IRS Getting Stricter on Enforcing Preparer Penalties

According to a report by TIGTA (requested by the IRS Oversight Board to determine its efficiency in using the existing requirements and penalty regime that applies to unenrolled paid tax return preparers) there are several areas where the IRS could improve.   The overall objective was to determine whether controls are in place to ensure that the IRS effectively enforces and applies penalties to paid preparers as required by Internal Revenue Code Section 6694, which provides penalty standards for paid preparers who take unreasonable positions or intentionally prepare inaccurate tax returns.

TIGTA findings:

1. Assessment of tax preparer penalties must be approved by the tax examiner’s immediate manager. In many of these cases, tax preparer penalties were not properly approved by a manager.

2. IRS quality reviewers found that examiners did not always adequately document the examination case files with the facts that supported whether or not they considered paid preparer penalties.

3. TIGTA analyzed the Master File to determine whether the IRS is effectively enforcing paid preparer penalties, and found that current enforcement practices do not treat paid preparers with unpaid penalties as a priority, which could impact whether tax preparer penalties achieve their intent of changing preparer behavior and increasing voluntary compliance.

IRS officials agreed with all of the recommendations and said that they plan to take corrective actions.