4.1.10 Return Preparer Program Coordinator

Manual Transmittal

December 13, 2016

Purpose

(1) This transmits revised IRM 4.1.10, Planning and Special Programs, Return Preparer Program Coordinator.

Material Changes

(1) Material changes to the IRM are listed in the table below:

IRM Reference Description of Change
4.1.10.1.2 Added a paragraph on SB/SE Referrals, updated citations, expanded on the PSC responsibilities, and made some editorial changes.
4.1.10.2.1 Expanded guidance and deleted obsolete guidance.
4.1.10.3.1 Expanded guidance and deleted obsolete guidance.
4.1.10.3.1.1 Expanded guidance.
4.1.10.3.2 Added prior compliance activities to factors to consider.
4.1.10.3.4 Expanded guidance.
4.1.10.3.6 Added Form 5346 guidance and citation to the Note.
4.1.10.3.6.1 Added a paragraph to provide guidance on MeF File.
4.1.10.3.8 Removed obsolete guidance and replaced with current guidance.
4.1.10.3.9 Added guidance on the SB/SE Referral component of the Return Preparer Database.
4.1.10.3.10 Expanded on PAC guidance.
4.1.10.3.10.1 Added section to provide guidance on LB&I PAC procedures.
4.1.10.3.11 Added guidance on the SB/SE Referral component of the Return Preparer Database.
4.1.10.4 Added IRM references in Notes.
4.1.10.5 Added guidance on preparer compliance reviews.
4.1.10.6.1 Added a paragraph to provide guidance on the Lead Development Center.
4.1.10.7 Editorial changes to paragraph to provide clarity on LB&I penalty investigations.
4.1.10.7.1 Expanded guidance and deleted obsolete guidance.
4.1.10.7.3 Added a paragraph on 6701 investigations.
4.1.10.7.3.1 Added a paragraph on 6701 investigations.
4.1.10.7.3.2 Added a paragraph on 6701 investigations.
4.1.10.7.3.3 Added a paragraph on 6701 investigations.
4.1.10.7.4 Expanded guidance and deleted obsolete guidance.
4.1.10.8 Substantive changes based on current laws.
4.1.10.8.1 Added a subsection to incorporate Interim Guidance on Referrals from Office of Professional Responsibility.
4.1.10.9 Substantive changes based on current laws. Added guidance on Annual Filing Season Program.
4.10.10.11 Added guidance on Annual Filing Season Program.
4.1.10.12 Added a paragraph to include the Monthly PAC Report, Quarterly SB/SE Referral Certification, and verification of all referrals in the Return Preparer Database.
4.1.10 Exhibits Deleted obsolete exhibits 4.1.10-7 through 4.1.10-11.

(2) Minor editorial changes have been made throughout this IRM. Website addresses, legal references, and IRM references were reviewed and updated as necessary.

Effect on Other Documents


This IRM supersedes IRM 4.1.10, Planning and Special Programs, Return Preparer Program Coordinator, dated January 14, 2011.
The following Interim Guidance Memoranda have been incorporated into this IRM:
SBSE-04-1115-0074, Reissued Interim Guidance on Office of Professional Responsibility (OPR) Referrals.
SBSE-04-0816-0010, Interim Guidance on SB/SE Return Preparer Referrals.

Audience

Return Preparer Coordinators (RPCs) assigned to Small Business Self Employed (SB/SE) Area Planning and Special Programs (PSP), and Large Business and International (LB&I).

Effective Date

(12-13-2016)

John Caggiano
Acting Director, Exam Field and Campus Policy, SE:S:E:HQ:EFCP
Small Business/Self-Employed

Overview of Return Preparer Program

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

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

Area Return Preparer Coordinator (RPC) Responsibilities

  1. The RPC will be responsible for:

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

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

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

    4. Accumulate and maintain files on potentially abusive preparers from referrals received from Area office functions, Electronic Return Originator (ERO) Site Visits, Earned Income Tax Credit (EITC) Due Diligence Visits, Campus Compliance and Criminal Investigation (CI) both Area and Campus.

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

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

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

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

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

    10. Preparing requests for PAC approval.

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

    12. Reviewing preparer penalty cases closed by compliance.

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

    14. Serving as the area contact with the Office of Professional Responsibility (OPR), the Return Preparer Office (RPO), and Campus Function.

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

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

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

    18. Interacting with the Lead Development Center (LDC).

    19. Interacting with Treasury Inspector General for Tax Administration (TIGTA).

    20. Initiating compliance activity under Rev. Proc. 2014-42.

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

    22. Other duties as assigned.

Return Preparer Program Priorities

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

    1. SB/SE Referrals — Make sure referrals received in PSP are timely entered in the Return Preparer Database and considered for compliance actions. Return Preparer Coordinators will log, track, monitor and input all referrals received in Area Offices in SB/SE Referral component of the Return Preparer Database.

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

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

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

    5. Other Return Preparer Compliance activities including; Rev. Proc. 2014-42, CAF related issues, referrals to OPR, etc.

Preparer Steering Committee

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

Preparer Steering Committee -SB/SE

  1. The SB/SE preparer steering committee members should include:

    • The SB/SE - RPC(s),

    • SB/SE - E-File Monitoring Coordinator(s) (EMC),

    • SB/SE EITC Coordinator,

    • Criminal Investigation (CI) - Questionable Refund Program Coordinator (QRPC),

    • Designated FTA,

    • Representative designated by the Area Director, if desired,

    • Other members the PSP Territory Manager deems necessary.

  2. The PSC will be responsible for:

    1. Review information, sample results, and referrals to recommend approval of Program Action Cases by the Territory Manager, PSP and the SB/SE Area Director.

    2. Periodically review all active Program Action Cases and recommend continuation, expansion or termination, if applicable.

    3. Review all closed Program Action Case reports, if applicable.

    4. Scheduling meetings as program needs demand.

  3. After the PSC makes a determination on the PAC, the RPC will update SB/SE Referral with the PSC decision and decision date.

Preparer Steering Committee - LB&I

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

Program Action Cases Overview (PAC)

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

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

PAC Inventory Sources

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

    1. Form 14719, SBSE Return Preparer Referral.

    2. Referrals from the Return Preparer Office (RPO).

    3. Referrals from Criminal Investigation (CI).

    4. Form 4442, Inquiry Referral.

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

    6. Referrals from EITC Due Diligence Program Visits.

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

    8. Referrals from Campus Processing.

    9. Referrals from Office of Professional Responsibility (OPR).

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

    11. Referrals of preparers identified during workload classification.

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

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

    14. Referrals from other sources.

Return Preparer Referral Process
  1. Upon receipt of a referral, the Area PSP office will enter the referral information in the Return Preparer Database, as well as upload a copy of the referral, within 14 days of receipt.

  2. The RPC will evaluate each referral and determine whether or not to accept the referral for a Preparer Action Case (PAC) investigation.

    1. If the RPC determines a PAC is warranted, the RPC will update SB/SE Referral with the disposition "referred for PAC development" and select the date the disposition was made.

    2. If the RPC does not have sufficient information to make a determination on the referral the RPC will update SB/SE Referral with the disposition "more information needed to make a determination" and select the date the disposition was made. The RPC should reach out to the referring individual requesting more information. If the RPC does not receive the additional information within 30-days, the disposition should be changed in SB/SE to ‘closed – insufficient information’ and select the date the disposition was updated.

    3. If after evaluating the referral, the RPC determines the referral should be forwarded to CI, LDC, RPO or OPR, the RPC should update SB/SE Referral with the disposition "referred" , then select the organization referred and select the date the disposition was made.

    4. If after evaluating the referral the RPC determines the referral should be forwarded to another Area, the RPC should update SB/SE Referral with the disposition "transferred to another Area" and select the date the disposition was made. The RPC will e-mail the control number to the Exam Case Selection Return Preparer Analyst and request to have the referral reassigned to the appropriate Area in SB/SE Referral.

    5. If the RPC determines a PAC is not warranted, the RPC will update SB/SE Referral with the disposition "closed" and the appropriate disposition reason and select the date the disposition was made.

Criminal Investigation Referrals
  1. Discontinued subject and closed primary return preparer investigations, as well as successfully prosecuted cases– provided by CI.

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

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

    3. Pertinent non-grand jury information included with the Form 9131, Request for Grand Jury Investigation, will be used to refer discontinued grand jury investigations. Copies of returns should be included in the referral package. Originals should be returned to the proper campus. More than likely, the Form 9131 would not be referred. Non-grand jury information could be referred.

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

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

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

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

    2. Determine the number of returns to be examined.

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

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

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

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

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

PAC Development Factors

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

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

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

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

    • The available resources of the examination groups receiving the PAC examinations.

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

    • The dollar amounts and materiality of potential adjustments.

    • Prior compliance activities – i.e. preparer penalties previously asserted, EITC/ERO visitations, and/or RPO compliance letters.

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

    • Exam Plan workload and planning needs.

    • Examination activity codes available in the PAC.

    • Area resources available.

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

Pre-PAC Contact with Criminal Investigation

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

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

Lead Development Center (LDC) Clearance for PAC

  1. Because a return preparer can violate both IRC 6694 and IRC 6701, it is important that coordination between the RPC and the LDC occurs at various stages of the process. Before developing a PAC, the RPC will clear the preparer with the LDC using the PAC Clearance form. The PAC Clearance form will be generated in the SB/SE Referral component of the Return Preparer Database and e-mailed to the LDC. The LDC will determine if an IRC 6700 or IRC 6701 investigation is currently ongoing, if one should be initiated, or if none is planned.

    Note:

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

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

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

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

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

    1. Upon receipt of the LDC Control Number, the RPC will enter the number in SB/SE Referral.

PAC Approval Process

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

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

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

    1. The name(s), DBA(s), address(es), TIN(s), EIN(s) and Preparer Taxpayer Identification Number (PTIN) of the preparer.

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

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

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

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

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

    7. Statements discussing potential harm to the Government.

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

    9. Client and/or witness affidavits.

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

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

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

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

    Note:

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

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

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

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

    3. Assign the appropriate National Return Preparer Project Code to the PAC.

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

    5. PACs initiated from a RPO referral must use a national Project Code 1127.

  6. Following approval of the PAC by the Area Director, the RPC will update SB/SE Referral with the Area Director’s response, response date, project code and tracking code.

PAC Approval Process for LB&I
  1. The RPC, with the assistance of the field agent(s) who identified the preparer’s misconduct, will prepare a briefing package documenting the abusive behavior of the preparer. The RPC and Territory Manager of the agents who identified the misconduct will brief the Director of Field Operations (DFO) about the preparer’s abusive behavior. If the DFO concurs with the initiation of a PAC, the DFO and the RPC, if necessary, will brief the Industry Director to obtain their approval. Once obtained, the DFO, RPC and RPC’s manager will request that the Penalty Steering Committee approve the initiation of a PAC. Refer to IRM 4.1.10.2.2, for the members of the LB&I PSC.

Program Action Case Return Identification and Selection

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

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

    Note:

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

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

    1. A CDE research request is required before CDE can be used in support of a PAC. CDE prints can be used in lieu of original tax returns to establish exam controls, build case files and conduct examinations. Any non-selected CDE prints should be destroyed.

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

  4. The Modernized e–file (MeF) is a web based system that allows electronic filing of corporate, individual, partnership and other returns through the Internet. If a return was filed using MeF, an examiner can access the Employee User Portal (EUP) to view the return.

  5. Original Returns - Using original returns to identify and classify clients for examination should be done on a limited basis since extra costs are incurred to secure an original return. Exam controls must be closed on any original returns not selected for examination and the returns then re-filed.

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

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

    • Source Code 49 (primary return only)

    • Status Code 06

    • Appropriate tax year

    • AAC for PSP (PBC, SBC, EGC)

    • Activity code

    • Appropriate national preparer project code

    • Appropriate local PAC tracking code

    • Aging Reason Code 49

    • Appropriate local ERCS freeze code

Client Return Selection and Classification Considerations
  1. Using local Classification Instructions, review client returns for:

    1. Issues described in the PAC approval memo.

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

    3. Patterns, trends, and inconsistencies.

Establishing Exam Controls on Selected PAC Client Returns

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

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

    2. Status Code 08.

    3. Appropriate tax year.

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

    5. Valid activity code.

    6. Appropriate national preparer project code (no local project codes should be used).

    7. Appropriate local PAC tracking code.

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

    9. Appropriate local ERCS freeze code.

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

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

Case building of Selected PAC Returns

  1. Generally, each client return case file will include the supporting documentation listed in the following paragraphs.

  2. The following list includes IDRS supporting documents that may be provided, and is not all inclusive:

    1. TRPRT print

    2. RTVUE

    3. AMDISA

    4. INOLES

    5. IMFOLI

    6. IMFOLT

    7. IMFOLR

    8. IRPTRL

  3. Other supporting documents provided to support the examination may include:

    1. Original Tax Return

    2. Classification Checksheet

    3. CDE Print

    4. MeF print

    5. ERCS print

  4. Case Memorandum- A memo (white paper) addressed to the examiner. The memo will include the following information:

    1. The preparer’s scheme.

    2. Issues of concern.

    3. Project code, tracking code, and aging reason code.

    4. Instructions to the examiner to expand the examination. Instructions will include ERCS instructions.

    5. Guidance on asserting IRC 6694 and IRC 6695 penalties, when warranted.

    6. The case memorandum should also include Third Party Contact instructions to the examiner. Any contact with the taxpayer-client is a third party contact and must be documented on Form 12175, Third Party Contact Report Form. Guidance on adherence to Third Party Procedures should be included. Additional guidance on Third Party Procedures may be found in IRM 4.11.51, Return Preparer Program and IRM 4.11.57, Third Party Contacts.

      Note:

      Examiners are permitted to notify taxpayers they were selected for audit as part of a "preparer compliance review" and ask if they fear reprisal when asked questions about their preparer, to satisfy Third Party Contact procedures.

      Caution:

      Examiners should not disclose any additional information about the preparer.

  5. The RPC may do the following to support the PAC:

    • Present PAC procedures to the examiners examining the PAC cases. The presentation should include details of the preparer’s scheme and information/documents necessary to develop any preparer penalty case(s) resulting from the PAC.

    • To further support the PAC, the RPCs should discuss with the group manager(s), the roles and responsibilities of the return preparer penalty portion of the investigation. The return preparer penalty portion may result in the assertion of preparer penalties against the return preparer. Consideration should be given to the assignment of the separate return preparer penalty investigation to ensure the preparer penalty case is properly developed.

  6. PAC Project Checksheet – This is a feedback sheet to collect information regarding the results of the examination. The examiner should complete and forward the PAC Project Checksheet directly to the RPC at the conclusion of the case. Additional guidance may be found at IRM 4.1.10.5.

Monitoring Program Action Cases

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

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

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

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

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

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

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

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

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

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

  2. The RPC will complete the following actions in the Return Preparer Database:

    1. Upload client listing into the SB/SE Referral component.

    2. Update the status of client examinations into the SB/SE Referral component.

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

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

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

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

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

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

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

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

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

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

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

    4. Any other factors the RPC determines impact compliance.

  6. If the RPC determines that an injunction may be appropriate, they should consult the Area Abusive Transactions and Technical Issues (ATTI) Coordinator (formerly referenced as ATAT). The ATTI Coordinator and the RPC will jointly prepare a referral to the LDC requesting approval of an IRC 7407 injunction investigation. When a referral is made to the LDC, the RPC will update the SB/SE Referral component in the Return Preparer Database with the date of the referral.

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

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

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

Expanding PACs

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

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

    1. Request approval from the PSP Territory Manager.

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

    3. If the Area proceeds with PAC expansion, provide notification to the SB/SE Exam Case Selection Return Preparer Analyst and the LDC.

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

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

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

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

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

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

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

  4. Also, less complex issues such as:

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

    2. Unreported/underreported income

    3. Payments to an IRA or Keogh

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

    5. Self-employment tax

    6. Alternative minimum tax

  5. The criteria for referring client examination cases to campus is:

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

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

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

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

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

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

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

  6. If a PAC is expanded, the RPC will update the SB/SE Referral component in the Return Preparer Database with the following information:

    1. Indicate in PAC expansion, Yes or No.

    2. Enter the PAC expansion determination date.

    3. Enter the PAC expansion approval date and upload approved expansion Memo.

    4. Enter the number of cases expanded.

Expanding PACs in LB&I
  1. If additional client returns are to be examined outside the initial PAC, concurrence must be initially received from the Director of Field Operations of the involved Practice Area.

  2. A memorandum will be prepared by the RPC with assistance of the PAC lead Revenue Agent and issued to the Director of Field Operations explaining the following:

    1. Results of the PAC examinations completed to date.

    2. Explanation as to why a conclusion to the PAC cannot be reached without expanding the PAC.

    3. A description of the types of client returns that will be included in the expanded PAC.

  3. If concurrence is received from the Director of Field Operations, the results of the expanded PAC should be monitored in accordance with IRM 4.1.10.3.9.

  4. If concurrence is not received from the Director of Field Operations, proceed with a final determination of the PAC in accordance with IRM 4.1.10.3.11.

PAC Termination

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

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

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

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

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

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

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

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

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

    6. Update the SB/SE Referral component within the Return Preparer Database with the PAC termination date, and the PAC termination reason.

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

  6. After a determination is made regarding preparer penalties, the RPC will update SB/SE Referral indicating if a preparer penalty will be asserted.

  7. If a preparer penalty is asserted, the RPC will update SB/SE Referral with the tax year, penalty type and penalty amounts.

  8. If it is determined that a PAC conversion is going to be made, the RPC will update SB/SE Referral to indicate a referral was made to the Lead Development Center.

PAC Conducted in Conjunction with an Ongoing Criminal Investigation

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

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

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

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

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

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

      Note:

      IRM 4.1.10.7.5, Penalties on Preparers Referred to Criminal Investigation, for more information on suspending Return Preparer Penalty Program cases in PSP.

      Note:

      Refer to IRM 25.1.4.3.11, Fraud Suspense, for additional guidance.

      Note:

      Refer to IRM 25.1.5.2, Grand Jury Suspense, for additional guidance.

      Note:

      Contact the Technical Services Fraud Coordinator for additional guidance. The current list of Technical Services Fraud Coordinators may be found at: http://sbseservicewide.web.irs.gov/Fraud/ExamFraud/FTAContacts/default.aspx.


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

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

Third Party Notification in PACs

  1. Under IRC 7602(c), the Service may have to provide a taxpayer with notice if it intends to initiate a contact with a third party in order to collect or determine the taxpayer's tax liability. Under IRC 6671, Application of Assessable Penalties, preparer and promoter penalties are treated as "taxes" for all purposes of the Code. Thus, the same concerns that would exist in a normal examination for purposes of third party contact disclosure exist when examining a preparer and/or promoter. Examiners should become familiar with the extensive third party contact procedures provided in IRM 4.11.57, Third Party Contacts. Furthermore, examiners should become familiar with the procedures for third party contacts in preparer and promoter cases found in IRM 20.1.6.22, Third Party Contacts—IRC Section 7602(c), and IRM 4.32.2.7.3.2, Third Party Contacts.

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

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

  4. The case memorandum placed in each case file should include the following statement: "The examiner must document contacts with return preparer clients and other third parties. Note that the exceptions to taxpayer notification under IRC 7602(c)(3) apply in equal force in return preparer examinations, so the Service may not have to report specific third party contacts, for example when a threat of reprisal exists. "

    Note:

    If answering questions relating to the preparer, examiners can notify a taxpayer they were selected for audit as part of a "preparer compliance review" and ask if the taxpayer fears reprisal.

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

    1. Taxpayer authorizes third party contact;

    2. Notice would jeopardize collection of any tax;

    3. Notice may involve reprisal against any person; and

    4. A criminal investigation of the return preparer is pending or ongoing.

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

    1. Per IRM 4.11.57.4.2.4, Pending Criminal Investigation, third party notification requirements do not apply to any tax period under investigation by Criminal Investigation. Therefore, Letter 3164-N, Third Party Contact To Preparers will NOT be issued.

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

    3. Per IRM 20.1.6.22, Third Party Contacts—IRC 7602(c), Paragraph (6) Criminal Investigations, examiners may conduct examinations of program action taxpayers regarding civil issues at the same time that special agents are independently conducting a criminal investigation of the related preparer. However, just as the pending criminal investigation exception applies to third party contacts made by special agents, it also applies to examiners assisting CI by performing examinations of program action taxpayers.

Lead Development Center

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

    Note:

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

Referrals to the Lead Development Center

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

  2. For LDC contact and referral information visit http://mysbse.web.irs.gov/examination/examorg/hq/ecs/ldc/default.aspx.

  3. If a referral is received and it is determined that it is more appropriate for the referral to be worked by the LDC, the RPC will update SB/SE Referral disposition to indicate it was referred to Lead Development Center.

Processing of Referrals

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

    1. Investigations approved by the LDC program manager will be returned to the Area PSP as part of the ATTI program.

    2. These cases will be controlled by the Abusive Schemes/ATTI Coordinator for investigation and development of potential IRC 6700 or IRC 6701 penalty and IRC 7408 injunction actions.

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

Return Preparer Penalty Program Penalty Cases

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

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

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

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

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

  6. LB&I penalty investigations under IRC 6701 against a return preparer must be approved by the RPC before initiated unless it involves a reportable transaction. The RPC will forward the referral to OTSA. The approval of the Technical Tax Shelter Promoter Committee is required before beginning an IRC 6701 investigation involving a reportable transaction. There may be a delay in obtaining the committee’s decision due to frequency of scheduled meetings.

Creating Return Preparer Penalty Cases

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

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

    1. The preferred method is to use the client’s TIN and a combination of the name control of the preparer, preparer’s TIN and name control of the client. A separate Form 5809 and an ERCS record is created for each return preparer penalty investigation. This method is preferred for proposing preparer penalties where there is only one or limited number of returns

    2. The second method is to use the return preparer’s TIN and name. This is advantageous when numerous preparer penalties will be assessed on a preparer as a result of numerous client return examinations. Multiple Preparer Penalties can be condensed under a single ERCS and Form 5809 . This method should be used when a preparer will have numerous preparer penalties assessed from various return examinations, such as PAC’s. This method is used to prevent the administrative burden of establishing an ERCS record on a large number of client SSN’s

  3. The MFT will be between P1 and P4, PC, PJ, PK, PL, PM and PN depending on the type of penalty. See Document 6036, Examination Division Reporting System Codes Booklet, for a list of penalties by activity code.

  4. When a preparer penalty is being initiated, the RPC will obtain clearance from Criminal Investigation and the Lead Development Center.

  5. RPCs will not need to deconflict new preparer penalties, in relation to an approved SB/SE AT investigation with CI.

Tracking Return Preparer Penalty Cases

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

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

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

Reviewing Penalty Cases

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

  2. SB/SE return preparer penalty cases resulting from 6701 investigations authorized by the LDC will not be reviewed by the RPC.

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

No-Change Preparer Penalty Cases
  1. In SB/SE the RPC should review the case file and ensure the preparer penalty has been properly developed.

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

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

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

  2. For SB/SE return preparer penalty cases resulting from IRC 6701, investigations authorized by the LDC closed without assertion of penalties (discontinued or closed with injunction only), the RPC will not review the file. Letter 1120 will not be issued. The examiner will follow closing instructions per IRM 4.32.2, The Abusive Transactions (AT) Process.

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

Agreed Preparer Penalty Case Procedures for SB/SE Only
  1. The RPC should review the case file to ensure the issue was properly developed and determine that the correct penalty has been applied.

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

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

  4. The RPC will not review agreed cases developed by AT examiners resulting from 6701 investigations authorized by the LDC.

Unagreed Preparer Penalty Cases Procedures for SB/SE Only
  1. The RPC should review the case file to ensure the issue was properly developed and the correct penalty has been applied.

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

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

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

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

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

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

  4. The RPC will not review unagreed cases developed by AT examiners resulting from 6701 investigations authorized by the LDC.

Closing Return Preparer Penalty Cases Procedures for SB/SE Only

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

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

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

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

    1. Confirm the correct number of forms are completed. A form must be completed for each penalty type and tax year for each penalty assertion.

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

    3. Confirm that the correct MFT has been selected.

    4. Confirm that the statute date is correct.

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

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

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

    8. Confirm IRC 6695, penalty was considered and applied, if warranted.

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

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

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

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

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

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

    4. If the case involves a penalty that is entitled to post assessment appeal, and there is a payment posting voucher in the case with an appeal request, fax Form 8278 and Form 3244, Payment Posting Voucher, to the appropriate Field Office Resource Team (FORT) manager in Centralized Case Processing (CCP) for assessment. Visit http://mysbse.web.irs.gov/examination/cp/cont/28100.aspx for the CCP fax numbers and http://mysbse.web.irs.gov/examination/cp/default.aspx for general CCP information. See IRM 20.1.6.19.2, Post-Assessment Appeal Procedures, for information regarding penalties subject to post assessment appeals procedures.

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

  6. When closing the case out of PSP, the RPC will make sure the penalty type and penalty amount are entered into ERCS.

  7. AT examiners closing return preparer penalty cases resulting from 6701 investigations authorized by the LDC should see IRM 4.32.2, The Abusive Transactions (AT) Process for closing procedures.

Penalties on Preparers Referred to Criminal Investigation

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

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

    2. Penalties under IRC 6694(b) have no statute of limitations on assessment. Any pending preparer penalty cases under IRC 6694(b) should be put in PSP suspense – Status Code 44.

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

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

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

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

Referrals to the Office of Professional Responsibility

  1. The Office of Professional Responsibility (OPR) is charged with administering and enforcing the regulations governing practice before the IRS, as detailed in http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586, (Circular 230) Regulations Governing the Practice before the Internal Revenue Service. See OPR’s website at: http://irweb.irs.gov/AboutIRS/bu/opr/default.aspx.

  2. OPR administers the law and regulations governing the practice of tax professionals and other individuals who interact with the tax administration system on behalf of taxpayers, including, but not limited to, attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, tax return preparers who represent clients before the IRS, and appraisers who provide valuations contained in documents submitted to the IRS.

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

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

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

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

    2. Failure to comply with the standards for tax returns and other submissions (§ 10.34).

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

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

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

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

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

    8. Disbarment or suspension by another federal agency, federal court, or state authority from practice as an attorney, certified public accountant, public accountant, or actuary (§ 10.51(a)(10)).

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

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

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

  6. Under section 10.53, if an officer or employee of the IRS has reason to believe a practitioner has violated Circular 230, the officer or employee must promptly make a written report of the suspected violation to the Director of OPR. See IRM 20.1.6.12.3, Referral to the Office of Professional Responsibility. Referrals are mandatory following the assessment of any IRC 6694(b) penalty, e.g., a willful attempt to understate the liability for tax. The referral should be made regardless of any appeal actions taken by the practitioner.

    A referral must also be made when any of the following penalties are assessed or sanctions imposed:

    1. IRC 6700, Promoting abusive tax shelters, etc.

    2. IRC 6701(a), Penalties for aiding and abetting understatement of a tax liability.

    3. IRC 7407, Action to enjoin tax return preparers.

    4. IRC 7408, Actions to enjoin specified conduct related to tax shelters and reportable transactions.

  7. Discretionary referrals are assessments of civil penalties prescribed by the following IRC sections:

    1. IRC 6662, Accuracy related penalty.

    2. IRC 6694(a), Understatement due to unreasonable positions.

    3. IRC 6695(a), Failure to furnish copy of return to taxpayer;IRC 6695(b), Failure to sign return; and IRC 6695(d), Failure to retain copy or list.

    4. IRC 6702, Frivolous tax submissions.

    Note:

    If any of the above penalty assessments appear to become a pattern across taxpayers, tax issues, or tax years, a referral should be made with regard to the practitioner involved.

  8. Referrals should be made to OPR as soon as it appears that a practitioner may be in violation of http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586.

  9. Form 8484, Report of Suspected Practitioner Misconduct should be used to make a referral to OPR.

  10. Form 8484 should be mailed, faxed, or e-mailed to the designated OPR mailbox. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

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

  12. The OPR web site has a searchable database containing the names of all the individuals currently disciplined by OPR. See http://nhq.no.irs.gov/OPR/Practice/Disciplined%20Practitioners.asp.

Referrals from the Office of Professional Responsibility

  1. When OPR deems a referral to SB/SE Examination is appropriate, a referral will be made to the business unit on Form 14624, Office of Professional Responsibility (OPR) Referral.

  2. The Area RPC will complete the below actions within 30 business days of receipt:

    1. Date stamp the front of Form 14624.

    2. Screen the referral by following Substantial Noncompliance Factors (SNIF) criteria in IRM 4.1.4.2.11, Special Enforcement Program (SEP) Leads.

    3. Complete Part II of Form 14624, to document if the referral is accepted, surveyed, or rejected.

    4. Secure the signature of the PSP Section Chief or designee.

    5. Return Form 14624 to OPR with a Form 3210, Document Transmittal.

  3. If the referral is accepted for audit, the RPC will follow IRM 4.1.4.3.5, Information Reports/Referrals, Other Types and internal procedures to control and build the case file for immediate assignment.

  4. The case will be assigned to an examination group within 60 days of receipt. The RPC will assign Project Code 0365 and Tracking Code 6581, Office of Professional Responsibility Referrals.

Unenrolled Return Preparers Disciplinary Actions

  1. For tax returns and claims for refund prepared and signed before January 1, 2016, Rev. Proc. 81-38 , allows unenrolled tax return preparers to exercise the privilege of limited practice before the IRS. Rev. Proc. 2014-42 , supersedes Rev. Proc. 81-38 for tax returns and claims for refund prepared and signed after December 31, 2015. Tax return preparers who participate in the voluntary Annual Filing Season Program (AFSP) established in Rev. Proc. 2014-42 may exercise the privilege of limited practice before the IRS. Rev. Proc. 81-38 and Rev. Proc. 2014-42 describe who is eligible for limited practice before the IRS as a tax return preparer, who is ineligible, grounds for loss of the privilege of limited practice, and procedures for preventing an individual from exercising the limited-practice privilege.

  2. Delegation Order 25-16 found in IRM 1.2.52.17, delegates authority to OPR to administer Rev. Proc. 81-38.

  3. The Return Preparer Office (RPO) is responsible for administering the AFSP and the provisions of Rev. Proc. 2014-42, including granting or denying applications to be in the program and revoking a tax return preparer's annual Record of Completion for a violation of the revenue procedure. See the Return Preparer Office's website for more information on the AFSP at https://www.irs.gov/tax-professionals/annual-filing-season-program.

  4. An unenrolled return preparer who participates in the AFSP agrees to be subject to http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586, (Circular 230) Regulations Governing Practice before the Internal Revenue Service, Subpart B, Duties and Restrictions Relating to Practice Before the Internal Revenue Service, and Section 10.51, Incompetence and disreputable conduct.

  5. An unenrolled return preparer may be barred from limited practice before the Service for generally the same issues as enrolled agents and other practitioners may be barred from practice under http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586.

  6. A referral is made to OPR via Form 8484, Suspected Practitioner Misconduct Report for the Office of Professional Responsibility. See IRM 4.1.10.8 for referral criteria. If the referral concerns a preparer's conduct with respect to tax returns prepared and signed before 2016, OPR will process the referral as a potential Rev. Proc. 81-38 , case. If the referral involves conduct subject to the rules of the AFSP, OPR will determine if there was a violation of any of the duties and restrictions of Subpart B of http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586, or a violation of any provision in section 10.51 of Circular 230, and, if so, refer the case to RPO for further action.

Bypass of the Taxpayer’s Representative

  1. Where a recognized representative has unreasonably delayed or hindered an examination by failing to furnish, after repeated requests, non-privileged information necessary to the examination, the Internal Revenue Service employee conducting the examination may be given permission to bypass the representative and contact the taxpayer directly for such information. 26 CFR 601.506(b). Statement of Procedural Rules.

  2. The examiner must carefully document the case file with all instances of unreasonable hindrance or delay. See IRM 4.11.55, Examining Officer’s Guide (EOG), Power of Attorney Rights and Responsibilities, for additional guidance regarding unreasonable delay or hindrance by the taxpayer’s representative and instances where the examiner should consider bypass of the representative.

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

  4. Unreasonable hindrance or delay of an investigation may constitute a violation of http://publish.no.irs.gov/cat12.cgi?request=CAT1&catnum=16586. Employees who have reason to believe that a practitioner has violated Circular 230 should make a referral of the suspected violation to the Office of Professional Responsibility. See IRM 4.11.55.4.2.3, Referral to OPR Procedures, for further information on reporting suspected violations to OPR.

    Note:

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

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

Misrepresentation on Power of Attorney and Declaration of Representative Form 2848

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

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

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

    2. An enrolled agent’s status can be verified by checking the status on the Return Preparer Office’s website at http://irweb.irs.gov/aboutirs/bu/rpo/default.aspx.

    3. An Annual Filing Season Program Record of Completion can be verified by checking the status on the Return Preparer Office website at http://irweb.irs.gov/aboutirs/bu/rpo/default.aspx.

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

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

    1. Get a fax copy of the Form 2848.

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

    3. Confirm the employee’s search results.

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

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

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

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

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

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

    10. When the misrepresentation is confirmed, action pursuant to Rev. Proc. 2014-42 should be considered.

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

    Note:

    The record should be retained for three years.

  6. If the Form 2848 is not valid, and the employee had already sent it to the CAF Unit, the RPC must notify OPR via e-mail to change the information in CAF.

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

Program Reporting

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

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

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

  2. Monthly PAC Report – This report is prepared by the RPC and is due to the Exam Case Selection Return Preparer Program Analyst on the 20th of each month. The RPC will run a PAC Report in SB/SE Referral for the prior month to report Open PACs, Started PACs and Terminated PACs.

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

    Example:

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

  4. Quarterly SB/SE Referral Certification – This certification is prepared by the RPC and is due to the Exam Case Selection Return Preparer Program Analyst on the 20th of each month following the close of the previous quarter.

    Note:

    The RPC will need to verify all referrals received in the quarter have been logged into the database and the appropriate PAC information has been updated (PSC Approval, AD Approval).

Other Miscellaneous Program Information

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

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

    • RPVUE

    • RPPRT

    • RTVUE or BRTVUE

    • TRDBV

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

    • IRPTR

    • AMDIS

    • AMFRZ (Definers S, R)

    • INOLE

    • NAMES, NAMEE

    • SUMRY

    • TXMOD

    • PTINQ

    • CFINK

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

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

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

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

Websites

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

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

    2. AIMS/ERCS - http://mysbse.web.irs.gov/examination/mis/default.aspx.

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

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

Working Relationships

  1. To facilitate the development of the Return Preparer Program, the RPC should develop a good working relationship with the following individuals:

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

    2. Return Preparer Office.

    3. Lead Development Center (LDC).

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

    5. Office of Professional Responsibility.

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

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

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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

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

    11. SB/SE Examination Technical Services Fraud Coordinators.

Closed CI Investigation Forwarding Memorandum

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CI Request for Audit Support Memorandum

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LDC Referral Form

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Program Action Case Project Check Sheet

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Request for Verification of Professional Standing

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Taxpayer Notification of Ineligible Representative

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