25.20.2 Ghost Preparer Treatment

Manual Transmittal

April 13, 2020

Purpose

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

Material Changes

(1) Various editorial and formatting changes made throughout the IRM.

(2) Changed IRM name from Identification and Treatment of Ghost Preparers to Ghost Preparer Treatment.

(3) IRM 25.20.2.1, Program Scope and Objectives. Moved ghost preparer definition to IRM 25.20.2.1.4, Definitions/Acronyms.

(4) IRM 25.20.2.1.1, Background of the PTIN requirement for Paid Return Preparers. Moved Preparer Tax Identification Number (PTIN) definition to IRM 25.20.2.1.4, Definitions/Acronyms.

(5) Deleted former subsection, Authority, this information is incorporated into paragraph (2) of IRM 25.20.2.1.4, Definitions/Acronyms.

(6) IRM 25.20.2.1.2, Responsibilities. Added paragraph (4) on Taxpayer Bill of Rights.

(7) IRM 25.20.2.1.3, Program Controls. Added paragraph (1) on workload inventory originating outside the Ghost Group. Removed paragraph on quality review of closed ghost preparer cases.

(8) IRM 25.20.2.1.4, Definitions/Acronyms. Changed subsection title and added paragraphs (1), (4), and (5). Moved ghost preparer definition to paragraph (2) and PTIN definition to paragraph (3). Added new acronyms in paragraph (6).

(9) IRM 25.20.2.1.5, Related Resources. Added IRM 25.20.1 and IRM 25.20.3, removed IRM 21.3.7.

(10) IRM 25.20.2.3.1, Sources of Ghost Preparer Leads. Moved former paragraphs (2), (3), and (4) to paragraph (1) as bullets.

(11) Deleted former subsection, Intake of Complaint Referral Leads. This information does not pertain to the audience of this IRM.

(12) IRM 25.20.2.3.1, Source/Lead Evaluation. Changed subsection title and removed former paragraphs (2) and (3).

(13) IRM 25.20.2.3.2, Deconfliction. Added new paragraph (1) for purpose of Deconfliction.

(14) IRM 25.20.2.3.3, Research and Investigation. Removed former paragraphs (1) and (3); this information is incorporated into the remaining paragraphs in this section.

(15) IRM 25.20.2.3.4, Analysis and Determination. Changed table to provide further clarification for preparers that are under investigation in another unit or when a preparer has a sanction/injunction imposed.

(16) IRM 25.20.2.3.5, Treatment. Changed subsection title and removed former paragraphs (3), (7), and (8).

(17) IRM 25.20.2.3.6, Documentation. Added “Research” to paragraph (1).

(18) IRM 25.20.2.3.7, Completion and Submission. Moved information on actions completed by the Compliance Ghost Group manager and administrative support to the “Note” in paragraphs (2c) and (3d). Also, moved information on GITS to new paragraph (4).

(19) IRM 25.20.2.4, Case Revisit Procedures. Changed subsection title.

(20) IRM 25.20.2.4.1, First Case Revisit. Changed subsection title and moved former alpha list in paragraph (1) to new paragraphs (2), (3), (4) and (5).

(21) IRM 25.20.2.4.2, Second/Third/Fourth Case Revisit. Changed subsection title and deleted paragraphs (2) and (3).

(22) Deleted former Exhibits: RPO 100 - Compliance Analyst Activity Record (Pages 1 and 2), RPO 105 - Research Activity and Conclusion Lead Sheet (Pages 1 and 2), RPO 150 - Closed Case Revisit Lead Sheet (Pages 1 and 2), and RPO 155 - Closed Case Second Revisit Lead Sheet (Pages 1 and 2).

Effect on Other Documents

None

Audience

Analysts in the Return Preparer Office (RPO) Compliance department.

Effective Date

(04-13-2020)

Carol A. Campbell
Director, Return Preparer Office

Program Scope and Objectives

  1. Purpose: This section describes the procedures for investigating and treating return preparers who do not comply with Preparer Tax Identification Number (PTIN) requirements. For purposes of this IRM 25.20.2, these preparers are known as ghost preparers.

  2. Audience: These instructions are for Return Preparer Office (RPO) Compliance department employees responsible for investigating and treating ghost preparers.

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

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

  5. Primary Stakeholders: RPO Compliance’s ghost preparer work intersects with:

    • Return Preparers

    • Complainants and clients of return preparers

    • Criminal Investigation

    • Wage and Investment

    • Small Business/Self-Employed

    • Lead Development Center

    • Treasury Inspector General for Tax Administration

    • Office of Professional Responsibility

    • Other RPO departments

  6. Program Goals: To ensure all paid return preparers comply with PTIN requirements.

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.

  2. 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.

Responsibilities

  1. The RPO Compliance director is responsible for oversight of the identification, investigation and treatment of ghost preparers.

  2. The Compliance Ghost Group manager is responsible for supervising the analysts who investigate and treat ghost preparers.

  3. As a Compliance Ghost Group analyst, you are responsible for investigating ghost preparer leads, administering treatments, and documenting your determinations and actions.

  4. All employees must act in accord with the Taxpayer Bill of Rights while carrying out duties related to the ghost preparer program. For additional information, see Policy Statement 1-236 and the Taxpayer Bill of Rights.

Program Controls

  1. Workload inventory (i.e., leads) for the Ghost Group originates with sources outside the group, such as with RPO Compliance-Complaint Referrals or RPO Compliance-Compliance Planning and Direction.

    Note:

    At your discretion, you may expand treatment to other ghost preparers who come to light as a result of your initial investigation.

  2. The Compliance Ghost Group manager approves all ghost preparer case closures.

  3. Permission to edit the Ghost Inventory Tracking System is granted only as needed.

Definitions/Acronyms

  1. Ghost Inventory Tracking System – A module in the Return Preparer Database used by the Compliance Ghost Group to record and monitor the ghost preparer cases worked by the group.

  2. Ghost Preparer – For purposes of this IRM 25.20.2, a ghost preparer is a compensated tax return preparer who does not comply with the PTIN requirements in IRC 6109 and Treasury Regulation 1.6109-2. On returns they prepare, a ghost preparer will:

    • Fail to include any identifying number,

    • In place of their PTIN, include a number that is not their PTIN, such as:
      • Series of random numbers,
      • SSN,
      • EIN,
      • PTIN issued to another preparer,
      • Made-up PTIN, or
      • PTIN issued under the IRS’s discontinued PTIN issuance system (a.k.a. a legacy PTIN).

  3. Preparer Tax Identification Number – A unique number issued by the IRS to a return preparer that must be included in the Paid Preparer Use Only section of tax returns prepared for compensation and filed after December 31, 2010. Only PTINs issued under the Tax Professional PTIN System are valid. PTINs are in the format of P followed by eight numeric characters.

  4. Return Preparer Database – A consolidation of a wide variety of information on return preparers designed for use by IRS compliance and enforcement employees.

  5. Tax Professional PTIN System – The system through which the IRS has issued and administered PTINs since September 28, 2010.

  6. Acronyms used in this IRM include:

    Acronym Definition
    CI Criminal Investigation
    EIN Employer Identification Number
    EUP Employee User Portal
    GITS Ghost Inventory Tracking System
    IDRS Integrated Data Retrieval System
    LDC Lead Development Center
    OPR Office of Professional Responsibility
    PTIN Preparer Tax Identification Number
    RPO Return Preparer Office
    SB/SE Small Business/Self-Employed
    SSN Social Security Number

Related Resources

  1. Besides this IRM, other resources include:

    • Compliance Analyst Desk Guide

    • IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties

    • IRM 25.20.1, Complaint Referrals

    • IRM 25.20.3, Return Preparer Suitability

    • IRM 25.27.1, Third Party Contact Program

Sources of Ghost Preparer Leads

  1. Common sources of ghost preparer leads are:

    • Complaints from the Complaint Referrals team, within the RPO Compliance department.

    • Research Datasets - RPO technical analysts and other IRS employees can identify groups of potential ghost preparers then deliver them to the Compliance Ghost Group.

    • Self-Developed Leads - When working a ghost preparer case, you may identify other ghost preparers.

Steps in Working a Ghost Preparer Case

  1. Work a ghost preparer case in the following order:

    1. Source/Lead Evaluation

    2. Deconfliction

    3. Research and Investigation

    4. Analysis and Determination

    5. Treatment

    6. Documentation

    7. Completion and Submission

Source/Lead Evaluation

  1. Review the lead to determine:

    • what information is provided,

    • whether the information is current,

    • and what research needs to be performed to confirm the preparer’s identity and the PTIN noncompliance.

Deconfliction

  1. Deconfliction is performed to ensure an identified ghost preparer’s case is not being worked by another IRS business unit.

  2. Use the IDRS Command Codes IMFOLI and IMFOLT to look for a:

    1. -Z Freeze Code (CI) or

    2. -L Freeze Code (SB/SE Examination)

    Note:

    If a code is present, contact the CI controlling agent or SB/SE group manager, respectively, and offer to provide a copy of the case file. If the offer is accepted, provide the case file to the requesting unit without performing additional research and close the case as a transfer to the requesting unit. If the offer is declined, close the case with no further action. In either case, document the communications with CI or SB/SE in the Compliance Analyst Activity Record.

  3. Use the Return Preparer Database to determine whether the LDC has a case open on the ghost preparer. If so, contact the controlling employee, ask if RPO Compliance treatment will interfere with the investigation, and offer to provide a copy of the case file. If treatment will not interfere, proceed with the treatment. If treatment will interfere, close the case as a transfer to the LDC with no further action. In either case, document the communications with the LDC employee and provide a copy of the case file if requested.

  4. Use the Criminal Sanction/Civil Injunction module of the Return Preparer Database to determine if restrictions/prohibitions have been imposed on the ghost preparer. If so, contact the RPO Compliance Fraud Analyst for guidance on next steps and case closure.

Research and Investigation

  1. Use the following resources to identify the ghost preparer, confirm PTIN noncompliance, and determine if return preparation income is commensurate with the number of returns prepared:

    • Accurint

    • CDW Knowledge Graph Environment

    • Employee User Portal

    • Generalized IDRS Interface

    • Integrated Data Retrieval System

    • Internet

    • Return Preparer Database

    • Tax Professional PTIN System

    • yK-1,Link Analysis Tool

    • Other systems as needed or developed

      Caution:

      Inspection of returns and return information is allowed only when needed to carry out your official duties. See IRC 6103(h)(1).

  2. As part of your research, you may communicate with third parties, other IRS units, and/or the return preparer. Comply with the requirements in IRM 25.27.1, Third-Party Contact Program.

    Caution:

    Never contact a preparer with a -Z Freeze or -L Freeze, see IRM 25.20.2.3.2, Deconfliction.

  3. Include copies of correspondence in the case file and log telephone calls in the Compliance Analyst Activity Record.

  4. If you can identify the ghost preparer, follow IRM 25.20.2.3.2 , Deconfliction.

Analysis and Determination

  1. Evaluate the results of your investigation, formulate a conclusion, then recommend a course of action.

  2. There are four possible conclusions:

    Conclusion Action Reference
    There are no PTIN or personal tax compliance issues. Close case with no action IRM 25.20.2.3.7, Completion and Submission
    A preparer was identified, is PTIN or tax noncompliant, and is not under investigation in another unit. Referral or letter treatment IRM 25.20.2.3.5, Treatment
    A preparer was identified, and is under investigation in another unit. • CI: Provide copy of case file if requested and close case with no further action. • SB/SE and LDC: Letter treatment if authorized, close case no action if letter treatment is not authorized. Provide copy of case file if requested. IRM 25.20.2.3.2, Deconfliction
    A preparer was identified and a Criminal Sanction/Civil Injunction has been imposed. Contact the Compliance Fraud Analyst for guidance on next steps and case closure. IRM 25.20.2.3.2, Deconfliction

Treatment

  1. You must exercise your professional judgment when deciding on the appropriate treatment. Options are:

    1. Refer the case to another IRS unit based upon the business unit specific criteria found on the RPO Compliance SharePoint site, or

    2. Issue an RPO Compliance treatment letter and potentially contact the preparer by phone to address the PTIN noncompliance. (e.g., used an SSN, EIN, expired PTIN, etc.)

      Note:

      In some cases, both a referral and an RPO Compliance treatment are appropriate.

  2. To determine the appropriate treatment, consider the following factors (there may be additional factors):

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  3. The potential referral recipients are:

    • Criminal Investigation

    • Small Business/Self-Employed

    • Lead Development Center

    • Treasury Inspector General for Tax Administration

    • Office of Professional Responsibility

    • Wage and Investment

    • Other RPO departments

  4. If a case is referred to another unit, explain in detail on the Research Activity and Conclusion lead sheet why the case meets the referral criteria.

  5. If a case does not meet the criteria for referral to another unit, but you believe a referral is warranted, discuss the case with the Compliance Ghost Group manager.

Documentation

  1. Include the following in the completed case file in the order indicated:

    1. Return Preparer Penalty Computation Sheet: Use this sheet to calculate the amount of IRC 6695 penalties that could theoretically be imposed. Attach it to the inside left of the file folder.

    2. Compliance Analyst Activity Record: Use this sheet to document all case related activities and their corresponding time charges. This sheet contains preparer contact information and scheduled case revisit dates.

    3. Research Activity and Conclusion Lead Sheet: Use this sheet to document the research completed, conclusions reached and treatment recommended when the case is originally worked.

    4. Research: After the Research Activity and Conclusion Lead Sheet and each Closed Case Revisit Lead Sheet (see below), include relevant research documents such as prints from IDRS, EUP, Return Preparer Database, etc.

    5. Closed Case Revisit Lead Sheet: Use this lead sheet to document research completed, conclusions reached and treatment recommended when the first revisit is performed.

    6. Closed Case 2nd, 3rd, 4th Revisit Lead Sheets: Use these lead sheets to document research completed, conclusions reached and treatment recommended when subsequent case revisits are performed.

    7. Correspondence: Include copies of all letters, e-mails, or other communications with the return preparer, third parties, and other IRS operating divisions.

  2. If you are making a referral, build a second case file for the recipient with the following:

    • Name of the recipient unit on the outside of the folder

    • Form 14426, Return Preparer Office (RPO) Referral

    • Compliance Analyst Activity Record

    • Research Activity and Conclusion Lead Sheet followed by supporting research documents

    • Closed Case Revisit Lead Sheets (if any) followed by supporting research documents

    • Correspondence (if any)

    • Lead Source Document (if any)

      Note:

      Do not include the Preparer Penalty Computation Sheet.

  3. For SB/SE referrals, include the items from (2) as well as:

    • RPO Compliance Case File Assembly attached to the inside left of the file folder, and

    • RPO "White Paper"

  4. For OPR referrals, include the items from (2) as well as:

    • professional designation documentation

Completion and Submission

  1. If no action is required on a case:

    1. Build the case file according to IRM 25.20.2.3.6, Documentation

    2. Submit the completed case file to the Compliance Ghost Group manager for approval.

  2. If referring a case to another unit:

    1. Build the Compliance Ghost Group copy of the case file according to IRM 25.20.2.3.6, Documentation, and the referral copy according to IRM 25.20.2.3.6 (2).

    2. For cases warranting a letter treatment as well as a referral, complete the fillable fields of the letter, other than the date. Place two copies of the letter in the Compliance Ghost Group copy of the case file: one for mailing and one to keep in the case file. Place a third copy of the letter in the referral copy of the case file.

    3. Submit both case files to the Compliance Ghost Group manager for approval.

      Note:

      The Compliance Ghost Group manager will oversee the submission of the referral copy of the case file to the recipient. If a treatment letter is included, the Compliance Ghost Group manager will sign, date, and mail it.

  3. If a letter is the appropriate treatment:

    1. Build the case file according to IRM 25.20.2.3.6, Documentation

    2. Other than the date, complete the fillable fields of the letter. Include two copies in the case file: one for mailing and one to keep in the case file.

    3. Enter the scheduled case revisit date on the Compliance Analyst Activity Record. See IRM 25.20.2.4, Case Revisit Procedures.

    4. Submit the case file to the Compliance Ghost Group manager for approval.

      Note:

      If the Compliance Ghost Group manager approves, they will sign, date and mail one copy of the letter. If a case requires a revisit, administrative support will store the case until the scheduled revisit date. See IRM 25.20.2.4, Case Revisit Procedures.

  4. Regardless of a case’s outcome, create a case record in GITS.

Case Revisit Procedures

  1. Case revisits, also referred to as look backs, are conducted to determine if previous treatments brought the return preparer into compliance or if additional treatment is warranted.

  2. Exercise your professional judgement when scheduling a case revisit. Enter the future date on the Compliance Analyst Activity Record. Enter NA if you aren’t planning a look back.

First Case Revisit

  1. Conduct the research needed to determine if the ghost preparer has come into compliance. See IRM 25.20.2.3.3, Research and Investigation.

  2. Evaluate the research and decide on the appropriate action. See IRM 25.20.2.3.4, Analysis and Determination.

  3. If additional treatment is warranted, ensure the ghost preparer’s case is not now open in another unit. See IRM 25.20.2.3.2, Deconfliction. Administer treatment according to IRM 25.20.2.3.5, Treatment.

  4. Update the case file with information and documentation from the look back. Prepare a second case file if you recommend a referral. Refer to IRM 25.20.2.3.6, Documentation.

  5. Update the case file to meet the requirements in IRM 25.20.2.3.7, Completion and Submission, then submit it to the Compliance Ghost Group manager.

Second/Third/Fourth Case Revisit

  1. Follow the procedures for the first case revisit but use the Closed Case 2nd/3rd/4th Revisit Lead Sheet in place of the previous revisit lead sheet.