4.11.51  Return Preparer Program

4.11.51.1  (10-01-2004)
References

  1. References for Return Preparer Program.

    • IRC 6107

    • Treas. Reg. 1.6695-1(b)

    • IRM 4.10.1.6.12 - Third Party Contacts

    • IRM 20.1.6.1.6 - Program Action Cases

    • EQMS Standard No. 5 - Workpapers/Reports

    • EQMS Standard No. 7 - Timeliness

    • EQMS Standard No. 8 - Customer Relations/Professionalism

    • SB/SE Delegation Order 145.7 - Authority to Request and Inspect Preparers Records

4.11.51.2  (10-01-2004)
General

  1. The Return Preparer Program (RPP) allows for the examination of returns prepared by a particular preparer if information indicates a pattern of noncompliance exists. The examination of a preparer's clients' returns without the express approval of the Area Director is prohibited. The examination of returns prepared by a noncompliant preparer is useful in identifying erroneous returns. The assessment of penalties on the preparer may correct the preparer's practices or force him/her to discontinue practice.

  2. Preparer penalty consideration under I.R.C. §§ 6694 and 6695 is required on all cases regardless of the source of the case. Consideration is more strongly indicated on RPP cases.

  3. Treas. Reg. 1.6107-1(b) requires return preparers to make a copy of the following information available for inspection:

    1. Returns or claims for refund

    2. Records of returns and claims for refund

    3. Records of the individual preparer required to sign the return and claim for refund pursuant to Treas. Reg. 1.6695-1(b)

  4. SB/SE Delegation Order No. 145.7, Authority to Request and Inspect Preparers Records, delegates the authority of Treas. Reg. 1.6107-1(b) to:

    • Revenue Officers

    • Revenue Agents

    • Tax Auditors

    • Estate and Gift Tax Attorneys

    • Tax Compliance Officers

  5. The examined income tax returns should be closed through Case Processing as usual. Refer to IRM 20.1.6, Preparer/Promoter Penalties, and the EOG Chapter, Preparer and Promoter Penalties, for the procedures to be used for examining and closing of the preparer penalty case files.

  6. Every attempt should be made to limit the number of RPP correspondence examinations as these cases frequently require face-to-face interviews.

  7. See IRM 4.10.1.6.8, Separate notice Requirements for Joint Returns, and EOG - Correspondence with Taxpayers/Separate Notice Requirement, for providing taxpayers with employee contact information.

4.11.51.3  (10-01-2004)
Identification Of A Noncompliant Preparer

  1. The Return Preparer Coordinator (RPC) and the Area Multifunctional Penalty Steering Committee (PSC), if one exists, gather information on Area preparers from various sources. These include:

    1. information received from examiners through group managers (main source)

    2. preparer penalty records

    3. information items

    4. referrals from other functions

    .

  2. The RPC maintains files containing information on return preparer activities. When a pattern of noncompliance is noted, action to prohibit the preparer from practicing before the IRS will be considered. Program action will be limited to cases where information indicates that a return preparer has engaged in a widespread practice of making material errors. This conduct demonstrates intentional misconduct or clear incompetence in preparing income tax returns.

  3. The PSC will include the RPC E-file Monitoring Coordinator, CI Questionable Return Preparer Coordinator (QRP), and a representative designated by the Area Director (if desired).

4.11.51.4  (10-01-2004)
Information Provided About Noncompliant Preparers

  1. Be as specific as possible about noncompliance noted on examined returns when submitting information about a noncompliant return preparer. The following information should be provided:

    1. identification of the preparer as shown on page 2, Form 1040

    2. name and taxpayer identifying number of the examined taxpayer

    3. pertinent examples of pages from tax returns where the noncompliance was identified

    4. first two pages of the examination report in cases where adjustments were made

    5. source of the information which resulted in the referral and whether any preparer penalties are being pursued. The source of information may help to get an adequate listing of clients when preparers are using several EIN numbers.

4.11.51.5  (10-01-2004)
Initiating a Preparer Project

  1. When the information compiled by the RPC or PSC indicates that a pattern of noncompliance exists with the returns prepared, action to prohibit the preparer from practicing before the IRS is considered.

  2. Groups should request a list of all individual and business returns prepared by the preparer under the authority of IRC 6107(b)(2).

  3. The RPC orders a sample of returns from these lists as well as the preparer inventory list (PIL) and reviews them for audit potential. If it is decided by the RPC that there is sufficient audit potential in the sample, concurrence will be obtained from the PSC.

  4. Upon concurrence, the committee will submit a program action request memorandum to the Area Director through the Territory Manager, for approval. If concurrence is not obtained, follow standard conflict procedures

  5. If approved, the RPC will establish the cases on AIMS using source code 49 and local project and tracking codes. These codes (including source code 49) will be used on all related pick-ups, subsequent and prior years.

  6. If not approved, no action will be taken and the RPP for this preparer will be closed.

4.11.51.6  (10-01-2004)
Third Party Contacts

  1. Preparers/Promoters must be notified if third party contacts are to be made in connection with a preparer/promoter penalty. IRC 6671, Rules for Application of Assessable Penalties, treats preparer penalties as taxes. Therefore, when contacts are made to determine if the preparer/promoter is liable for a penalty, third party notification is required.

  2. If the promoter's clients are being contacted to start an examination of the client's return, then this is not considered a third party contact since the purpose of the contact is to determine the client's tax liability and not whether the preparer/promoter is subject to a penalty.

    Example:

    If during a compliance review of a preparer's EITC files it is discovered that a client's return appears to have overstated EITC, the contact with the client is NOT considered a third party contact.

  3. Letter 3164S, Third Party Notification for Compliance Reviews & 637 Registration Review, is to be used to provide third party notification to return preparers before beginning program action examinations.

  4. Refer to IRM 4.11.57, EOG Third-Party Contacts, for further information.


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