IRS May Fine 122,133 Paid Tax Preparers $345 Million in Penalties

Last tax season marked an increasing level of noncompliance by tax preparers with the Internal Revenue Service’s due diligence reporting requirements for the Earned Income Tax Credit, according to a new report reviewing the IRS’s performance during the delayed tax season.

The report, from the Treasury Inspector General for Tax Administration, found that as of March 2, 2013, TIGTA had identified 122,133 paid tax return preparers filing 708,298 tax returns claiming $2 billion in EITC without the required Form 8867 attached to the tax return. This equates to more than $354 million in penalties that can potentially be assessed by the IRS.

In addition, TIGTA’s report raised concerns about the potential misuse of the split refund option to direct multiple tax refunds to the same bank account. TIGTA notified the IRS in February that some tax refunds were apparently directed incorrectly to tax preparers’ accounts.

As of May 2, 2013, taxpayers filed 385,591 tax returns with a Form 8888, Allocation of Refund (Including Savings Bond Purchases), requesting multiple direct deposits to the same bank account. Direct deposits totaling more than $150.8 million were made to 46,897 bank accounts.
Each of the 46,897 bank accounts identified by TIGTA had three or more Form 8888 deposits from different taxpayers into these accounts. TIGTA determined that 248,027 (64 percent) of the 385,591 tax returns were prepared by a paid tax preparer.

The IRS reported that it identified 579,183 tax returns with $3.6 billion claimed in fraudulent refunds during tax return processing and prevented the issuance of $3.47 billion (96.4 percent) of those refunds.

“The IRS is continuing to expand its efforts to identify and prevent fraudulent tax returns from being processed,” Treasury Inspector General J. Russell George said in a statement Wednesday.