25.24.4 Return Preparer Misconduct Field Collection

Manual Transmittal

March 17, 2017

Purpose

(1) This transmits new IRM 25.24.4, Return Preparer Misconduct Program, Return Preparer Misconduct for Collection Employees.

Material Changes

(1) This new IRM provides collection procedures for revenue officers and other collection caseworkers working cases involving claims of return preparer misconduct, and guidance for the collection of certain civil penalties assessed against preparers and others.

Effect on Other Documents

This new IRM incorporates the following Interim Guidance Memorandums (IGM):
• SBSE-05-1214-0086, Reissuance of Interim Guidance: Return Preparer Fraud or Misconduct, dated December 8, 2014;
• SBSE-25-0516-0018, Preparer, Promoter, Appraiser, Material Advisor, and Aiding & Abetting Penalties, dated May 13, 2015; and
• SBSE 25-0117-0005, Interim Guidance on Allegations of Return Preparer Misconduct within Field and Specialty Collection and Exam.

Audience

Revenue officers and other caseworkers in SB/SE Collection

Effective Date

(03-17-2017)

Kristen E. Bailey
Director, Collection Policy

Overview

  1. This IRM provides direction and guidance specifically for revenue officers and other Collection caseworkers working cases involving taxpayer claims of misconduct by a tax return preparer.

  2. This IRM also provides guidance on the collection of preparer, promoter, appraiser, material advisor, and aiding and abetting penalties.

Return Preparer Misconduct

  1. A taxpayer is a victim of Return Preparer Misconduct (RPM) when a tax return preparer completes a return for a taxpayer and without the taxpayer’s knowledge makes changes to the return, which results in an improper refund to the preparer or a third party. Taxpayers may not know there is an issue until the IRS contacts them about the return well after refunds have been issued.

  2. Refer to IRM 25.24.1, Return Preparer Misconduct Program, for general information and direction for the program and IRM 1.2.24.2, Policy Statement 25-2, Return Preparer Misconduct.

  3. Taxpayers who claim to be a victim of return preparer misconduct must submit a complaint and the required documentation. Refer to IRM 25.24.4.5.1, Return Preparer Misconduct Documentation.

  4. If a taxpayer claims he or she has no knowledge of the improper return entries and did not complete the return, then treat the taxpayer as a potential victim of Return Preparer Misconduct. Collection activity must cease on liabilities assessed against the taxpayer in connection with a refund or portion of a refund that the taxpayer never received.

Return Preparer Definitions

  1. Signing preparer - Preparer information appears on the processed tax return. An individual who prepares federal tax returns for compensation is required to have a Preparer Identification Number (PTIN) issued by IRS and must enter it on every tax return prepared for compensation along with the preparer’s name and signature. Any preparer with a PTIN is in the business of preparing tax returns or has held him/herself out as in the business of preparing tax returns.

  2. "Ghost" or non-signing preparer - No preparer information appears on the processed tax return. An individual who preparer a tax return but does not sign the return as a preparer. These returns may be reflected as "self-prepared" .

  3. These return preparer definitions are relevant only for purposes of RPM guidance.

Return Preparer Misconduct Categories

  1. There are four basic fact patterns to Return Preparer Misconduct (RPM).

    1. Category 1: Unauthorized Filing
      The taxpayer was in contact with a preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ did not sign a return or authorize a return filing. The preparer submits a return using the taxpayer’s identifying information and directs all or part of the refund to an account not belonging to the taxpayer.

    2. Category 2: Altered return with no additional refund due the taxpayer.
      The taxpayer authorized a preparer to file a return, but the preparer later alters the return to increase the expected refund, if any. The taxpayer received at least the amount of the expected refund from the IRS or the preparer and the preparer or other person received all or part of the increased refund amount.

    3. Category 3: Altered return information with an additional refund due to the taxpayer.
      The same facts as Category 2 except the taxpayer receives only a portion or none of the expected refund.

    4. Category 4: Misdirected direct deposit
      The taxpayer was in contact with the preparer and authorized the filing of a return. The preparer changed either the mailing address for the refund check or the deposit information, such as the bank routing and/or account numbers. The return filed is otherwise as intended to be filed by the taxpayer.

  2. Review all documentation in the RPM complaint to determine the correct category. The category determines the action to be taken and the relief that can be provided and may change as research is completed.

Suspension of Collection Action

  1. When a taxpayer alleges Return Preparer Misconduct and the allegation has not already been investigated in another function, temporarily suspend all collection actions on the affected tax modules. Specifically, this includes:

    1. Issuing any new levies, including systemic Federal Payment Levy Program (FPLP) levies (IRM 5.11.7.2.6, Blocking or Releasing FPLP Levy) and other Automated Levy Programs (SITLIP, AKPFD).

    2. Filing any new Notices of Federal Tax Lien.

    3. Issuing Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, or Letter 3174, New Warning of Enforcement.

    4. Initiating seizure action.

  2. Be sensitive to the adverse impact that being a victim of Return Preparer Misconduct may have upon the taxpayer and his or her ability to pay.

Return Preparer Misconduct Guidelines for Relief Not Met

  1. The taxpayer’s RPM complaint may not meet IRS guidelines for relief. The table below includes some of the situations that do not meet IRS guidelines for RPM relief.

    Note:

    Even if the complaint doesn’t meet RPM guidelines, there are nonetheless procedures to deal with certain situations that could result in some assistance or relief for the taxpayer.

    If... Then...
    The taxpayer’s only issue is a lost, stolen or unintentional misdirected refund
    • See IRM 21.4.1.3.4, Refund Issued but Lost, Stolen, Destroyed of Not Received

    • Advise the taxpayer that a review of the account and the information provided indicates an issue other than RPM

    • Explain to the taxpayer the account status

    The taxpayer submits preparer misconduct documentation, but the reduced refund is due to a math error, frozen refund, or usual Exam or AUR inquiries
    • Inform the taxpayer that a review of the account and information provided does not support RPM

    • Explain to the taxpayer the reason for the reduced refund

    The taxpayer did not visit a preparer for the current year; however, a preparer filed a return without authorization using information obtained from a prior year visit resulting in an identity theft scenario
    OR

    The taxpayer provides the return preparer and company name and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ resulting in an identity theft scenario
    AND
    there is no evidence the taxpayer’s actual return has been processed (no duplicate filing transactions, TC 976 or 977, on the module)
    • Advise the taxpayer he/she is a victim of identity theft.

    • See IRM 5.1.28, Identity Theft Procedures for Collection Employees.

    • If a signed unprocessed return is received with the RPM complaint, process the return per IRM 5.1.11.5, Secured Return.

    The taxpayer did not visit a preparer for the current year; however, a preparer filed a return without authorization using information obtained from a prior year visit resulting in an identity theft scenario
    OR
    The taxpayer provides preparer name and company name and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ resulting in an identity theft scenario
    AND there is evidence the taxpayer’s actual return has been processed (TC 976/977)
    • Advise the taxpayer he/she is a victim of identity theft.

    • See IRM 5.1.28, Identity Theft Procedures for Collection Employees.

    The taxpayer’s account does not show a posted return Advise the taxpayer that no tax return has been filed using his/her TIN. Secure a signed return and process it per IRM 5.1.11.5, Secured Return.
    The taxpayer submits RPM documentation due to a credit offset for a balance due on a prior year or Treasury Offset Program (TOP) offset for other liabilities, e.g., child support
    • Inform the taxpayer that a review of the account and information provided does not support RPM.

    • Explain to the taxpayer the reason for the reduced refund.

    The taxpayer’s complaint does not fit into any of the four RPM fact patterns, but involves PTIN misuse, misrepresentation of credentials, extreme fees, etc.
    • Advise the taxpayer why the complaint does not meet IRS guidelines for relief.

    • Route the original Form 14157 and documents to:
      Return Preparer Office
      401 W. Peachtree Street NW
      Mail Stop 421-D
      Atlanta, GA 30308

    • Recommend the taxpayer contact the Federal Trade Commission, Better Business Bureau, State Consumer Agencies, etc. See IRM 1.2.24.2, Policy Statement 25-2, Return Preparer Misconduct.

    • Continue with collection procedures.

Return Preparer Misconduct Complaints

  1. Upon receipt of an RPM complaint, first determine whether RPM criteria is met.

    1. Review any taxpayer correspondence

    2. Ensure the required documentation was submitted per IRM 25.24.4.5.1, Return Preparer Misconduct Documentation

    3. Research IDRS to confirm a tax return was filed or is required to be filed

    4. Request a refund trace in specific circumstances

    5. Verify the preparer exists

    6. Identify the correct RPM category

  2. If RPM criteria is met, then take the appropriate action as outlined in this IRM resulting in adjustment of the account and, in certain circumstances, issuance of a full or partial refund.

  3. If RPM criteria is not met, see IRM 25.24.4.4 above.

Return Preparer Misconduct Documentation

  1. If the taxpayer alleges a preparer altered tax data on a return or misdirected all or a portion of a refund, then the taxpayer must submit sufficient documentation to support the allegation.

  2. Documentation for complaint consideration includes the following:

    1. Form 14157, Complaint: Tax Return Preparer, completed by the taxpayer.

    2. Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, completed and signed by the taxpayer (at least one taxpayer if married filing joint).

    3. Signed, valid tax return as intended to be filed unless the taxpayer does not have a filing requirement

    4. Signature of the preparer on the return filed by the preparer or preparer information on an electronic return

      Note:

      If there is no signing preparer see (3)

    5. Name and address of the preparer on the Form 14157 or 14157-A or within taxpayer’s written correspondence

    6. Report from a law enforcement agency (only for Categories 3 and 4): This could include a report made to the police department, State Attorney General (AG), Criminal Investigation (CI), and/or Treasury Inspector General for Tax Administration (TIGTA). The law enforcement agency report must be signed by a police officer or equivalent, depending on the report received (or otherwise demonstrably shown it was accepted by that law enforcement agency). It must contain the following:

    • Tax year(s) involved, and

    • Preparer’s first and last name and address, and

    • Statement describing the preparer misconduct and theft of the refund

  3. In a case involving a "ghost" or non-signing preparer, in addition to the documentation in (2) above, at least one additional piece of corroborating evidence that the preparer was in the business or held him/herself out as being in the business of preparing tax returns is required.

  4. Examples of evidence the preparer held him/herself out as being in the business of preparing tax returns include the following (this list is not all inclusive):

    • Copy of the tax return(s) provided by the preparer if signed by the preparer as the paid preparer (for purposes of establishing the preparer held him/herself out as a preparer)

    • Preparer’s PTIN or EIN

    • Preparer’s business card

    • Flyer or advertisement with the name of the return preparation service or the preparer

    • Professional or business letterhead with the name of the preparer

    • Business name on check from preparer

    • A letter addressed to the taxpayer from TIGTA, civil preparer investigation (IRC § 6700, Promoting Abusive Tax Shelters, or IRC § 6701, Penalties for Aiding and Abetting Understatement of Tax Liability), or IRS Criminal Investigation (CI) regarding an ongoing investigation of the preparer (for purposes of establishing the preparer held him/herself out as a preparer).

    • Affidavit of the person who hosted or sponsored the preparer

      Example:

      If the preparer’s services were provided at a church hall, then the minister could provide an affidavit with details about when the tax return preparation services were offered.

    • Documentation of state or local law enforcement investigation of the preparer

  5. In addition, one piece of corroborating evidence that the person named on the Form 14157 interacted with the taxpayer and submitted the return filed is required.

    Exception:

    If CI indicates there was interaction between the taxpayer and the preparer, then this requirement is met.

    1. The evidence must show the following:
      1.) Preparer name
      2.) Tax year(s) in question, with
      3.) Applicable corresponding dates indicating an exchange between the taxpayer and the preparer about the filing of a tax return

    2. Evidence the taxpayer interacted with the person named on the Form 14157 may include the following:
      1.) Cover letter, including the tax return, received from the preparer when the return was prepared
      2.) Copy of Form 8879, IRS e-file Signature Authorization, with signature or evidence it was received from the preparer
      3.) Copy of negotiated check the taxpayer gave to the preparer for payment of services
      4.) Credit card statement with the charge in the preparer’s name (or the preparer’s business name) for payment of services
      5.) Copy of "refund" check the taxpayer received from the preparer
      6.) Receipt from the preparer reflecting a fee for the preparation of a tax return for the tax year in question
      7.) Email, text message or other written communication between the taxpayer and preparer about tax return preparation

      Exception:

      If internal research, e.g., CC NAMEI, MeF information through EUP, etc., shows that the taxpayer’s return and the individual tax return for the preparer named by the taxpayer were filed from the same IP address or other information is present indicating an association, use this information as one piece of evidence showing interaction. Request additional information if needed.

  6. Additional relevant documentation may include the following:

    • Copy of bank statement with the refund amount received by direct deposit, if applicable

    • Copy of taxpayer’s bank statement showing the refund was not deposited in the taxpayer’s account

    • Copies of any other documentation to support the complaint

Refund Trace

  1. In addition to the required documentation to support the RPM complaint, a refund trace may be required on ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ cases. Tracing the refund will validate the taxpayer’s statement about whether a refund was issued or deposited into an account in the taxpayer’s name.

  2. Use the table below to determine if a refund trace is required.

    For RPM A refund trace is required
    Categories 1 and 2 when the RPM complaint is denied and the taxpayer’s return as intended to be filed is included in the complaint. The refund trace will determine the appropriate processing of the return submitted with the complaint.

    Exception:

    If the taxpayer states a refund was received that matches the TC 846, then a refund trace is not required because the taxpayer received the entire refund.

    Exception:

    If the taxpayer states a portion of the refund was received and the remainder of the refund equals the stated preparer fees, then a refund trace is not required.

    Note:

    If refund trace information is available, then the information must be used when determining the correct relief.

    Categories 3 and 4 on all cases

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Research refund information via CC IMFOLI, TXMOD, TRDBV, and MeF Return Request Display (RRD) through EUP.

    1. Indicator DD:0 (paper check)

    2. Indicator DD:9 (direct deposit)

    3. Refund Anticipation Loan (RAL) indicator of "1"

    4. Refund Anticipation Check (RAC) indicator of "2"

  4. Complete Form 4844, Request for Terminal Action, and forward to the Designated Identity Theft Adjustment (DITA) team to request a refund trace. See Exhibit 25.24.4-1, for an example of a completed form. Upon completion of the refund trace, DITA will return the results.

    Note:

    Refund trace can take 4-6 weeks to complete. Continue with the investigation while waiting for the refund trace results.

  5. Depending on the RPM category, the refund trace information will be used in conjunction with other requirements to determine the correct adjustment amount. Review all available refund trace information for all cases, if applicable, regardless of category for information on the amount of the refund, if any, received by the taxpayer.

  6. Refund trace information will reflect a negotiated check or completed FMS Form 150.1 or Form 150.2, which provide information as to the individual’s name and where the refund was deposited.

    Note:

    Be cognizant of split refunds. It is possible that the taxpayer received a portion of the refund or multiple refunds were issued to the preparer. A bank may have returned money to the IRS. Consider any returned monies when determining relief and any additional refund due the taxpayer. Treasury Offset Program offsets must be considered as well because the taxpayer received the benefit of the refund.

Preparer Verification

  1. Verification of the preparer is required on all complaints alleging RPM. Research the account to determine whether the original return was signed by a preparer or there was a "ghost" preparer.

    1. If the return was filed electronically, research CC TRDBV and/or access EUP to review MeF original tax return information.

    2. If a paper return was filed, the original return may need to be requested from Files to determine if there is a signing or "ghost" preparer scenario.

    3. If there is preparer information per CC TRDBV and the name of the preparer matches the name of the preparer on the complaint, then there is no need to request the document from Files. If the name does not match or there is no preparer information, then request the document from Files.

  2. The two levels of verification required are the following:

    1. Documentation and/or IDRS research must show the preparer named on Form 14157 is in the business of preparing tax returns or held him/herself out as being in the business of preparing tax returns, AND

    2. Evidence the person named on the Form 14157 interacted with the taxpayer and submitted the return filed with the IRS.

  3. Verify the identity of the preparer from the following IRS records:

    • CC INOLE to verify the TIN or EIN provided

    • CC RPVUE to verify PTIN

    • CC NAMEI or CC NAMEB to locate TIN or EIN

  4. Use this table for verifying the preparer.

    If And Then
    Signing preparer and preparer name match the name with the associated TIN, EIN, or PTIN ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Note: ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Consider verified
    Signing preparer and PTIN provided is not valid or belongs to another person Through research ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ can be located for the preparer Consider verified
    Signing preparer and PTIN provided is not valid or belongs to another person Through research ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ cannot be located for the preparer Consider not verified.
    Signing preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ from the information provided by the taxpayer N/A Consider identity theft
    Signing preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ provided by the taxpayer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Through research ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ can be located for the preparer Consider verified
    Signing preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ provided by the taxpayer ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Through research ≡ ≡ ≡ ≡ ≡ ≡ cannot be located for the preparer Consider not verified
    Non-signing preparer and no preparer information on tax return, "self-prepared" and documentation is provided showing that the third party held him/herself out to be a return preparer and third party interaction Through research ≡ ≡ ≡ ≡ ≡ ≡ ≡ can be located for the preparer Consider verified
    Non-signing preparer and no preparer information on tax return, "self-prepared" and documentation is provided showing that the third party held him/herself out to be a return preparer and third party interaction Through research ≡ ≡ ≡ ≡ ≡ ≡ ≡ cannot be located for the preparer Consider not verified

Law Enforcement Agency Report Verification

  1. An official report from a law enforcement agency (e.g., police department, State Attorney General (AG), CI, TIGTA) is required in RPM Category 3 and 4 cases for the taxpayer to be eligible for an additional refund.

    Exception:

    If the original refund is frozen for the full amount in question, then the law enforcement agency report is not required.

  2. The official law enforcement agency report must be signed by a law enforcement agency officer or equivalent, depending on the report received (or otherwise demonstrably accepted by the law enforcement agency) and contain the following:

    1. Tax year(s) involved

    2. Return preparer’s first and last name and address, and

    3. A statement describing the preparer misconduct and theft of refund

  3. If signing preparer information is present, the individual named on the law enforcement agency report must match the name of the preparer named in the complaint and on the original return. If it is a non-signing preparer situation, then the preparer name on the law enforcement agency report must match the preparer named in the complaint.

  4. If the preparer name does not match, then the taxpayer is not entitled to an additional refund. The taxpayer may still be eligible for an account adjustment and removal of the preparer portion of the refund depending on the refund verification results.

Return Preparer Misconduct Categories 1-4

  1. Each RPM category has unique fact patterns, required documentation and treatment.

Category 1 - Unauthorized Filing

  1. Category 1 is defined as a taxpayer who was in contact with a preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ did not sign a return or authorize the filing of a return, but a return was filed with his/her name and TIN.

  2. The IRS will resolve these cases using RPM procedures and result in the taxpayer receiving a refund.

    Example:

    The taxpayer visited or was in contact with a preparer and provided personal information including income documentation for a quote, rapid refund eligibility, etc. and subsequently a return is filed without the taxpayer’s knowledge.

    Information that may assist with the determination may include:

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If the taxpayer provided personal information, including income documentation to a third party for other, non-tax purposes, such as a loan, and subsequently a return is filed without the taxpayer’s knowledge, then it is considered identity theft, not RPM.

  3. Category 1 complaints will result in treating the original return filed as a nullity. The complaint will be treated with procedures similar to those for identity theft. Do not input identity theft indicators for the first year RPM is verified. Any subsequent years in which the preparer filed a return without the taxpayer’s knowledge will be considered identity theft and the account will be adjusted to match the taxpayer’s return and a subsequent refund may be issued barring no other issues.

    Note:

    When it is possible that the taxpayer is not a victim of RPM but a victim of identity theft, use judgment to distinguish between the two. Based on the documentation submitted and research conducted a determination may be made that the taxpayer did have knowledge of the return filing. If this determination is made, follow the treatment stream that fits the appropriate category.

Category 1 Required Documentation
  1. Category 1 requires specific documentation to qualify for relief. The required documentation is outlined in the table below.

    If the posted return reflects a Then the ≡ ≡ ≡ required documentation is:
    Signing Preparer
    • Tax return as intended to be filed signed by the taxpayer(s)

    • Form 14157 - ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer if married filing joint)

    Ghost/Non-Signing Preparer
    • Tax return as intended to be filed signed by the taxpayer(s)

    • Form 14157 - ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer if married filing joint)

    • Documentation showing the third party presented him/herself as a preparer

    • Documentation showing interaction

    Note:

    A refund trace is not required for Category 1 cases during the initial processing of the complaint; however, if refund trace information is available, use it to help verify the taxpayer’s statement regarding whether a refund was received in the taxpayer’s name. If a refund was received by the taxpayer, consider the amount received when adjusting the account.

  2. Consider the documentation requirement complete if the ≡ ≡ ≡ ≡ required documents above are included.

  3. In some circumstances all the required documentation is not required.

    Example:

    Tax return is not included because the taxpayer states he/she is not required to file a return and research (CC IRPTR) supports that.

    Example:

    Form 14157-A is not included; however, other documentation that is included contains the required information and the taxpayer provides a statement or explanation signed under penalties of perjury.

    Example:

    If the preparer’s ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or first and last name and address are included on other documentation, then Form 14157 is not required.

  4. Consider the documentation incomplete if the ≡ ≡ ≡ ≡ ≡ required documents above are not included, or are included, but the information provided in the documentation is incomplete.

    Example:

    The taxpayer indicates that a refund was received and does not include the amount of the refund received on Form 14157-A or other documentation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. See IRM 25.24.4.8, Incomplete or Missing Documentation, below.

    2. Verify the preparer information, see IRM 25.24.4.5.3, Preparer Verification, above.

    3. For Category 1, ≡ ≡ ≡ ≡ ≡ cases, initiate a refund trace (IRM 25.24.4.5.2) when the claim is disallowed. This is necessary to determine the appropriate handling of the actual return provided with the claim. If a refund trace was previously performed and the result is available on a ≡ ≡ ≡ ≡ ≡ refund, use the information to verify the receipt or non-receipt of a refund and to determine if any additional refund may be issued.

    4. Verify whether a refund was issued or deposited into an account in the taxpayer’s name.
      • If ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      • If ≡ ≡ ≡ ≡ determine if refund trace was previously performed.

      Example:

      Taxpayer states no refund was received and available refund trace information shows that the refund was NOT deposited into an account in the taxpayer’s name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

      Taxpayer states that no refund or portion of a refund was received; however, available refund trace shows that the entire refund was deposited into an account in the taxpayer’s name. Use the refund amount from the refund trace information to determine the additional refund amount, if any, due to the taxpayer.

  5. If refund trace information is not available or available refund trace information cannot verify the receipt or non-receipt of the refund, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. The complaint is accepted once it is complete and all third party documentation, if applicable, is present and the preparer information is verified.

  7. For an accepted claim, the original return will be considered a nullity and the actual return presented by the taxpayer (unaltered by the preparer) as the taxpayer’s return of record.

Category 1 Accepted Complaint
  1. See the table below for the relief to which the taxpayer is entitled for accepted Category 1 complaints.

    If the taxpayer states he/she received And the return as intended to be filed reflects And the original refund was Then the taxpayer is eligible for
    No refund Refund due ≡ ≡ OR ≡ ≡ ≡ ≡ ≡ ≡ and available refund trace information shows NO refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the unauthorized return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    • Applicable additional refund, plus interest

    No refund or Portion of refund Balance due ≡ ≡ ≡ OR ≡ ≡ ≡ ≡ ≡ and available refund trace information shows NO refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the unauthorized return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund.

    ≡ ≡ ≡ ≡ ≡ and available refund trace information shows all or a portion of the refund WAS deposited into an account in the name of the taxpayer
    • Account adjustment to remove the unauthorized return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    Ask the taxpayer to repay the erroneous portion of the refund using Category D erroneous refund procedures.
    No Refund or Portion of refund Correct refund is greater than the amount that the taxpayer received ≡ ≡ ≡ ≡ OR≡ ≡ ≡ ≡ and available refund trace information shows all or a portion of the refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the unauthorized return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund.

    • Remaining balance of refund due per actual return

    Exception:

    Partial Disallowance: If available refund trace confirms that the portion of refund received is greater than what the taxpayer states, then only the remaining balance of the refund will be refunded.

    Correct refund is less than the amount that the taxpayer received ≡ ≡ ≡ OR ≡ ≡ ≡ ≡ and available refund trace information shows all or a portion of the refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the unauthorized return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund.

    Ask the taxpayer to repay the erroneous portion of the refund using Category D erroneous refund procedures.

Category 2 - Authorized Filing, Altered Return. Altered Return Information and No Additional Refund Due to the Taxpayer

  1. Category 2 complaints involve a taxpayer who was in contact with a preparer and authorized a return be filed, but states tax data, e.g., exemptions, income, expenses, deductions, credits, etc., on the return was altered before the return was filed or the return otherwise includes items that he/she did not authorize.

  2. The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. If the refund trace shows the taxpayer received more than he/she was entitled to then the taxpayer may be liable for the erroneous refund amount. See IRM 25.24.4.7, Erroneous Refund, below.

    Example:

    The copy of the tax return provided by the taxpayer reflects only wages and withholding with a refund of $2,000. The taxpayer states he/she received $2,000. The posted return reflects wages, withholding, and a Schedule C loss with a refund of $5,000. Internal research supports a determination that the taxpayer authorized the return filing. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Category 2 complaints will result in treating the original return filed as a nullity.

Category 2 Required Documentation
  1. The required documentation for Category 2 is outlined in the table below.

    If the posted return reflects a Then the ≡ ≡ ≡ ≡ required documentation is:
    Signing preparer
    • Tax return as intended to be filed signed by the taxpayer(s)

    • Form 14157 - First and last name of preparer

    • Form 14157-A - signed under penalties of perjury (by at least one taxpayer if married filing joint)

    Ghost/Non-signing preparer
    • Tax return as intended to be filed signed by the taxpayer

    • Form 14157 - First and last name of preparer

    • Form 14157-A - signed under penalties of perjury (by at least one taxpayer if married filing joint)

    • Documentation showing the third party presented him/herself as a preparer

    • Documentation showing interaction between the taxpayer and the preparer

    Note:

    A refund trace is not required during the initial processing of a complaint for Category 2 cases unless the complaint is incomplete. If refund trace information is available, then use it to assist verifying the taxpayer’s statement about whether a refund was received in the taxpayer’s name.

  2. Consider the documentation complete if the ≡ ≡ ≡ ≡ ≡ required documents above are included.

  3. In some cases all the required documentation is not required.

    Example:

    The tax return is not included because the taxpayer states he/she is not required to file and IRP research supports that assertion.

    Example:

    Form 14157-A is not included, but other documentation contains the required information and the taxpayer provides a statement or explanation signed under penalties of perjury.

    Example:

    If the preparer’s first and last name and address are included on other documentation, then Form 14157 is not required.

  4. Consider the documentation incomplete if the ≡ ≡ ≡ ≡ required documents above are not included or are included but the information provided is incomplete.

    1. See IRM 25.24.4.8, Incomplete/Missing Documentation, below.

    2. Verify the preparer information; see IRM 25.24.4.5.3, Preparer Verification, above.

      Note:

      For Category 2, ≡ ≡ ≡ ≡ ≡ ≡ cases, initiate a refund trace (IRM 25.24.4.5.2) when the claim is incomplete or disallowed. This is necessary to determine the appropriate handling of the actual return provided with the claim. If a refund trace was previously performed and the result is available on a ≡ ≡ ≡ refund, use the information to verify the receipt or non-receipt of a refund and to determine the amount, if any, of an erroneous refund received by the taxpayer.

    3. Verify whether a refund was issued or deposited into an account in the taxpayer’s name.
      • If ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      • If ≡ ≡ ≡ ≡ ≡ ≡ determine if refund trace was previously performed.

      Example:

      Taxpayer states that no refund or portion of a refund was received; however, available refund trace shows that the entire refund was deposited into an account in the taxpayer’s name. Use the refund amount from the refund trace information to determine any additional refund amount.

  5. If trace information is not available or available trace information cannot verify the receipt or non-receipt of the refund, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. The complaint is accepted once it is complete and all third party documentation, if applicable, is present and the preparer information is verified.

  7. For an allowed claim, the original return will be considered a nullity and the actual return presented by the taxpayer (unaltered by the preparer) as the taxpayer’s return of record.

Category 2 Accepted Complaint
  1. See the table below for the relief to which the taxpayer is entitled for accepted Category 2 complaints.

    If the taxpayer states he/she received The return as intended to be filed reflects And the original refund was Then the taxpayer is eligible for
    Refund Refund amount that matches the amount received ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    No refund Balance due ≡ ≡ ≡ ≡ or ≡ ≡ ≡ and available refund trace information shows NO refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    ≡ ≡ ≡ ≡ ≡ and available refund trace information shows all or a portion of the refund was deposited into an account in the name of the taxpayer
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund, if applicable

    Ask the taxpayer to repay the erroneous portion of the refund using Category D erroneous refund procedures.
    Refund amount that exceeds the amount on the return as intended to be filed Refund/Balance due ≡ ≡ and the taxpayer states received more than entitled to
    OR
    ≡ ≡ ≡ ≡ ≡ ≡ and available refund trace information shows all or a portion of the refund WAS deposited into an account in the name of the taxpayer
    OR
    Determination can be made from account information and taxpayer’s statement that all or a portion of the refund was received by the taxpayer
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund, if applicable

    Ask the taxpayer to repay the erroneous portion of the refund using Category D erroneous refund procedures.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ information about fees paid to the preparer that were deducted from the original refund, take that into account when determining the preparer portion of the refund and any additional refund amounts. Do not take it into account when the fee is paid by other methods, e.g., cash or personal check.

Category 3 - Authorized Filing - Altered Return Information and Taxpayer Requesting an Additional Refund

  1. Category 3 is defined as a taxpayer who was in contact with a preparer and authorized a return filing, but alleges tax data (exemptions, income, expenses, deductions, credits, etc.) on his/her return was altered after he/she signed it or the return otherwise includes items that he/she did not authorize and the taxpayer states either he/she did not receive a refund or received only a portion of the refund expected

  2. The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. The taxpayer may receive a refund plus interest for the amount not received.

    Example:

    The copy of the tax return provided by the taxpayer reflects only wages and withholding with a refund amount of $2,000. The taxpayer states he/she received no refund. The posted return reflects wages and withholding and a Schedule C loss with a refund of $5,000. Internal research supports determination that taxpayer authorized the filing of the return. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Allowed Category 3 complaints result in the original return filed being treated as a nullity.

Category 3 Required Documentation
  1. Category 3 required documentation is outlined in the table below.

    If the posted return reflects a Then the ≡ ≡ ≡ ≡ ≡ ≡ required documentation is
    Signing preparer
    • Tax return as intended to be filed signed by the taxpayer(s)

    • Form 14157 - First and last name of preparer and address

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer for married filing joint)

    • Law enforcement agency (e.g., police department, AG, CI, TIGTA) report with these required elements:

      • Signature of an officer or equivalent or otherwise demonstrably shown to be accepted by the law enforcement agency

      • Tax year(s) involved

      • Preparer’s first and last name

      • Statement describing the preparer misconduct and theft of refund.

    Ghost/Non-signing preparer
    • Tax return as intended to be filed signed by the taxpayer(s)

    • Form 14157 - First and last name of preparer and address

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer for married filing joint)

    • Documentation showing third party presented him/herself as a preparer

    • Documentation showing interaction between taxpayer and preparer

    • Law enforcement agency (e.g., police department, AG, CI, TIGTA) report with these required elements:

      • Signature of an officer or equivalent or otherwise demonstrably shown to be accepted by the law enforcement agency

      • Tax year(s) involved

      • Preparer’s first and last name

      • Statement describing the preparer misconduct and theft of refund.

  2. If the ≡ ≡ ≡ ≡ ≡ required documents above are included, consider the documentation requirement complete.

  3. In some cases all the required documentation is not required.

    Example:

    Form 14157-A is not included; however, other documentation included contains the required information and the taxpayer provides a statement or explanation signed under penalties of perjury.

    Example:

    If the preparer’s first and last name and address are included on other documentation, then Form 14157 is not required.

  4. Consider the documentation incomplete if the ≡ ≡ ≡ ≡ ≡ required documents above are not included or are included but the information provided is incomplete.

    Example:

    The taxpayer indicates that a refund was received but does not include the amount of the refund received on Form 14157-A or other documentation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. See IRM 25.24.4.8, Incomplete or Missing Documentation, below.

    2. Verify the preparer information; see IRM 25.24.4.5.3, Preparer Verification, above.

    3. For Category 3, ≡ ≡ ≡ cases, a refund trace (IRM 25.24.4.5.2) is required. Use it to verify whether a refund was issued in the taxpayer’s name and to determine the amount, if any, of an additional refund that may be issued.

    4. Verify whether a refund was issued or deposited into an account in the taxpayer’s name.
      • If ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      • If ≡ ≡ ≡ ≡ determine if a refund trace was previously performed. If no trace information is available, request a refund trace.
      • Use the refund trace information to verify the taxpayer’s statement about whether a refund was issued or deposited into an account in the taxpayer’s name.

      Example:

      The taxpayer states no refund was received and available refund trace information shows that the refund was NOT deposited into an account in the taxpayer’s name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

      The taxpayer states that no refund or portion of refund was received; however, available refund trace information shows that the entire refund was deposited into an account in the taxpayer’s name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ use the refund trace information to determine the refund amount, if applicable.

  5. If refund trace information is not available or the trace information cannot verify the receipt or non-receipt of the refund, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    The taxpayer states a portion of the refund was received and available refund trace information shows that the refund was NOT deposited into an account in the taxpayer’s name. The portion that the taxpayer received cannot be verified. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If the complaint is complete with all required documentation, including third party documentation, if applicable, is present and the preparer information is verified, then accept the complaint.

  7. The IRS will determine the type of relief that the taxpayer is entitled to, and for an accepted claim, will consider the original return a nullity and the actual return presented by the taxpayer (unaltered by the preparer) as the taxpayer’s return of record.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ information about fees paid to the preparer that were deducted from the original refund, take that into account when determining the preparer portion of the refund and any additional refund amount. The fee amount must be considered when determining any additional refund amounts. Do not consider fees paid by other payment methods, e.g., cash or personal check.

  8. Category 3 involves both an RPM complaint and a claim for refund. If the complaint is disallowed, the claim for refund must be disallowed using claim disallowance procedures.

Category 3 Accepted Complaint
  1. See the table below for the taxpayer relief in accepted Category 3 complaints.

    If the taxpayer states he/she received And the original refund was And the individual named on the law enforcement agency report Then the taxpayer is eligible for
    No refund ≡ ≡ or ≡ ≡ ≡ ≡ and refund trace information shows the refund was NOT deposited into an account in the name of the taxpayer Signing preparer: Matches the name on the complaint and on the processed tax return.
    Non-signing preparer: Matches the name on the complaint
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of preparer portion of the refund

    • Applicable additional refund

    Signing preparer: Does not match name on complaint and processed tax return
    Non-signing preparer: Does not match name on complaint
    Or
    No law enforcement agency report is submitted with the complaint
    Partial disallowance
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    • NO additional refund because law enforcement agency report requirement not met

    No refund or Portion of a refund ≡ ≡ ≡ ≡ ≡ and all or a portion of the refund was deposited into the account of the taxpayer
    AND
    the refund is equal to the refund on the actual return
    Matches/Does Not Match regardless of whether it is a signing preparer or non-signing preparer Partial disallowance
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • NO additional refund is due because our records show the taxpayer previously received the applicable refund

    Note:

    If the law enforcement agency report information does not match the information on Form 14157-A, include that in the claim disallowance letter.

    No refund or portion of a refund ≡ ≡ ≡ ≡ ≡ ≡ and all or a portion of the refund was deposited into the account of the taxpayer
    AND
    the refund is less than what the taxpayer is entitled to on the actual return
    Signing preparer: Matches name on complaint and processed tax return.
    Non-signing preparer: Matches name on complaint
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    • Applicable additional refund


    Exception: Partial Disallowance:
    • If the refund amount the taxpayer states he/she did not receive matches the fee paid to the preparer then no additional refund or

    • If the refund trace confirms that the portion received is greater than what the taxpayer states, then issue only the remaining balance of refund.

    Signing preparer: Does not match name on complaint and processed tax return.
    Non-signing preparer: Does not match name on complaint
    Or
    No law enforcement report is submitted with the complaint
    Partial Disallowance
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund

    • NO additional refund because law enforcement agency report requirement not met.

    No refund or portion of refund ≡ ≡ ≡ and a PORTION of the refund was deposited into taxpayer’s account
    AND
    The refund is greater than what taxpayer is entitled to on actual return
    Matches/Does Not Match regardless of whether it is a signing preparer or non-signing preparer Partial Disallowance
    • Account adjustment to remove the nullified return

    • Account adjustment to reflect return as intended to be filed

    • Removal of the preparer portion of the refund


    Ask the taxpayer to repay the erroneous portion of the refund using Category D erroneous refund procedures.

    Note:

    If the taxpayer claims no refund was received, but the refund trace shows a portion was issued in the taxpayer’s name, then issue a partial claim disallowance.

    Note:

    In order for the taxpayer to be eligible for an additional refund, the individual preparer name on the law enforcement agency (e.g., police department, AG, CI, TIGTA) report must match the name on the complaint and the documentation submitted to verify the preparer was in the business of preparing returns. For a signing preparer, the name must also match the name on the processed return.

Category 4 - Misdirected Refund Only and Taxpayer Requesting Additional Refund

  1. Category 4 is defined as a taxpayer who was in contact with a preparer and authorized a return be filed, but states only the direct deposit information or address was altered, diverting the refund to the preparer and no refund or only a portion of the refund was received.

  2. The IRS may administratively remove the portion of the refund attributable to preparer misconduct and the taxpayer may receive a refund if the required documentation is provided.

  3. Category 4 complaints will not result in treating the original tax return as a nullity.

Category 4 Required Documentation
  1. Category 4 complaints require specific documentation to qualify for relief as outlined in the table below.

    If the posted return reflects a Then the ≡ ≡ ≡ ≡ required documentation is:
    Signing preparer
    • Tax return as intended to be filed signed by the taxpayer(s) (should match the posted return with the exception of the refund information)

    • Form 14157 - First and last name and address of preparer

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer for married filing joint)

    • Law enforcement agency (e.g., police department, AG, CI, TIGTA) report with these required elements:

      • Signature of an officer or equivalent or otherwise demonstrably shown to be accepted by the law enforcement agency

      • Tax year(s) involved

      • Preparer’s first and last name

      • Statement describing preparer misconduct and theft of refund

    Ghost/Non-signing preparer
    • Tax return as intended to be filed signed by the taxpayer(s) (should match the posted return with the exception of the refund information)

    • Form 14157 - First and last name and address of preparer

    • Form 14157-A - Signed under penalties of perjury (by at least one taxpayer for married filing joint)

    • Documentation showing third party presented him/herself as preparer

    • Documentation showing interaction between taxpayer and preparer

    • Law enforcement agency (e.g., police department, AG, CI, TIGTA) report with these required elements:

      • Signature of an officer or equivalent or otherwise demonstrably shown to be accepted by the law enforcement agency

      • Tax year(s) involved

      • Preparer’s first and last name

      • Statement describing preparer misconduct and theft of refund

    Note:

    In Category 4 cases where the original refund is frozen for the full amount in question, the law enforcement agency report is not required.

    Note:

    A refund trace is required for all Category 4 cases. Use it to assist with verifying the taxpayer’s statement about receipt of no or only a portion of the refund.

  2. Consider the documentation complete if the ≡ ≡ ≡ ≡ required documents above are included.

  3. In some circumstances all the required documentation is not required.

    Example:

    Form 14157-A is not included; however, other documentation included contains the required information and the taxpayer provides a statement or explanation signed under penalties of perjury.

    Example:

    If the preparer’s first and last name and address are included on other documentation, then Form 14157 is not required.

  4. Consider the documentation incomplete if the ≡ ≡ ≡ ≡ ≡ ≡ documents above are not included or are included, but the information provided within the documentation is incomplete.

    Example:

    The taxpayer indicates that a refund was received and does not include the amount of the refund received on Form 14157-A or other documentation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ provides information regarding fees paid to the preparer, it must be taken into account when determining refund eligibility.

    1. See IRM 25.24.4.8, Incomplete of Missing Documentation, below.

    2. Verify the preparer information, see IRM 25.24.4.5.3, Preparer Verification, above.

    3. For Category 4, ≡ ≡ ≡ ≡ cases a refund trace (IRM 25.24.4.5.2) is required. Use it to verify whether a refund was issued in the taxpayer’s name and determine the amount, if any, of an additional refund.
      • If ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      • If ≡ ≡ ≡ ≡ ≡ determine if a refund trace was previously performed. If no refund trace information is available, then initiate a refund trace. A refund trace is required to verify whether a refund was issued in the taxpayer’s name.

    Example:

    The taxpayer states no refund was received and refund trace information shows that the refund was NOT deposited into an account in the taxpayer’s name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    The taxpayer states that no refund or portion of refund was received; however, the refund trace shows that the entire refund was deposited into an account in the taxpayer’s name. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ use the refund trace information. The claim is disallowed.

  5. If refund trace information cannot verify the receipt or non-receipt of the refund, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Example:

    The taxpayer state a portion of the refund was received and available refund trace information shows that the refund was NOT deposited into an account in the taxpayer’s name. The portion that the taxpayer received cannot be verified. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. If the complaint is considered complete and all required documentation, including third party documentation, if applicable, is present and the preparer information is considered verified, then the complaint is accepted.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ information about fees paid to the preparer that were deducted from the original refund, take that into account when determining the preparer portion of the refund and any additional refund amount. Do not take into account fees paid by other methods, e.g., cash, personal check.

  7. For Category 4 accepted complaints the original return is considered valid and is not considered a nullity.

Category 4 Accepted Complaint
  1. See the table below for the relief to which the taxpayer is entitled for accepted Category 4 complaints.

    If the taxpayer states he/she received And the original refund was And the individual named on the law enforcement agency report Then the taxpayer is eligible for:
    No refund or Portion of a refund ≡ ≡ ≡ or ≡ ≡ ≡ ≡ and refund trace information shows the refund was NOT deposited into an account in the name of the taxpayer Signing preparer: Matches name on complaint and processed tax return
    Non-signing preparer: Matches the name on the complaint
    • Removal of the preparer portion of the refund

    • Applicable additional refund

    Signing preparer: Does not match name on complaint and processed tax return
    Non-signing preparer: Does not match name on complaint or no law enforcement agency report submitted with the complaint
    See IRM 25.24.4.9, Claim Disallowance
    No refund or portion of a refund ≡ ≡ ≡ ≡ and ENTIRE refund was deposited into account of the taxpayer Match/Does Not Match regardless of whether it is a signing preparer or non-signing preparer See IRM 25.24.4.9, Claim Disallowance
    No refund or portion of a refund ≡ ≡ ≡ ≡ and a PORTION of the refund was deposited into an account of the taxpayer Signing preparer: Matches name on complaint and processed tax return
    Non-signing preparer: Matches name on complaint
    • Removal of the preparer portion of the refund

    • Applicable additional refund

    Exception:

    Partial Disallowance
    • If the refund amount the taxpayer states he/she did not receive matches the fee paid to the preparer then no addition refund will be issued, or
    • If the refund trace confirms that the portion received is greater than what the taxpayer states, then issue only the remaining balance of the refund

    Signing preparer: Does not match name on complaint and processed tax return
    Non-signing preparer: Does not match name on complaint
    See IRM 25.24.4.9,Claim Disallowance

Erroneous Refund

  1. If the taxpayer received a refund for an amount to which he/she is not entitled and does not repay it, erroneous refund procedures are followed to recoup the refund.

  2. The erroneous refund will fall into Category D only. A Category D erroneous refund is subject to the right of offset. Address Category D erroneous refunds on the Form 3870 sent to DITA to correct the account. See IRM 21.4.5, Refund Inquiries, Erroneous Refund, for more information on erroneous refunds.

Incomplete or Missing Documentation

  1. In reviewing the documentation submitted, there may be missing or incomplete required documentation as stipulated for each RPM category or additional information is needed,

    1. If the taxpayer’s return as intended to be filed is unsigned, have the taxpayer sign the return and process it per IRM 5.1.11.5, Secured Return.

    2. If the taxpayer does not provide sufficient information to support the complaint (e.g., a law enforcement agency report for Category 4 is missing) then use Form 9297, Summary of Taxpayer Contact, to request the specific additional information needed and establish a deadline. Warn the taxpayer if the additional information is not provided, the claim will be denied and collection action will proceed.

  2. If the Taxpayer Advocate Service (TAS) is involved and an Operations Assistance Request is received and there is documentation missing, return the case back to TAS requesting the taxpayer be contacted for the required information.

  3. If a Taxpayer Assistance Order (TAO) is received and documentation is missing, contact TAS to request the missing information..

  4. For all categories, if the case is incomplete, initiate a refund trace (IRM 25.24.4.5.2) if one was not already performed.

  5. If the ASED is imminent (90 days) and the taxpayer’s actual return is included with the complaint, but there are other missing elements, ensure the ASED is protected. If the taxpayer’s actual return shows a tax increase or credit decrease see the table below.

    Actual return is present showing tax increase or credit decrease
    If the original refund is And Then
    ≡ ≡ ≡ or ≡ ≡ ≡ ≡ ≡ ≡ and it can be determined that only a portion or no refund was deposited into an account in the taxpayer’s name The tax or credit change ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ There is no statute implication
    The tax or credit change ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Process the return
    ≡ ≡ ≡ ≡ and it can be determined that the entire refund was deposited into an account in the taxpayer’s name
    OR
    refund receipt or non-receipt cannot be determined
    ASED is more than 60 days
    • Request the specific additional information needed and establish a deadline

    • Take no action on the actual return while waiting for the taxpayer to respond

      Note:

      If the claim is ultimately disallowed, quick assess the return. See IRM 5.1.4.4, Quick Assessment

    ASED is less than 60 days Quick assess the return, see IRM 5.1.4.4, Quick Assessment

Taxpayer Response to Missing Documentation Request

  1. When the taxpayer responds to a request for missing information, reevaluate the complaint and determine if the additional information is sufficient to provide relief.

  2. Follow the If/And/Then table below as appropriate.

    If And Then
    The taxpayer responds to a request for missing information Does not provide all the requested required information

    Exception:

    For a Category 3 case with a law enforcement report the only missing document, follow partial disallowance procedures.

    Disallow the RPM complaint based upon the RPM category and missing information
    The taxpayer responds to a request for missing information Provides all the requested required information Determine if relief should be given
    The taxpayer does not respond Disallow the RPM complaint based upon the RPM category and missing information

Claim Disallowance

  1. If the claim is to be disallowed in full or part and the taxpayer requests to have their case reviewed by a supervisor, give the taxpayer your group manager’s name, address and telephone number.

  2. For RPM claims for refund, Category 1, 3, and 4, advise the taxpayer he/she has the right to appeal the full or partial disallowance. The appeal process is the right to file suit with the U.S. District Court and is included in the Claim Disallowance letter issued by DITA.

Full Disallowance

  1. Disallow complaints in full in any category if:

    1. The taxpayer does not adequately respond to the request for specific additional information.

      Exception:

      Category 2 is not a claim for refund.

      Exception:

      If the only missing element of a Category 3 complaint is a law enforcement agency (e.g., police department, AG, CI, TIGTA) report, then see IRM 25.24.4.9.2 below.

    2. The preparer and/or the documentation cannot be verified.

  2. If the taxpayer’s actual return is included in the documentation and the complaint is disallowed, a refund trace is required.

    Exception:

    If the amount of refund the taxpayer states they received matches the TC 846 amount, then no refund trace is required.

  3. See the table below when disallowing the complaint

    RPM Claim Disallowed and Taxpayer’s Actual Return is Present
    If the refund trace shows And Then
    The entire refund was deposited into an account in the taxpayer’s name N/A
    • Prepare Form 3870, Request for Adjustment

    • Attach any documentation

    • Request TC 290 for zero

    • Request DITA issue Letter 105C, Claim Disallowance Letter , paragraph “d”

    • Process the taxpayer’s actual return as an amended return

    Only a portion or no refund was deposited into an account in the taxpayer’s name ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • Disallow claim

    • Do not process actual return

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer the taxpayer to Examination on Form 3449, see IRM 5.1.11.6.3.3.

    Exception:

    For Category 2 disallowed claims, request DITA issue Letter 916C, No Consideration.

Partial Disallowance

  1. Partial disallowance procedures can apply in RPM Categories 1, 3, and 4 and may apply if there are Refund Statute Expiration Date implications.

  2. Depending on the facts and circumstances including the refund trace results, the taxpayer may have received more than he/she stated in the RPM complaint and the complaint is partially disallowed.

    1. If the taxpayer received more of a refund than he/she stated in the RPM complaint, it would impact the amount of the additional refund issued.

      Example:

      For a Category 3 complaint the taxpayer states he/she received a portion of the refund in the amount of $500. The actual return shows a refund of $1,500. The complaint is reviewed and considered complete. The refund trace shows the taxpayer received a refund but in the amount of $1,000. Per IRM 25.24.4.6.3.2 the taxpayer is eligible for account adjustment, removal of the preparer portion of the refund and the remaining balance of the refund. Because the refund amount of $500 is less than the $1,000 the taxpayer expects, this is considered a partial disallowance.

    2. If the law enforcement agency report contains materially inconsistent information, but the complaint was otherwise complete, then the taxpayer is eligible for an account adjustment, but not for a refund.

  3. Prepare Form 3870, Request for Adjustment, to request DITA adjust the account and issue a Letter 106C, Claim Disallowance, paragraph "Q" .

Referrals to the Return Preparer Office

  1. Notify the Return Preparer Office (RPO) of all RPM complaints.

  2. Forward copies of Form 14157 and 14157-A and all applicable documentation to:
    Return Preparer Office
    401 W. Peachtree Street NW
    Mail Stop 421-D
    Atlanta, GA 30308

Return Preparer Misconduct Confirmed

  1. If Return Preparer Misconduct has occurred, take the following actions:

    1. If a Notice of Federal Tax Lien has been filed and the entire balance due covered by the NFTL is due to return preparer misconduct or fraud, request a certificate of release under IRC §6326 erroneous NFTL provisions pursuant to IRM 5.12.3.9. These releases contain a statement that the filing was erroneous and are requested through Field Collection Advisory. Advisory also issues the Letter 544, Letter of Apology - Erroneous Filing of Notice of Federal Tax Lien. At the taxpayer’s written request, a copy of the release and letter of apology may be furnished to creditors or credit bureaus. Instruct the taxpayer to provide names, mailing addresses, and permission to disclose the information.

    2. Release levies on the affected tax modules.

    3. Complete Form 3870, Request for Adjustment, with specific instructions on actions needed to correct the taxpayer’s account. Do not attach IDRS prints to Form 3870

Form 3870 Preparation and Routing

  1. Prepare Form 3870, Request for Adjustment, to correct the account. The Form 3870 instructions must include the following:

    1. "Return Preparer Misconduct" on Form 3870 as the reason for adjustment

    2. The category number that fits the individual taxpayer scenario, i.e., Category 1, 2, 3, or 4

    3. Whether the taxpayer received the correct refund, no refund, or an amount greater than expected

    4. Name and address of the preparer

    5. Amount of refund to be issued, if applicable

    6. Applicable penalty and interest assertion

    7. Erroneous Refund category D, if applicable

    8. The received date of the signed return as intended to be filed to ensure the correct received date is used for interest and statute of limitations calculations

  2. Attach to Form 3870:

    1. Copy of the taxpayer’s original return or TRDBV print

    2. Copy of the signed return intended to be filed annotated "TP Intended Return"

      Exception:

      Note on the Form 3870 if the taxpayer does not have a filing requirement.

    3. Copy of Form 14157 and/or copy of Form 14157-A

    4. Taxpayer documentation supporting the RPM claim

    5. If a Claim Disallowance Letter is required include:
      • Whether the claim is denied in part or in full
      • The applicable paragraphs (see 105C, Claim Disallowance Letter, or 106C, Partial Claim Disallowance Letter, for the available paragraph)
      • Your name and telephone number
      • Paragraph explaining why the claim was disallowed
      • Your contact information for inclusion in the 105C or 106C letter

  3. Forward Form 3870 to the appropriate function based on the type of assessment:

    1. For adjustments other than those involving Examination or AUR assessments, forward Form 3870 by mail, fax or electronic submission to the SB/SE Designated Identity Theft Adjustment Group (DITA) at the Philadelphia Campus:
      Internal Revenue Service
      DITA Mail Stop 4-G20.500
      2970 Market St.
      Philadelphia, PA 19104
      E-Fax # 1-855-786-6575
      Outlook mailbox for electronic submission is *SBSE CCS DITA

      Note:

      Form 3870 must be mailed if an original return is attached.

    2. To adjust an assessment made by Examination or Automated Underreporter (AUR) assessment, follow reconsideration procedures at IRM 5.1.15.4, Audit, Automated Underreporter (AUR), Substitute for Return (SFR) and Automated Substitute for Return (ASFR) Reconsideration.

    3. For audit reconsideration, forward Form 3870 per IRM Exhibits 4.13.7-3 and 4.13.7-4. This includes a return filed under the taxpayer’s social security number by the return preparer and a subsequent assessment by Examination.

    4. For AUR reconsideration, forward Form 3870 per IRM Exhibit 4.13.7-6. This includes a return filed under the taxpayer’s social security number by the return preparer and a subsequent AUR assessment.

Criminal Investigation Involvement

  1. If the taxpayer indicates Criminal Investigation (CI) involvement, e.g., the taxpayer states that a CI agent called or interviewed then or a special agent’s card is included in the taxpayer's documentation, then contact CI to determine:

    1. If the preparer is under investigation for the preparation of tax returns.

    2. If there is evidence that the taxpayer’s return was prepared by the named preparer

  2. Continue working the RPM complaint, unless CI explicitly requests otherwise.

Statute of Limitations

  1. If the assessment statute expiration date (ASED) or refund statute expiration date (RSED) is imminent or expired, the complaint must still be evaluated.

  2. When a Category 1-3 claim is allowed, the original return will be treated as a nullity and the taxpayer’s signed return as intended to be filed received with the complaint will be considered the return of record. For Category 4 cases, the original return is considered valid and the taxpayer’s return of record.

  3. For Category D erroneous refunds, consider the Erroneous Refund Statute Expiration Date (ERSED). See IRM 21.4.5.14.1.1, Statue of Limitations Category D Erroneous Refunds IRC 6532(b) ERSED.

Assessment Statute Expiration Date

  1. In RPM cases the filing of an altered return by a preparer may not meet the definition of a valid return. When a complaint is accepted, the posted return is considered a nullity. The statute of limitations does not start until a signed return is received from the taxpayer regardless of whether the taxpayer authorized the filing or the initial return. The return filed in a Category 4 case is not considered a nullity and the ASED stands.

  2. If a complaint is received after the ASED, evaluate the complaint to determine if the posted return is a valid return.

  3. For returns submitted with accepted Category 1-3 complaints, request on Form 3870 that DITA update the ASED based on the received date of the signed, intended to be filed return.

  4. If an unsigned return is submitted with the complaint and a signed return is not secured, disallow the claim and do not update the ASED.

Refund Statute Expiration Date

  1. The RSED is generally the later of three years from the date the return is filed or two years from the date the tax was paid.

  2. Generally prepaid credits must be claimed within three years of the due date of the return including extensions to file. If a return is received more than three years from the return due date with extensions, a refund of prepaid credits will not be made.

  3. If the RSED is expired, credits will be moved to excess collection and a claim disallowance letter issued.

    Note:

    The requirement that an RPM complaint must be complete before it is accepted has no bearing on whether or not a claim for refund is timely for RSED purposes. Claims for refund (including informal claims) received prior to the RSED will be considered timely regardless of whether or not the RPM complaint is complete. Claims for refund in RPM cases received prior to the RSED will be considered timely whether or not the complaint is complete. See IRM 25.6.1.10.2.6.3, Informal Claims.

Erroneous Refund Statute Expiration Date

  1. The RPM ERSED is two years from the date of the erroneous refund or direct deposit.

Penalties and Interest

  1. Penalties and interest may apply when the taxpayer’s actual return reflects a tax liability and the tax return is late or the tax is not paid on or before the due date of the return.

  2. For accepted Category 1-3 complaints, the original return is considered a nullity and failure to file penalty may apply.

  3. If the taxpayer’s actual return reflects tax due and it is received with the RPM complaint after the due date of the return, failure to file (FTF) penalty may apply.

  4. Compute the failure to file penalty manually and include it on the Form 3870.

  5. Failure to file and failure to pay penalties may not apply if the non-filing was due to reasonable cause and not willful neglect. Refer to IRM 20.1.2, Introduction to Penalty Relief. See table below.

    If And Then
    The taxpayer did not authorize the filing of the original return Research indicates the taxpayer made efforts to file a return (electronic filing indicator or TC 97X on account) Failure to file penalty may not apply due to reasonable cause.
    The taxpayer authorized the filing of the original return Per research and documentation submitted, the taxpayer received the expected refund amount and was unaware of issues with the original return Failure to file penalty may not apply due to reasonable cause.

    Example:

    Taxpayer X heard from a friend that Preparer Y was able to obtain huge tax refunds for truck drivers based on their diesel fuel purchases. Taxpayer X sought out the services of Preparer Y for tax year 2013. Taxpayer X believed he would be getting a refund of $4,000 based on the return Preparer Y prepared. Unbeknownst to Taxpayer X, after Taxpayer X signed the return, Preparer Y altered the return to claim an additional $1,000 refund and had the entire $5,000 deposited into an account under Preparer Y’s control. In reality, Taxpayer should have owed $200 on his return. Although Taxpayer thought the return he intended to file had been filed, the preparer altered that return without Taxpayer’s knowledge. Therefore, the submitted return was a nullity. Consequently, Taxpayer never filed a return. However, Taxpayer will likely have reasonable cause for failing to file his return under these facts, and, if so, would avoid the imposition of the FTF penalty.

  6. Consider the failure to pay (FTP) penalty when,

    1. The taxpayer’s actual return reflects and tax liability owed, and

    2. The tax has not been paid by the due date of the original return

  7. Interest will generate systemically.

  8. If accuracy-related penalties were assessed based upon items inflated by a preparer and the items are removed from the account, abate the associated penalties.

  9. If a taxpayer is unable to demonstrate reasonable cause and avoid FTP or FTP penalties, consider relief from the penalties using First-Time Abatement procedures. See IRM 20.1.1.3.6.1, First Time Abate (FTA).

Preparer, Promoter, Appraiser, Material Advisor, and Aiding and Abetting Penalties

  1. These civil penalties are assessed by the Examination function and are intended to increase voluntary compliance. Collection of the assessed penalties is essential to preserving their compliance impact. It is important to be able to identify these assessments.

Penalty Identification

  1. Identify these civil penalties during the initial analysis by reviewing IDRS TXMODA, BMFOLT, and IMFOLT for the penalty reference numbers and for the respective Master File Tax codes associated with each penalty.

  2. These civil penalty modules are identified by MFT 13 for Business Master File (BMF) or MFT 55 for Individual Master File (IMF), with the following penalty reference numbers:

    • 606 or 581 - IRC 6695A

    • 624 or 714 - IRC 6695(a)

    • 624 or 715 – IRC 6695(b)

    • 624 or 716 – IRC 6695(c)

    • 624 or 717 – IRC 6695(d)

    • 624 or 718 – IRC 6695(e)

    • 626 – IRC 6695(f)

    • 627 – IRC 6695(g)

    • 628 – IRC 6700

    • 631 – IRC 6701

    • 633 – IRC 6713

    • 634 – IRC 6707

    • 636 – IRC 6708

    • 645 – IRC 6694(a)

    • 648 – IRC 6707A

    • 650 – IRC 6694(b)

Return Preparer Contacts

  1. Return Preparer Coordinators (RPCs) and Earned Income Tax Credit (EITC) coordinators can be a valuable resource. The RPCs handle all return preparer penalties except for the EITC due diligence return preparer penalties, which are handled by the EITC coordinator. You may contact the RPC or EITC coordinator to:

    1. Determine if the Return Preparer Penalty case file is available.

    2. Obtain a client list. This list may help provide leads for the collection investigation and can be used to corroborate a return preparer’s claim that he/she has ceased doing business as a return preparer.

      Example:

      By contacting the former clients of a return preparer who claims he/she has ceased doing business, the revenue officer may find out that the return preparer is still preparing returns, but has changed the name of the business and is not signing the returns and/or is having others sign as the preparer (e.g., spouse, employee, etc.). Former clients may also prove valuable for obtaining asset information and levy sources.

  2. When contacting a RPC or EITC coordinator, contact the designated coordinator in your Area. See these links for the area designated coordinator http://mysbse.web.irs.gov/examination/tip/rp/contacts/12293.aspx and http://mysbse.web.irs.gov/examination/tip/rp/contacts/12536.aspx

Form 4844 Example for Refund Trace Request

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