25.20.2 Identification and Treatment of Ghost Preparers

Manual Transmittal

October 06, 2017

Purpose

(1) This transmits the revised IRM 25.20.2, Preparer Enrollment, Education and Oversight; Identification and Treatment of Ghost Preparers.

Material Changes

(1) Various editorial and formatting changes have been made throughout this IRM.

(2) IRM 25.20, chapter title change from Tax Professional Oversight and Support to Preparer Enrollment, Education and Oversight.

(3) IRM 25.20.2.1, Program Scope and Objectives - Revised the title to properly reflect the information communicated in this subsection. Also, rearranged existing IRM content to place information involving internal controls under this subsection to conform to the new internal controls requirement. Subsections added under Program Scope and Objectives applicable to this program include:

  1. IRM 25.20.2.1.1, Background of the PTIN requirement for Paid Return Preparers - Added historical information about the PTIN requirement and who is required to get a PTIN.

  2. IRM 25.20.2.1.2, Authority - Added legal authorities about the PTIN requirement.

  3. IRM 25.20.2.1.3, Responsibilities - Added responsibilities in relation to the ghost preparer program for the Director of RPO Compliance, Group Manager of the Ghost Group and Compliance analysts.

  4. IRM 25.20.2.1.4, Program Controls - Added information about controls in place from the Group Manager, Quality Review and access to the Return Preparer Database.

  5. IRM 25.20.2.1.5, Acronyms - Compiled a list of frequently used acronyms and their definitions in IRM 25.20.2, Identification and Treatment of Ghost Preparers.

  6. IRM 25.20.2.1.6, Related Resources - Moved content formerly in the Overview subsection to this subsection and added the Compliance Analyst Desk Guide.

(4) IRM 25.20.2.2, Sources of Ghost Preparer Leads - Deleted paragraph 5, it previously explained the process of requesting permission of the manager for cases that take longer than 10 hours. The Compliance Analyst Desk Guide covers this information.

(5) IRM 25.20.2.3, Intake of Complaint Referral Leads - Deleted the spelling out of Ghost Inventory Tracking System, the first mention of this system is now in IRM 25.20.2.1.4, Program Controls.

(6) IRM 25.20.2.4, Steps in Working a Ghost Case - Revised content to change from 4 steps to 7 steps. Some of the additional steps were listed in other parts of IRM 25.20.2, Identification and Treatment of Ghost Preparers, they are now consolidated here to better align with the actual steps of working a ghost preparer case. Subsections listed under Steps in Working a Ghost Case include the following changes:

  1. IRM 25.20.2.4.1, Evaluation of Source/Lead - Added a new subsection, it describes how analysts are to consider and evaluate the source of the ghost preparer lead and minimize unnecessary research.

  2. IRM 25.20.2.4.2, Deconfliction - Moved this subsection and revised the title.

  3. IRM 25.20.2.4.3, Research and Investigation - Revised the title and combined this subsection with the prior subsection, Verbal and Written Contact. Deleted paragraph 3, it was duplicative of the current paragraph 4, communicating with third parties.

  4. IRM 25.20.2.4.4, Analysis and Determination - Revised the title and some minor edits for clarity to paragraphs 1 and 2.

  5. IRM 25.20.2.4.5, Treatment of Confirmed Ghost Preparers - Revised the Bullets in paragraph 2 as Official Use Only (OUO). Added Wage & Investment (W&I) to paragraph 4 and minor edits to paragraphs 5, 7 and 8 - removed the form number and replaced with the form title.

  6. IRM 25.20.2.4.6, Documentation - Revised the title and the content of paragraph 1(a) through 1(e) to remove the form number and replace with the form title. In addition, paragraph 1 was rewritten to provide better definitions of the listed forms. Added paragraph 1(f), Correspondence Section – it describes the various types of correspondence to include in the case file. Added paragraph 2, it describes the documentation of a complete case file. The prior paragraph 2 has been moved down to paragraph 3.

  7. IRM 25.20.2.4.7, Completion and Submission - Revised the title and moved paragraph 1(d) to 3(f). The sentence in paragraph 2(d) has been rewritten for clarity and paragraph 2(h) has been added (about filing the original completed case file based off appropriate retention standards). Finally, minor edits to paragraph 3; removed the form number and replaced with the form title.

(7) IRM 25.20.2.5, Case Revisit (Look Back) Procedures - Minor edits to paragraph 2; removed the form number and replaced with the form title.

(8) IRM 25.20.2.5.1, First Case Revisit (Look Back) - Minor edits to paragraph 1(a), 1(c) and 1(d); removed the form number and replaced with the form title.

(9) IRM 25.20.2.5.2, Second Case Revisit (Look Back) - Minor edits to paragraphs 2 and 3; removed the form number and replaced with the form title.

Effect on Other Documents

None

Audience

Compliance analysts in the Compliance department within the Return Preparer Office (RPO).

Effective Date

(10-06-2017)

Carol A. Campbell
Director, Return Preparer Office

Program Scope and Objectives

  1. Purpose: This section describes the processes and procedures for identifying and treating ghost preparers who are not compliant with the Preparer Tax Identification Number (PTIN) requirements. Some return preparers choose not to follow the PTIN requirements, which are located at https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers. The IRS has termed these unidentified return preparers as "ghost preparers" . A ghost preparer is a compensated return preparer who:

    1. Fails to report an identifying number on the tax return,

    2. Uses a valid identifier as defined by IRM 21.3.10.3.2, Preparer Tax Identification Number, belonging to another individual, or

    3. Uses an invalid identifier (e.g., PTIN P12345678, or SSN 444-44-4444)

  2. Audience: These instructions are for the Return Preparer Office (RPO) employees who are responsible for researching and treating ghost preparers.

  3. Policy Owner: The Director, RPO, is responsible for the administration of the PTIN requirements for paid return preparers.

  4. Program Owner: The Compliance department within RPO identifies and treats ghost preparers.

  5. Primary Stakeholders: As part of the identification and treatment of ghost preparers, the Compliance analyst group within the Compliance department interacts with:

    • Return Preparers (RP)

    • Complainants and clients of return preparers

    • Criminal Investigation (CI)

    • Wage and Investment (W&I)

    • Small Business/Self-Employed (SB/SE)

    • Lead Development Center (LDC)

    • Treasury Inspector General for Tax Administration (TIGTA)

    • Office of Professional Responsibility (OPR)

    • Other RPO departments

  6. Program Goals: To ensure all paid return preparers are in compliance with the PTIN requirements as outlined in, https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers.

Background of the PTIN requirement for Paid Return Preparers

  1. In June 2009, the IRS initiated a study to analyze the state of the return preparer industry, with the primary focus of understanding the impact the return preparer population has on the taxpaying public and assessing the consistency and quality of services provided by paid preparers. The Return Preparer Review Final Report (Pub 4832) was published in December 2009 and made numerous recommendations, including a mandatory registration requirement for paid tax return preparers and an identification number (PTIN).

  2. A PTIN is a number issued by the IRS to paid return preparers. It is used as the return preparer’s identification number and, when required, must be placed in the Paid Preparer section of a tax return filed after December 31, 2010 that was prepared for compensation.

  3. A PTIN must be obtained by all return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS unless the form is specifically exempted. All Enrolled Agents are also required to obtain a PTIN.

Authority

  1. The authority for requiring a PTIN is found in:

    • Treasury Regulation 1.6109-2, and

    • Internal Revenue Code (IRC) § 6109.

Responsibilities

  1. The Director of RPO Compliance is responsible for oversight of the identification and treatment of ghost preparers by employees.

  2. The Manager, Compliance Ghost Group, (or designee), is responsible for ensuring the program instructions are communicated to and carried out by the proper employees.

  3. The Compliance analysts are responsible for researching, reviewing, analyzing, and evaluating information from both internal and external sources to identify return preparers who are not adhering to the PTIN regulations and requirements.

Program Controls

  1. The Compliance Ghost Group Manager, (or designee), approves all ghost case closures.

  2. A quality review of a statistically valid sample of completed ghost cases is performed on a monthly basis, and a report is generated for managerial review.

  3. The Return Preparer Database (RP Database) is an Access database that contains a separate module that houses the Ghost Inventory Tracking System (GITS). The ability to input or modify content of the Return Preparer Database is granted only on an as-needed basis.

Acronyms

  1. The table lists commonly used acronyms in IRM 25.20.2, Identification and Treatment of Ghost Preparers:

    Acronym Definition
    EIN Employer Identification Number
    EUP Employee User Portal
    GITS Ghost Inventory Tracking System
    IDRS Integrated Data Retrieval System
    PTIN Preparer Tax Identification Number
    RPD Return Preparer Database
    RPO Return Preparer Office
    SSN Social Security Number

Related Resources

  1. Analysts should be aware of other IRS procedures related to ghost detection work not covered in IRM 25.20.2, Identification and Treatment of Ghost Preparers. Please refer to the following desk guide and IRMs for specific instructions:

    • Compliance Analyst Desk Guide

    • IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties

    • IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF)

    • IRM 25.27.1, Third Party Contact Program

Sources of Ghost Preparer Leads

  1. Ghost preparer leads are most often derived from:

    • RPO Complaint Referrals

    • Research Datasets

    • Self-Developed Leads

  2. When the RPO Complaint Referrals group receives a Form 14157, Return Preparer Complaint or equivalent complaint involving a ghost preparer, they will transfer it to the Compliance group.

  3. Research and data-gathering efforts are another source of inventory. Both RPO Technical Analysts and employees outside of RPO can detect ghost preparers using these tools.

  4. A self-developed lead arises when processing of a ghost preparer case by a Compliance analyst leads to the identification of other ghost preparers.

Intake of Complaint Referral Leads

  1. When Compliance receives a ghost preparer lead from RPO Complaint Referrals, Compliance will complete the following steps in order:

    1. Acknowledge the Form 3210, Document Transmittal if applicable.

    2. Print the complaint and related documents and place them in a folder for assignment or maintain the electronic documents.

    3. Enter the complaint information into the Compliance inventory record system, GITS.

    4. Assign the case to a Compliance analyst for evaluation and update GITS to reflect the assignment.

Steps in Working a Ghost Case

  1. When working a Compliance ghost case, complete the following steps in order:

    1. Evaluation of source/lead

    2. Deconfliction

    3. Research and Investigation

    4. Analysis and Determination

    5. Treatment

    6. Documentation

    7. Completion and Submission for review/managerial concurrence

Evaluation of Source/Lead

  1. The analyst should understand the source of the lead. The review of the information and its source will help determine the scope and depth of research. Considerations include:

    • What information is provided with the lead?

    • What research has already been completed and when?

    • What year was the programmatic non-compliance identified?

  2. The analyst should minimize duplicative research while ensuring that any previously conducted research is still current.

  3. Knowing what year the programmatic non-compliance was identified will help determine if opportunity for correction has been afforded to the return preparer or what data and data sources may be limited.

Deconfliction

  1. Once the Compliance analyst determines the identity of the ghost preparer, conduct IDRS research to determine if:

    1. The return preparer is currently under examination. Research IDRS Command Codes (CC) IMFOLT, IMFOLI, AMDISA to look for the following freeze codes: Z Freeze (CI Case) and - L Freeze (SB/SE Case).

    2. The return preparer was audited for the tax period(s) under investigation. Research IDRS CC IMFOLZ for prior audit information.

  2. Z Freeze: If there is a CI control on any tax period under review, the analyst will contact the controlling CI agent, explain the information obtained by Compliance, and ask if CI is interested in the information.

    1. If CI is interested in the information: Close the case to CI with no additional research (unless requested). Include controlling agent information in the case file.

    2. If CI is not interested in the information: Close the case No Action (this requires a new code in GITS).

  3. - L Freeze: If there is an AIMS control on any tax period under review, the analyst will contact the SB/SE exam group manager, explain the information obtained by Compliance, and ask if SB/SE is interested in the information.

    1. If SB/SE is interested in the information: Close the case to SB/SE with no additional research (unless requested). Include SB/SE contact information in the case file.

    2. If SB/SE is not interested in the information: Treat the case as a normal ghost case, per IRM 25.20.2.4.4, Analysis and Determination.

      Note:

      If SB/SE already completed the audit for the tax period(s) under investigation, the Compliance case will not result in a SB/SE referral. Include IDRS prints in the case file for verification.

Research and Investigation

  1. The Compliance analyst will research all appropriate internal and external systems to identify the ghost preparer and obtain information to establish programmatic noncompliance. Research includes establishing that tax return preparation income is or is not commensurate with the volume of returns being prepared. The Compliance analyst will arrive at a decision to treat or refer the return preparer based on this research.

    Caution:

    Employees are reminded that access to and inspection of paper and electronic taxpayer records are only allowed when the information is needed to carry out assigned tax administration duties. See I.R.C. § 6103(h)(1).

  2. Research may include, but is not limited to:

    • Accurint

    • Consumer Sentinel Warehouse

    • Employee User Portal (EUP)

    • Generalized IDRS Interface (GII)

    • Integrated Data Retrieval System (IDRS)

    • Internet

    • Return Preparer Database

    • Tax Professional PTIN System (TPPS)

    • yK-1,Link Analysis Tool

    • Other systems as needed or developed

  3. Written and verbal contact are additional means to identify the ghost preparer or, when the preparer is known, to provide evidence of PTIN misuse and other ghost behavior.

  4. The Compliance analyst may communicate with third parties, other IRS functions and/or the return preparer to obtain information to identify the ghost preparer and confirm allegations.

    Caution:

    Never contact a preparer whose account contains a Z Freeze or - L Freeze, see IRM 25.20.2.4.2, Deconfliction.

  5. The analyst must adhere to all third party contact requirements, IRM 25.27.1,Third Party Contact Program.

  6. The analyst should retain in the case file a copy of all correspondence sent and received, and log all telephone conversations on the case history sheet.

  7. If the analyst is able to identify the ghost preparer, the analyst must follow IRM 25.20.2.4.2, Deconfliction.

Analysis and Determination

  1. After evaluating all available data, the Compliance analyst must reach a conclusion and recommend the appropriate action.

  2. There are four possible conclusions and actions:

    Conclusion Action Reference
    A ghost preparer was not identified. Close case with no action See IRM 25.20.2.4.7, Completion and Submission
    A preparer was identified but no programmatic or personal tax compliance issues exist. Close case with no action See IRM 25.20.2.4.7, Completion and Submission
    A preparer was identified, and sufficient evidence was found to support programmatic or personal tax compliance issues. Preparer is not under investigation in another function. Determine the appropriate treatment See IRM 25.20.2.4.5, Treatment of Confirmed Ghost Preparers
    A preparer was identified and is under investigation in another function. Determine if the controlling function is interested in RPO’s information See IRM 25.20.2.4.2, Deconfliction

    Note:

    For specific instructions on Case File Assembly, see IRM 25.20.2.4.6, Documentation.

Treatment of Confirmed Ghost Preparers

  1. The two options for treating a confirmed ghost preparer are:

    1. Refer the case to another function, or

    2. Retain the case in RPO Compliance and issue an RPO Compliance treatment letter to the preparer to address the programmatic compliance issue. (I.e. used an expired PTIN, SSN, or EIN etc.)

      Note:

      The decision is somewhat subjective, and analysts are encouraged to use their knowledge and judgment when deciding.

  2. To determine the appropriate treatment of a confirmed ghost preparer, the Compliance analyst should consider the following factors (the list is not all-inclusive) -

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  3. The analyst should first decide if, based on the above factors, the case meets the criteria for referral to another function. For specific Business Unit or RPO department referral instructions, see the referral process guides located on the Compliance SharePoint site.

  4. The potential stakeholder functions are:

    • Criminal Investigation (CI)

    • Small Business/Self-Employed (SB/SE)

    • Lead Development Center (LDC)

    • Treasury Inspector General for Tax Administration (TIGTA)

    • Office of Professional Responsibility (OPR)

    • Wage and Investment (W&I)

    • Other RPO departments

  5. The analyst must include a detailed explanation on the Research Activity and Conclusion lead sheet of how the case meets the referral criteria.

  6. In instances where a case does not meet the criteria for referral to another function, but the analyst believes a referral is necessary, the analyst should discuss the case with the group manager.

  7. Whether or not a referral is appropriate, the analyst must decide whether a letter should be sent to the identified ghost preparer. If the analyst decides that a letter is appropriate, see IRM 25.20.2.4.7, Completion and Submission.

    Note:

    In some cases, both a referral and letter treatment may be appropriate.

  8. After deciding on a treatment, the analyst must obtain the manager’s concurrence and document the approval on the Research Activity and Conclusion lead sheet. Upon approval, the analyst will proceed with treatment.

Documentation

  1. At a minimum, the completed case file should include the following documentation:

    1. Compliance Analyst Activity Record: The analyst will complete this lead sheet to document the actions completed during the Compliance investigation and the corresponding time charged to the case. This document contains the entity and contact information for the subject return preparer as well as any scheduled look back dates.

    2. Research Activity and Conclusion Lead Sheet: The analyst will complete this lead sheet to document the research completed, conclusions reached and treatment actions recommended/taken when the Compliance case is originally worked.

    3. Closed Case Revisit Lead Sheet: The analyst will complete this lead sheet to document research completed, conclusions reached and treatment actions recommended/taken when the first case look back is performed.

    4. Closed Case 2nd Revisit Lead Sheet: The analyst will complete this lead sheet to document research completed, conclusions reached and treatment actions recommended/taken when the second case look back is performed. This lead sheet may be used for any additional look backs performed.

    5. Return Preparer Penalty Computation Sheet: These forms document actions and conclusions for return preparer treatment considerations.

    6. Correspondence Section: Copies of all letters, emails, or other communications with the subject return preparer, third parties, or other IRS operating divisions.

  2. The completed case file order should be as follows:

    • Inside left: Return Preparer Penalty Computation Sheet(s)

    • Compliance Analyst Activity Record

    • Research Activity and Conclusion Lead Sheet

    • Closed Case Revisit Lead Sheets (if appropriate)

    • Copies of research such as IDRS prints, EUP prints, etc

    • Correspondence section, Letters

  3. If a referral is found to be appropriate, complete a second case file for the referral function with the following:

    • Identify the receiving function on the folder

    • Inside Left: RPO Compliance Case File Assembly for SB/SE Referral

    • Form 14426

    • Compliance Analyst Activity Record

    • Research Activity and Conclusion Lead Sheet

    • Correspondence section, Letters

    • Source Document

    • Research

    • Professional Designation documentation (if the case is going to OPR).

Completion and Submission

  1. If no action is required on a case:

    1. Submit the case file to the group manager for concurrence. See IRM 25.20.2.4.6, Documentation.

    2. Update GITS to reflect closing the case as No Action.

    3. File the case in the closed case retention file for the appropriate retention period.

  2. If referring a case to another function:

    1. Follow the specific referral process guide to create case files.

    2. Prepare Form 14426, Return Preparer Office (RPO) Referral.

    3. For cases warranting a letter treatment as well, prepare the letter and place it in the Compliance case file.

    4. For referrals to SB/SE examination, include the RPO Compliance Case File Assembly, "white paper" .

    5. Submit the case to the group manager for approval.

    6. Upon approval, update GITS.

    7. Send the completed case file copy to the other function.

    8. File the original completed case file in the closed case retention file for the appropriate retention period.

  3. If a letter is an appropriate treatment:

    1. Properly complete recommended letter. Letter templates that auto-populate are in the Return Preparer Database and in the Forms and Publications Repository on IRWeb.

      Note:

      Do not complete the date field.

    2. Indicate the look back date on the activity record.

    3. Submit the case file with the original letter and a copy to the group manager for concurrence.

    4. If the group manager concurs, the manager will sign the necessary approval documents.

    5. The letter is mailed including the issuance date on the upper right hand corner.

    6. Store files that require a look back until the look back date, see IRM 25.20.2.5, Case Revisit (Look Back) Procedures.

Case Revisit (Look Back) Procedures

  1. Look backs are done to verify that the return preparer has come into compliance and, if previously treated, that the treatment was effective.

  2. Where applicable, the Compliance analyst will indicate on the activity record the month and year for the look back. The analyst will use discretion in determining the appropriate month and year for an effective look back, or will indicate Not Applicable (N/A).

First Case Revisit (Look Back)

  1. The analyst will complete the following actions for First Case Revisit (Look Back) cases:

    1. Complete a closed case revisit lead sheet and include the lead sheet with all of the original information in the case file. If the return preparer is not compliant with PTIN requirements, make every effort to reach the return preparer, including phone contact and additional letter treatment if they were previously treated with a letter.

    2. Submit the case file to the group manager for approval.

    3. Update the activity record to include all additional actions taken.

    4. Determine if a second case revisit is needed. Indicate on the activity record the second look back, and follow the second Case Revisit procedures.

    5. Complete system updates as needed.

Second Case Revisit (Look Back)

  1. The analyst will follow the procedures for the first look back, but use the RPO second revisit lead sheet in place of the first revisit lead sheet.

  2. The analyst must include this lead sheet with all of the original information in the case file (including the first revisit lead sheet).

  3. Circumstances may dictate that the analyst consider a third case look back and referral to a stakeholder where non-compliance is found.

RPO 100 - Compliance Analyst Activity Record, Page 1

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RPO 100 - Compliance Analyst Activity Record, Page 2

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RPO 105 - Research Activity and Conclusion Lead Sheet, Page 1

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RPO 105 - Research Activity and Conclusion Lead Sheet, Page 2

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RPO 150 - Closed Case Revisit Lead Sheet, Page 1

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RPO 150 - Closed Case Revisit Lead Sheet, Page 2

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RPO 155 - Closed Case Second Revisit Lead Sheet, Page 1

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RPO 155 - Closed Case Second Revisit Lead Sheet, Page 2

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