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PTIN Holders Have No Right to Know If They Are Under Investigation

The Treasury Department announced a Final Rule this week to avoid having to reveal to PTIN holders the names of agencies that have requested their files. The purpose of the rule is to prevent these individuals from finding out that they are under investigation and destroying evidence. This new rules comes after reports that certain return preparers are taking advantage of taxpayers with limited English proficiency.

5 U.S.C. § 552, more commonly known as the Freedom of Information Act (FOIA), allows for the disclosure of previously unreleased information and documents maintained or controlled by the federal government. Under § 552a(j), however, the head of each federal agency is allowed to make rules exempting certain items from FOIA disclosures, including information compiled for the purpose of a criminal investigation.

For several years now, cracking down on unscrupulous return preparers has been one of the government's top priorities. This year, the IRS once again listed return preparer fraud as one of the "Dirty Dozen" tax scams that it would focus on. In addition to potentially facing criminal charges, fraudulent return preparers can face severe civil penalties, as well as injunctions to prevent them from preparing tax returns at all.

The most common criminal charge for return preparers is under 26 U.S.C. § 7206(2), which applies to individuals who aid or assist in the filing of a false return. Typical schemes used by fraudulent return preparers include inflating deductions, filing a false Schedule C showing losses, or falsely claiming Head of Household status. These false items result in the client receiving a larger refund, which the return preparer might receive a cut of.

Violations of § 7206(2) are felonies, and each count is punishable by up to three years in prison. Typically, targets of criminal investigations by the IRS do not find out they are under investigation until Special Agents arrive at their home or place of business with a search warrant. This is done to ensure that the target does not have an opportunity to destroy evidence that can be used as part of the case.

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