. Source Code 49 (primary return only)

    2. Status Code 06

    3. Appropriate tax year

    4. AAC for PSP (PBC, SBC, EGC)

    5. Activity code

    6. Appropriate national preparer project code

    7. Appropriate local PAC tracking code

    8. Aging Reason Code 49

    9. Appropriate local ERCS freeze code

4.1.10.3.6.2  (01-14-2011)
Client Return Selection and Classification Considerations

  1. Using local Classification Instructions, review client returns for:

    1. Issues described in the PAC approval memo.

    2. Large, unusual, or questionable (LUQ) items of income, expense, and/or credit.

    3. Patterns, trends, and inconsistencies.

4.1.10.3.7  (01-14-2011)
Establishing Exam Controls on Selected PAC Client Returns

  1. The RPC will establish ERCS exam controls for each client return selected for examination in the initial sample (other than original returns, for which ERCS controls have already been established).

    1. Source Code 49 will be used for only the primary return selected as part of the PAC. If multi-year cases are developed in PSP for delivery to group, only the primary return should reflect Source Code 49. All related and multi-year examinations should reflect the appropriate source codes when establishing and auditing related returns and multi-year examinations.

    2. Status Code 08

    3. Appropriate tax year

    4. Valid AIMS assignee code (AAC) for PSP (PBC, SBC, EGC)

    5. Valid activity code

    6. Appropriate national preparer project code (no local project codes should be used). See Exhibit 4.1.10-4, PAC National Project Codes Based on Source of Referrals

    7. Appropriate local PAC tracking code

    8. Aging Reason Code 49 should be reflected on all return preparer program returns including primary and multiple-year returns.

    9. Appropriate local ERCS freeze code.

  2. The RPC will update the status of any original returns selected for examination in the initial sample to Status Code 08.

  3. A unique local ERCS freeze code (designated specifically for use with PACs) should be input on ERCS for all client returns in the initial sample. Because the RPC is required to release this freeze code, a PAC client return cannot be closed without RPC review.

4.1.10.3.8  (01-14-2011)
Case building of Selected PAC Returns

  1. Generally, each client return case file should include the following:

    1. Original tax return or TRPRT print or MACS print or RTVUE.

    2. Classification sheet.

    3. AMDISA or ERCS print.

    4. INOLES; IMFOLI; IMFOLT; IMFOLR; and IRPTRL.

    5. Case memorandum - This is a memo addressed to the examiner. It details the preparer’s scheme, the issues of concern and the proper project, tracking and aging reason codes. The memo instructs the examiner that any contact with a taxpayer/client is a third party contact that needs to be documented on Form 12175, Third Party Contact Report Form. The completed Form 12175 should be faxed to the Third Party Contact Coordinator (See list at http://mysbse.web.irs.gov/exam/tip/3rdparty/default.aspx. See IRM 4.1.10.5, Third Party Notification in PACs. The memo must include instructions to the examiner that, when picking up any related /prior/subsequent year returns, the returns are to be established on ERCS using the appropriate related return/prior/subsequent year return source code and the same project, tracking, and aging reason codes used with the key return. Additionally, the memo should direct that, when applicable, the examiner will assert IRC 6694 and/or IRC 6695 preparer penalties. This memorandum is only for the examiner and should not remain in the case file when the case is closed.

    6. PAC Project Check Sheet - This is a feedback sheet to collect information regarding the results of the examination. The examiner should forward the completed Project Check Sheet directly to the RPC. See Exhibit 4.1.10-5, Program Action Case Project Check Sheet.

    7. The RPC should consider making a presentation to the exam group designated to work the PAC. The presentation would discuss details of the preparer’s scheme and the information and documents necessary to properly develop any preparer penalty case(s) resulting from the PAC.

    8. The RPC must discuss with the group manager(s) as to who will conduct the return preparer penalty portion of the investigation. This is the portion of the investigation that could result in the assertion of preparer penalties directly against the return preparer. Where possible, consideration should be given to assigning one senior examiner with the task of conducting the separate return preparer penalty investigation.

4.1.10.3.9  (01-14-2011)
Monitoring Program Action Cases

  1. The RPC will evaluate the results of the client examinations using any or all of the following methods as appropriate:

    1. ERCS reports of open client returns (Status 10/12) by tracking code and project code will alert the RPC if the returns are being worked in a timely manner.

    2. Contact group managers at least monthly to discuss the progress of each PAC.

    3. Monitor closed client return examination results by reviewing PAC Project Check Sheets.

    4. If a pattern of "no show" closings develops, immediately discuss the issue with the group manager. Since the purpose of the PAC is to evaluate the quality of the preparer’s work, the examiner should, at a minimum, secure a current client address and/or summons the client, as necessary. Contact with the client taxpayer is crucial to building a return preparer penalty case.

    5. If a pattern of "No Changes" or closures with issues of only minimal significance becomes apparent, talk to the group manager. If the client returns have been found to be substantially correct and/or the issue(s) of concern are not found, not adjusted, or not the fault of the preparer, the PAC should be terminated. Open client examinations should be completed as part of the PAC, but the remaining client returns in the initial sample should not be examined. These returns should be surveyed. Terminating the PAC will minimize any unnecessary burden on the taxpayers and release the committed resources for other priorities.

    6. Ensure each examiner has considered the return preparer penalty provisions of IRC 6694 and IRC 6695 and fully developed the issue(s), as appropriate.

    7. Prior to releasing PAC freeze codes, the RPC should review the case feedback to determine whether the relevant PAC issues have been addressed and/or whether appropriate PAC procedures and examination techniques have been applied and discuss the findings with the group manager, as necessary. Once the case is determined to be correct, the RPC will authorize release of the freeze code.

    8. Request monthly ACIS project code and/or tracking code reports on closed client cases.

    9. Maintain an activity record (Form 9984, Examining Officer's Activity Record, or its equivalent) for each PAC. The examiner should document (1) what actions have been taken to date; (2) future planned activities; and (3) planned dates for future activities.

  2. Evaluate the results of each PAC at least quarterly, applying (at a minimum) the following considerations:

    1. Determine that examination adjustment amounts and hours per return are reported for PAC exams using either the Project Check Sheet, ERCS reports or ACIS.

    2. Determine dollars per hour generated by the PAC compared to results from other exam work – for a PAC to be considered productive, the yield should be greater than Discriminant Index Function (DIF) work.

    3. Review "No Change" and "No Show" rates and the resulting impact on productivity levels for the resources in use.

    4. Determine continued availability of examination resources compared with other priorities.

    5. Review Appeals results as reported in the Appeals Officer Memorandums resolving PAC examinations and develop recommendations (if any) for evaluating PAC productivity.

  3. During the PAC, the RPC will monitor the examinations of the preparer's taxpayers and the assessment of preparer penalties. If applicable, consideration should be given for a subsequent referral back to the LDC. For additional information visit http://abusiveshelter.web.irs.gov/LDC/LDC.htm.

  4. A referral back to the LDC may be warranted under the following circumstances:

    1. Five or more IRC 6694 and/or IRC 6695 preparer penalties have been assessed against the preparer during the past two years and the preparer has failed to correct their behavior.

    2. The preparer’s activities are responsible for significant dollar losses to the government and/or a large number of returns are impacted.

    3. The preparer’s activities affect more than one area.

    4. Any other factors the RPC determines impact compliance.

  5. If the RPC determines that an injunction may be appropriate, they should consult the Area Abusive Transactions and Technical Issues (ATTI) Coordinator (formerly referenced as ATAT). The ATTI Coordinator and the RPC will jointly prepare a referral to the LDC requesting approval of an IRC 7407 injunction investigation.

  6. After completing the initial sample of client returns, the RPC must determine whether PAC examination results are sufficient to decide if preparer penalties or an injunction is warranted.

  7. If PAC results are insufficient to determine if preparer penalties or an injunction is warranted, the RPC should consider expanding the scope and selecting an additional sample of client returns for examination. These returns are usually examined using area resources.

  8. If PAC results are sufficient to make the termination decision but extensive non-compliance (and/or other factors) is evident within the client population, the decision could still be made to expand the PAC. In this case the expanded scope generally will include all remaining client returns (i.e., those not yet examined) and will generally be considered for correspondence examination at a campus unless the identified issues are not conducive to correspondence examination procedures. Coordination with the SB/SE EPD Return Preparer Analyst is required.

4.1.10.3.10  (01-14-2011)
Expanding PACs

  1. If additional client returns will be examined outside of the initial sample, consideration must given as to how many additional client returns will be examined and the most efficient location, while keeping in mind the overall purpose of the return preparer program.

  2. In order to expand a PAC using area resources, the RPC will need to:

    1. Request approval from the PSP Territory Manager.

    2. Ensure that consideration is given to the Examination Work Plan.

    3. If the Area proceeds with PAC expansion, provide notification to the SB/SE EPD Return Preparer Analyst.

    4. The results of the expanded PAC should be closely monitored. A few returns should be examined and the results closely monitored.

    5. If the results indicate the preparer is not responsible for the errors on the returns, then the remaining unopened cases may be surveyed.

    6. If the expansion results indicate significant non-compliance, see the following paragraph to determine where to send additional returns for examination.

  3. Generally, any PAC expansion involving issues that may be worked at the campus, will be referred to the campus following directions on Form 13649, Multi-Case Inventory Referral. See paragraph 6 below. The issues that are conducive to campus examination are as follows:

    1. Documentation required is easily transmitted via fax or mail.

    2. Face to face or other in depth taxpayer interview is not required.

    3. Simple Schedule C issues, including those with EITC identified as the primary issue.

  4. Also, less complex issues such as:

    1. Simple Schedule A deductions including employee business expenses (EBE)

    2. Unreported/underreported income

    3. Payments to an IRA or Keogh

    4. Credits---child care, credit for the elderly, EITC, fuel

    5. Self-employment tax

    6. Alternative minimum tax

  5. The criteria for referring return preparer cases to campus is:

    1. Although, a minimum of 18 months on assessment statute expiration date (ASED) is preferable, referrals with less than 18 months on ASED should still be referred but acceptance will be determined on individual basis.

    2. Returns referred should have potential deficiency to justify examination resource expenditures. Returns referred for examination should meet the potential deficiency criteria on the primary issue and not the aggregate of all potentially questionable issues on the return.

    3. Referrals generally should be post refund. Exceptions should be coordinated with the receiving function.

    4. Description of the questionable issue(s) and area(s) of noncompliance should be provided along with any work papers, pro formas, RARs, position papers, etc. developed related to the referral.

    5. Historical data and results of any tests, related examinations or closed examinations should be provided along with a description of anticipated results and projected yield.

    6. Complete Form 13649, Multi-Case Inventory Referral, and submit the request to the designated function on the form. A listing of the returns to be examined must also be prepared for Campus.

    7. Respond for acceptance or rejection of the referral within 30 days.

4.1.10.3.11  (01-14-2011)
PAC Termination

  1. A PAC can be terminated when the audits of all of the preparer's client returns that were selected as part of the PAC process have been completed. This includes those that were selected as part of the expansion process when the PAC was active. If a pattern of “No Changes” or closures with minimal significance is evident, see IRM 4.1.10.3.9 (1) item (e). Also, the PAC may be terminated if the preparer penalty case has been suspended to Technical Services pending the resolution of the criminal case. If the preparer was accepted for investigation by ATTI as a result of a referral by the RPC, then the PAC can be terminated.

  2. When the RPC and the RPC's group manager decide to terminate the PAC, the RPC will prepare a PAC termination memorandum discussing the reasons for terminating the PAC. The memo should include information regarding disposal codes used, preparer penalties proposed, asserted, and/or sustained in Appeals and the PAC evaluations made by the RPC. See IRM 4.1.10.3.9, Monitoring Program Action Cases.

  3. The termination package consists of the RPC’s memo, the group manager’s memo and relevant documents from the PAC administrative file. The termination package is submitted to the Planning and Special Programs Territory Manager for approval. The approved termination package is then sent back to the RPC.

  4. The approved termination package is to be filed in the PAC administrative file. The RPC will:

    1. Advise the group manager of the PAC’s termination.

    2. Advise the group manager that any PAC cases still in status 10 may be surveyed using Disposal Code 31 or 32.

    3. Notify the LDC of the PAC’s termination and request their database be updated.

    4. Remove the PAC from the list of current PACs.

    5. When all cases associated with the PAC have closed to Status Code 90, request the tracking code be marked "Inactive."

  5. If it is determined that no preparer penalties are warranted as a result of the PAC, The RPC will issue Letter 4307, PAC Closing Letter, to the preparer.

4.1.10.4  (01-14-2011)
PAC Conducted in Conjunction with an Ongoing Criminal Investigation

  1. Some special issues arise when program action cases are conducted as part of an ongoing criminal investigation:

    1. The case memorandum included in each client file must indicate that the case is part of an open criminal investigation.

    2. The name and contact number of the special agent working the case should be included in the memorandum along with any special instructions for reporting exam results to CI.

    3. Civil penalties against the return preparer under IRC 6694 and IRC 6695 should be considered and developed as with any other PAC.

    4. Examiners should not make contact with the preparer until the criminal investigation is complete because civil penalty development against the return preparer must stop at the point of contact with the preparer.

    5. All civil preparer penalties developed while the criminal case is ongoing should be updated to status 41 and forwarded to the Return Preparer Coordinator who then updates them to status 21 and forwards them to suspense in Technical Services pending the completion of the criminal case.

    6. When the criminal prosecution is completed or the criminal case is terminated, the civil preparer penalty cases will be released back to exam for completion.

    7. Third Party Notification rules do not apply when examining client cases in conjunction with an ongoing criminal investigation. See IRM 4.1.10.5, Third Party Notification in PAC.

4.1.10.5  (02-05-2008)
Third- Party Notification in PACs

  1. Under IRC 7602(c), the Service may have to provide a taxpayer with notice if it intends to initiate a contact with a third party in order to collect or determine the taxpayer's tax liability. Under IRC 6671, preparer and promoter penalties are treated as "taxes" for all purposes of the Code. Thus, the same concerns that would exist in a normal examination for purposes of third party contact disclosure exist when examining a preparer and/or promoter. Examiners should become familiar with the extensive third party contact procedures provided in IRM 4.10.1.6.12, Third Party Contacts — Background, and IRM 5.1.17, Third Party Contacts. Furthermore, examiners should become familiar with the procedures for third party contacts in preparer and promoter cases found in IRM 20.1.6.1.11, Third Party Contacts—IRC Section 7602(c), and IRM 4.32.2.7.3.2, Third Party Contacts.

  2. The examination of a preparer’s client/taxpayer under a PAC is considered a third party contact with respect to the preparer. Therefore, Letter 3164-N, Third Party Contact To Preparers, must be issued to the preparer after the PAC is approved and before any of the related client/taxpayers are first contacted for examination. Generally, the RPC will mail the letter to the preparer and wait 10 days before mailing the cases to the group.

  3. The RPC will retain a copy of the third party notification letter in the PAC administrative file.

  4. The case memorandum placed in each case file should include the following statement: "The examiner must document contacts with return preparer clients and other third parties and must follow the procedures in IRM 4.10.1.6.12.3.1, Recording Third Party Contacts, for completing Form 12175. Note that the exceptions to taxpayer notification under IRC 7602(c)(3) apply in equal force in return preparer examinations, so that the Service may not have to report specific third party contacts, for example when a threat of reprisal exists. See IRM 4.10.1.6.12.4, Exceptions to Taxpayer Notification Requirements."

  5. The exceptions to taxpayer notification under IRC 7602(c)(3) apply in preparer investigations. The exceptions are:

    1. Taxpayer authorizes third party contact;

    2. Notice would jeopardize collection of any tax;

    3. Notice may involve reprisal against any person; and

    4. A criminal investigation of the taxpayer is pending.

  6. PAC requested in conjunction with an ongoing criminal investigation.

    1. Per IRM 4.10.6.12.4.4, Criminal Investigation Cases, third party notification requirements do not apply to any tax period under investigation by Criminal Investigation. Therefore, Letter 3164-N, Third Party Contact To Preparers will NOT be issued.

    2. The pending criminal investigation exception under IRC 7602(c)(3)(C) applies to third party contacts made by examiners while working pursuant to a CI request and assisting in establishing harm to the government for an ongoing criminal investigation.

    3. Per IRM 20.1.6.12(6), Third Party Contacts - Criminal Investigations, examiners may conduct examinations of program action taxpayers regarding civil issues at the same time that special agents are independently conducting a criminal investigation of the related preparer. However, just as the pending criminal investigation exception applies to third party contacts made by special agents, it also applies to examiners assisting CI by performing examinations of program action taxpayers.

4.1.10.6  (01-14-2011)
Lead Development Center

  1. The Lead Development Center (LDC) was established to centralize the receipt and development of leads on abusive tax schemes and promoters, as well as the authorization and referral of promoter investigations to PSP for assignment to the field. LDC has the authority to approve SB/SE promoter/preparer investigations under IRC 6700, IRC 6701, IRC 7407 and IRC 7408.

    Note:

    For more information about the LDC, see IRM 4.32.2.3.2, SB/SE Lead Development Center.

4.1.10.6.1  (01-14-2011)
Referrals to the Lead Development Center

  1. Generally, referrals to the LDC concern any person who is being considered for promoter penalties under IRC 6700, IRC 6701, or injunctions under IRC 7407 and IRC 7408.

  2. For LDC contact and referral information visit http://abusiveshelter.web.irs.gov/ldc/ldc.htm.

4.1.10.6.2  (01-14-2011)
Processing of Referrals

  1. Once the lead is received, the LDC will conduct research to develop the leads and will build the cases to support the authorization of IRC 6700 or IRC 6701 investigations.

    1. Investigations approved by the LDC program manager will be returned to the Area PSP as part of the ATTI program. These cases will be controlled by the Abusive Schemes/ATTI Coordinator for investigation and development of potential IRC 6700 or IRC 6701 penalty and IRC 7408 injunction actions.

    2. Referrals not accepted by LDC will be returned to the Area RPC for consideration of a PAC.

4.1.10.7  (01-14-2011)
Return Preparer Penalty Program Penalty Cases

  1. IRM 20.1.6, Preparer, Promoter Penalties, discusses the available return preparer penalties, the development of the penalties by examiners, and the procedures for the examiners to follow.

  2. The RPC should be familiar with IRM 20.1.6, Preparer, Promoter Penalties, and IRM 4.11.51, Examining Officers Guide - Return Preparer Program, dealing with preparer penalties.

  3. The RPC should develop outreach/educational presentations to make to compliance groups and make it known that the RPC is available to speak at group meetings, etc.

  4. The RPC will advise exam employees concerning preparer penalties under, IRC 6694 and IRC 6695.

  5. SB/SE penalty investigations under IRC 6700 and IRC 6701 must be approved by the LDC.

  6. LB&I penalty investigations under IRC 6701, involving a reportable transaction are different. The RPC will forward the referral to OTSA. The approval of the Technical Tax Shelter Promoter Committee is required before beginning a IRC 6701 investigation involving a reportable transaction. There may be a delay in obtaining the committee’s decision due to frequency of scheduled meetings.

4.1.10.7.1  (01-14-2011)
Creating Return Preparer Penalty Cases

  1. Form 5809, Preparer Penalty Case Control Card, is used to establish a return preparer penalty case on ERCS. The form has three parts. When an examiner starts a penalty case, Copy B [titled Copy B-Return Preparer Coordinator (Started)] is forwarded to the RPC.

  2. Penalty cases are established on ERCS only. There are two alternate methods of establishing these cases on ERCS:

    1. One method is to use the return preparer's TIN and name. This is advantageous when one examiner will be conducting a return preparer penalty investigation regardless of the number of penalties that may ultimately be asserted. Rather than create a card for each client penalty investigation, all of the penalty examinations can be condensed into one and the sum total of hours applied and penalty amounts for each year and penalty type can be input without creating a separate Form 5809 and ERCS record for each.

    2. The other method is to use the client's TIN and the name of the return preparer who is the subject of the penalty investigation. A separate Form 5809 and an ERCS record is created for each return preparer penalty investigation. This method is preferred when multiple examiners will each be conducting a separate return preparer penalty investigation on a specific preparer for a particular year. Each examiner charges their time and any penalties assessed are input to the particular client affiliated record created. The disadvantage to creating separate cards is when there is one examiner conducting a preparer penalty investigation and that person has to prepare a Form 5809 for each penalty, divide the times applied to each, and have them input separately onto ERCS.

  3. The MFT will be between P1 and P9 depending on the type of penalty. See Document 6036, Examination Division Reporting System Codes Booklet, for a list of penalties by activity code and related MFTs.

4.1.10.7.2  (01-14-2011)
Tracking Return Preparer Penalty Cases

  1. Form 5809 is used to advise the RPC of the initiation of a preparer penalty investigation.

  2. The RPC is responsible for monitoring the closed investigations and active preparer investigations in the RPC's area; thus, the RPC should develop a tracking system for all preparer investigations, which will include the historic records of those investigations.

  3. ERCS may be used to monitor penalty cases. A preparer penalty report is available by territory. ERCS can also be queried by activity code to track preparer penalties.

4.1.10.7.3  (01-14-2011)
Reviewing Penalty Cases

  1. In SB/SE the RPC will review all return preparer penalty cases and ensure the proper case file assembly. Technical Services does not conduct reviews of return preparer penalty investigation cases. All preparer penalty cases will be closed directly to the RPC from the group in Status Code 41 via Form 3210, Document Transmittal.

  2. In LB&I the team manager will review all penalty cases. Cases in which a penalty is asserted will be closed to Centralized Case Processing (CCP) if agreed or to Appeals if not agreed. Send a completed copy of Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, Form 5816, Report of Income Tax Return Preparer Penalty Case, and Form 886-A, Explanation of Items, to the LB&I RPC.

4.1.10.7.3.1  (01-14-2011)
No-Change Preparer Penalty Cases

  1. In SB/SE the RPC should review the case file and ensure the preparer penalty has been properly developed.

    • If the RPC disagrees with the agent’s findings, the RPC should contact the examiner and discuss the case.

    • The RPC may return the case file to the examiner through the examiner's group manager for further development if necessary.

    • The RPC should confirm that Letter 1120, No Change Letter - Preparer's Penalty, was issued if contact was made with the preparer.

  2. In LB&I the group will update ERCS to Status Code 90 "Closed – No Change" and forward the case to the RPC for review.

4.1.10.7.3.2  (01-14-2011)
Agreed Preparer Penalty Cases Procedures for SB/SE Only

  1. The RPC should review the case file to ensure the issue was properly developed and determine that the correct penalty has been applied.

  2. If the RPC disagrees with the agents findings, the RPC should contact the examiner and discuss the case.

  3. The RPC may return the case file to the examiner through the examiner's group manager for further development if necessary.

4.1.10.7.3.3  (01-14-2011)
Unagreed Preparer Penalty Cases Procedures for SB/SE Only

  1. The RPC should review the case file to ensure the issue was properly developed and the correct penalty has been applied.

    1. The RPC should ensure the examiner has included sufficient evidence to support the preparer penalty.

    2. If the primary position of the examiner is to assert the penalty for IRC 6694(b), the examiner should consider proposing a IRC 6694(a) penalty as an alternative position.

    3. The RPC should verify that the preparer was offered a managerial conference.

    4. The RPC should verify that Letter 1125, Transmittal of Examination Report, (the 30 day letter) was issued if sufficient time remained on the statute of limitations to allow its issuance.

  2. If the RPC disagrees with the agents findings, the RPC should contact the examiner and discuss the case.

  3. The RPC may return the case file to the examiner through the examiner's group manager for further development if necessary.

4.1.10.7.4  (01-14-2011)
Closing Return Preparer Penalty Cases Procedures for SB/SE Only

  1. The RPC should take the following steps when closing a return preparer penalty case.

  2. The RPC should ensure the case file has the appropriate return preparer penalty information.

  3. The RPC should remove the Form 5809 -Original, and associate it with Copy C (Started).

  4. Review Form 8278 to ensure it is correct and includes the following information:

    1. Confirm that the correct SSN or EIN is listed on the form.

    2. Confirm that the correct MFT has been selected.

    3. Confirm that the statute date is correct.

    4. Confirm that correct penalty code/penalty reference number has been selected.

    5. Confirm that related tax return information has been completed on page 4.

    6. If both IRC 6694(a) and IRC 6694(b) apply, ensure the combined assessment does not exceed the IRC 6694(b) penalty amount.

    7. Sign the Form 8278, as reviewer. Case processing will send the case back if the reviewer’s signature is not present.

    8. Verify if any advanced payment has been made on appealed cases.

  5. Determine where the case should be forwarded if it is unagreed/unprotested, no change, agreed, or appealed.

    1. The unagreed/unprotested, no change, or agreed case will be updated on ERCS to Status Code 51. Use Form 3210, Document Transmittal, to mail the case to the appropriate Centralized Case Processing site. Visit http://sbse.web.irs.gov/ccp/default.htm for the CCP address listing.

    2. If the proposed preparer penalty is for IRC 6694(a) or IRC 6694(b) and the preparer has responded to the 30 day letter (Letter 1125, Transmittal of Examination Report,) with an adequate protest, update the case on ERCS to Status Code 21 and use Form 3210 to mail the case to the appropriate Technical Services office.

    3. Verify if any advanced payment has been made on appealed cases.

    4. If the case involves a penalty that is entitled to post assessment appeal, and there is a payment posting voucher in the case with an appeal request, fax Form 8278 and Form 3244, Payment Posting Voucher, to the appropriate Field Office Resource Team (FORT) manager in Centralized Case Processing (CCP) for assessment. Visit http://sbse.web.irs.gov/ccp/Contacts/FORT_Team_Managers.htm for the CCP fax numbers; http://sbse.web.irs.gov/ccp/Contacts/CCP_Addresses.htm for the mailing address, and http://sbse.web.irs.gov/ccp/default.htm for general CCP information. See IRM 20.1.6.17.2, Post-Assessment Appeal Procedures, for information regarding penalties subject to post assessment appeals procedures.

    5. Upon receipt of the completed faxed document by CCP, update the case on ERCS to Status Code 21 and use Form 3210 to mail the case to Technical Services.

4.1.10.7.5  (01-14-2011)
Penalties on Preparers Referred to Criminal Investigation

  1. When a preparer who is the object of a PAC is referred to CI and CI has accepted the preparer case, there may be civil penalties that can be assessed against the preparer.

    1. Once CI has accepted the preparer case, compliance personnel should not contact the preparer without CI approval.

    2. Penalties under IRC 6694(b) have no statute of limitations or assessment. Any pending preparer penalty cases under IRC 6694(b) should be put in PSP suspense – Status Code 41.

    3. The RPC will monitor the suspense inventory and periodically contact CI to find out the status of the prosecution.

    4. When the criminal prosecution is completed and/or dropped, the IRC 6694(b) penalty cases should be sent back to the originating group for completion/assessment.

    5. Civil penalties under IRC 6694(a) and IRC 6695 have a fixed statute of limitations or assessment. These cases should not be established on ERCS if referral of the preparer is being considered.

    6. If these cases have been established on ERCS, they should be surveyed using Disposal Code 31 and Form 1900, Income Tax Survey After Assignment.

4.1.10.8  (01-14-2011)
Referrals to the Office of Professional Responsibility

  1. The Office of Professional Responsibility (OPR) is charged with administering and enforcing the regulations governing practice before the IRS, as detailed in Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service. See OPR’s website at: http://nhq.no.irs.gov/OPR.

  2. OPR investigates allegations of disreputable conduct and incompetence involving attorneys, certified public accountants, enrolled agents, enrolled actuaries and appraisers.

  3. Circular 230 provides for a range of formal and informal sanctions including suspension or disbarment from representation of taxpayers before the IRS.

  4. The RPC should be thoroughly familiar with Circular 230 and be prepared to advise field personnel concerning preparer misconduct and the preparation of referrals to OPR.

  5. Examples of Circular 230 misconduct which could warrant a referral to OPR include the following:

    1. Failure to exercise due diligence (§ 10.22(a)).

    2. Conviction of any criminal offense under the revenue laws of the United States (§ 10.51(a)(1).

    3. Conviction of any criminal offense involving dishonesty or breach of trust (§ 10.51(a)(2).

    4. Conviction of any felony under Federal or State law for which the conduct involved renders the practitioner unfit to practice before the IRS (§ 10.51(a)(3).

    5. Giving false or misleading information or participating in any way in the giving of false or misleading information in connection with any matter pending or likely to be pending before the IRS, knowing the information to be false or misleading (§ 10.51(a)(4).

    6. Willfully failing to make a Federal tax return in violation of the Federal tax laws, or willfully evading, attempting to evade, or participating in anyway in evading or attempting to evade any assessment or payment of any Federal tax (§ 10.51(a)(6).

    7. Disbarment or suspension from practice as an attorney, certified public accountant, public accountant, or actuary (§ 10.51(a)(10).

    8. Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws (§ 10.51(a)(13).

    9. Contemptuous conduct, in connection with practice before the IRS, including the use of abusive language, making false accusations or statements, knowing them to be false, or circulating malicious or libelous matter (§ 10.51(a)(12).

    10. Assertion of penalties under IRC 6694, IRC 6695, IRC 6700 and IRC 6701.

  6. Examiners should exercise discretion in making referrals of asserted IRC 6694(a) penalties to OPR for attorneys, CPAs, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers.

    1. Referrals of asserted IRC 6694(a) penalties to OPR should be based on a pattern of failing to meet the required penalty standards under IRC 6694(a).

    2. Asserted preparer penalties under IRC 6694(b) for attorneys, CPAs, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers are mandatory referrals to OPR. For IRC 6694(b), these mandatory referrals are made to OPR in matters where preparer penalties are asserted when there is willful or reckless conduct.

    3. For IRC 6695(a) through (g), examiners should exercise discretion in making referrals to OPR. However, in matters where preparer penalties are asserted when there is willful neglect, examiners should consider making a referral to OPR. However, in matters where preparer penalties are asserted when there is willful neglect, examiners should consider making a referral to OPR.

    4. Anytime a penalty for promoting abusive tax shelters under IRC 6700 is assessed.

    5. Anytime injunctive action under IRC 7407 or IRC 7408 is pursued.

  7. A referral to OPR is appropriate for IRC 6694(a) if there is a pattern of failing to meet standards or egregious conduct.

  8. Referrals should be made to OPR as soon as it appears that a practitioner may be in violation of Circular 230.

  9. Form 8484, Report of Suspected Practitioner Misconduct, may be used to make a referral to OPR. Use of this form is optional; however, a written report made in any other format must contain all of the information required by the form. See http://nhq.no.irs.gov/OPR/f8484.pdf

  10. The written report should include a summary of the suspected misconduct that provides as much detail as possible regarding the misconduct in question and supporting documentation (if available). The information should be mailed or faxed to OPR. Visit http://nhq.no.irs.gov/opr/information/referraldocument.shtml#Submit for OPR mailing address information.

  11. A copy of any referral to OPR should be routed through the Area RPC since the RPC may be aware of other information regarding the subject of the referral.

  12. The OPR web site also has a searchable database containing the names of all the individuals currently under suspension or disbarment. See http://nhq.no.irs.gov/OPR/Practice/SCDefault.asp.

4.1.10.9  (01-14-2011)
Unenrolled Return Preparers Disciplinary Actions

  1. Rev. Proc. 81-38 delegates the authority to the Area Director to bar unenrolled return preparers from practice before the Service.

  2. An unenrolled return preparer may be barred from practice before the Service for the same issues as enrolled preparers may under Circular 230.

  3. The action has to be originated by the Area RPC at the Area level.

  4. A letter stating the reasons for the proposed sanction is prepared by the RPC.

  5. The letter along with the supporting documentation is forwarded to the area PSC for review.

  6. If the PSC agrees with the recommendation, the letter along with supporting documentation is forwarded to the Area Director for signature.

  7. The unenrolled preparer is entitled to 30 days to appeal the initial letter and request a conference.

  8. If the initial letter is appealed, a conference should be held by the Area Director or the Director’s designee.

  9. If the preparer fails to appeal the initial letter, or the preparer had a conference at the local level and the proposed sanction is sustained, a Final Letter of Determination is prepared and signed by the Area Director.

  10. The Final Notice gives the preparer another 30 days to appeal.

  11. If the Final Notice is appealed, the RPC must prepare a report stating the Area’s position as to why the preparer should be sanctioned.

  12. The report and the Appeal are forwarded to OPR for final settlement.

  13. The RPC will be notified by OPR of their final determination.

  14. The RPC is responsible for notifying Area compliance personnel when the unenrolled preparer is barred from practice.

  15. Sample disbarment letters are found at Exhibit 4.1.10-6, Initial Notice of Disbarment, and Exhibit 4.1.10-7, Final Notice of Ineligibility.

4.1.10.10  (01-14-2011)
Bypass of the Taxpayer’s Representative

  1. Where a recognized representative has unreasonably delayed or hindered an examination by failing to furnish, after repeated requests, non-privileged information necessary to the examination, the Internal Revenue Service employee conducting the examination may be given permission to bypass the representative and contact the taxpayer directly for such information. Treas. Reg. 601.506(b). Statement of Procedural Rules.

  2. The examiner must carefully document the case file with all instances of unreasonable hindrance or delay. See IRM 4.10.3.2.1.1, Powers of Attorney, for additional guidance regarding unreasonable delay or hindrance by the taxpayer’s representative and instances where the examiner should consider bypass of the representative.

  3. The examiner must follow the bypass procedures in IRM 4.11.55.3, By-Pass of a Representative, when bypass is warranted.

  4. Unreasonable hindrance or delay of an investigation may constitute a violation of Circular No. 230. Employees who have reason to believe that a practitioner has violated Circular 230 should make a referral of the suspected violation to the Office of Professional Responsibility. See IRM 4.11.55.4.2.3, Referral to OPR Procedures, for further information on reporting suspected violations to OPR.

    Note:

    Only OPR can determine whether a violation of Circular 230 has occurred.

  5. See IRM 4.11.55.4.3, Referrals of Unenrolled Preparers for guidance related to unenrolled preparers.

4.1.10.11  (01-14-2011)
Misrepresentation on Power of Attorney and Declaration of Representative Form 2848

  1. Form 2848, Power of Attorney and Declaration of Representative, may be submitted to Area employees by representative(s) claiming to be an attorney, CPA, or enrolled agent when, in fact, they are not. In addition, representative(s) may indicate that they are an unenrolled return preparer who prepared the return indicated on the Form 2848 when, in fact, they did not. For guidance on this issue, see IRM 4.11.55.1.2.2, POA Not Authorized To Practice Before The IRS and IRM 4.11.55.1.2.1.1, Authorized Representation by Persons Other Than a Practitioner.

  2. When a power of attorney is presented to an IRS employee by a representative claiming to be a practitioner as defined by Circular 230 10.2(a) (5) (i.e. an attorney, CPA, enrolled agent, enrolled actuary, and enrolled retirement plan agent), te employee should verify their professional standing.

    1. The Area RPC should be familiar with the websites in their Area available to verify professional standing of CPAs and attorneys. A starting point for identifying the various state agencies can be located at : http://mysbse.web.irs.gov/exam/tip/representatives/contacts/13037.aspx.

    2. An enrolled agent’s status can be verified by e-mailing the EA’s name and address to epp@irs.gov and requesting confirmation of the individual’s status.

  3. If the employee’s search indicates that the representative does not have the professional status they claim, the Form 2848 is referred to the RPC for further analysis.

  4. The RPC is responsible for pursuing these invalid Form 2848's. The following steps should be taken:

    1. Get a fax copy of the Form 2848.

    2. Advise the employee not to send the Form 2848 to the CAF unit if they have not done so.

    3. Confirm the employee’s search results.

    4. If the RPC’s search confirms the Form 2848 is not a misrepresentation, then the RPC will advise the employee that there is no misrepresentation and to send the Form 2848 to the CAF unit.

    5. If the RPC’s search confirms the Form 2848 is a misrepresentation, then the RPC will send a letter to the representative asking for verification of their professional standing with a 10 day window for a response. To speed up the process, the RPC may choose to call the representative. See Exhibit 4.1.10-8, Request for Verification of Professional Standing.

    6. If there is no response to the letter within 10 days or the representative responds that they do not have the professional standing claimed on the Form 2848, the RPC will send a letter to the taxpayer stating that the IRS does not accept their Form 2848 . See Exhibit 4.1.10-9, Taxpayer Notification of Ineligible Representative.

    7. The RPC will prepare a memorandum describing what has transpired and submit it along with a copy of the Form 2848 and other supporting documentation to their Area TIGTA. Area TIGTA may conduct an investigation and make a referral for possible criminal prosecution for false representation dealing with tax administration.

    8. When the TIGTA investigation is complete, the RPC will receive a copy of the findings.

    9. Often the TIGTA report will show that the misrepresentation was confirmed, but the US Attorney declined prosecution. This information should be forwarded to OPR.

    10. When the misrepresentation is confirmed, action pursuant to Rev. Proc. 81-38 should be considered.

  5. For unenrolled return preparers, the RPC should maintain a record of this action to properly monitor and track any subsequent improper Forms 2848. If the unenrolled return preparer continues to file improper Forms 2848, the RPC should consider additional procedures under Rev. Proc. 81-38.

    Note:

    The record should be retained for three years.

  6. If the Form 2848 is not valid, and the employee had already sent it to the CAF Unit, the RPC must notify OPR to change the information in CAF. See Exhibit 4.1.10-11, Notice of Unacceptable CAF Record - Designation Level Change Request.

  7. A CFINK should be secured to verify the invalid Form 2848 is on record with the CAF.

4.1.10.12  (01-14-2011)
Program Reporting

  1. Monthly Briefing – This is an informal report prepared monthly by the RPC and submitted to their manager. The manager will dictate the format and content of the report.

    1. ERCS can be used to get tracking information on preparer penalties.

    2. ACIS can be used to track open and closed PAC cases; the PACS reports can be pulled based on source code, project code, and tracking code.

  2. Quarterly Return Preparer Penalties Report - This report is prepared by the RPC and is due to the Examination Planning and Delivery (EPD) Return Preparer Program Analyst the 10th day of the month following the end of the quarter. See Exhibit 4.1.10-10, Return Preparer Program Report.

    1. The RPC will need to set up a record keeping system to gather the appropriate information needed to complete this report. The data required is not available on database.

  3. Other Ad Hoc Reporting – Periodic reports may be requested from various sources.

    Example:

    The EPD Return Preparer Program Analyst may periodically forward preparer conduct referrals from OPR and other sources to the RPC and require monitoring until resolved.

4.1.10.13  (01-14-2011)
Other Miscellaneous Program Information

  1. Listed below are various sources of information for the RPC and general program pointers.

  2. Common IDRS command codes used by the RPC include:

    • RPVUE

    • RPPRT

    • RTVUE, BRTVUE

    • TRDBV

    • IMFOL (Definers: I, T, R, E), BMFOL (Definers: I, T, R, E)

    • IRPTR

    • AMDIS

    • AMFRZ (Definers S, R)

    • INOLE

    • NAMES, NAMEE

    • SUMRY

    • TXMOD

    • PTINQ

    • CFINK

  3. The RPC should be ready to advise and/or educate employees on a variety of issues.

    1. The RPC should be thoroughly familiar with all return preparer penalties and procedures, including the following resources: IRM 20.1.6, Preparer, Promoter, and Tax Shelter Registration Penalties, Circular 230, Form 2848, and the rules governing representation of taxpayers and referrals to OPR in IRM 4.11.55.

    2. The RPC should have a training package prepared containing information and forms needed to apply return preparer penalties.

    3. The RPC should make themselves available for group meeting presentations and training opportunities concerning return preparer penalties, preparer responsibilities, and other RPP program issues.

4.1.10.13.1  (01-14-2011)
Websites

  1. Useful websites not listed elsewhere in this document include:

    1. Return Preparer - http://mysbse.web.irs.gov/exam/tip/rp/default.aspx.

    2. IDRS Command Codes- http://mysbse.web.irs.gov/exam/mis/default.aspx

    3. AIMS/ERCS - http://mysbse.web.irs.gov/exam/mis/manuals/default.aspx.

    4. SB/SE Return Preparer Program - http://mysbse.web.irs.gov/exam/tip/rp/jobaids/12289.aspx This website has a lot of information that can be very helpful for examiners, managers, and RPCs. For example, it provides a job aid with step by step instructions on the procedures and forms preparation necessary to successfully complete and close a return a return preparer penalty case.

    5. LB&I Return Preparer Program - http://lmsb.irs.gov/hq/pqa/Post-filing/preparers.asp

    6. Training Publication 26809-001, Return Preparer Penalties - IRC 6694 and IRC 6695, Catalog Number 20189I.

4.1.10.13.2  (01-14-2011)
Working Relationships

  1. To facilitate the development of the return preparer program, the RPC should develop a good working relationship with the following individuals:

    1. CI Field Office Questionable Return Program and Return Preparer Program Coordinators.

    2. Lead Development Center (LDC).

    3. Area PSP E-file Coordinator - A referral source for PACs.

    4. Area TIGTA personnel who handle misrepresentations by powers of attorney.

    5. Area Fed/State Coordinator - Some states have Fed/State agreements that include sharing information about questionable/problem return preparers.

    6. Requests for old year return preparer client lists i.e. those no longer available online, should be directed to Supervisor Info Technology Specialist, at Martinsburg Computing Center.

    7. A CI SDC is located at each campus. They can sometimes help with preparer research when the RPC is having trouble identifying a return preparer, for example, a preparer who is not signing returns or putting their SSN/EIN/PTIN on the returns.

    8. TE/GE Exempt Organization Examinations Technical Coordinator and the EO Financial Investigations Unit.

Exhibit 4.1.10-1 
Closed CI Investigation Forwarding Memorandum

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Exhibit 4.1.10-2 
CI Request for Audit Support Memorandum

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Exhibit 4.1.10-3 
LDC Referral Form

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Exhibit 4.1.10-4 
PAC National Project Codes Based on Source of Referral

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Exhibit 4.1.10-5 
Program Action Case Project Check Sheet

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Exhibit 4.1.10-6 
Initial Notice of Disbarment

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Exhibit 4.1.10-7 
Final Notice of Ineligibility

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Exhibit 4.1.10-8 
Request for Verification of Professional Standing

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Exhibit 4.1.10-9 
Taxpayer Notification of Ineligible Representative

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Exhibit 4.1.10-10 
Return Preparer Program Report

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Exhibit 4.1.10-11 
CAF Record Change Request Form

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