Is EITC return preparer compliance program enough?

The IRS is not the only one to conduct audits. The Treasury Inspector General for Tax Administration (TIGTA) provides IRS oversight and occasionally audits how IRS procedures are working. Recently, it suggested improvements to address erroneous Earned Income Tax claims and persistently noncompliant return preparers.

We have been following the topic of EITC return preparer audits over the past year. The issue continues to draw significant attention, because the IRS estimates in 2016 it paid $16.8 billion in improper EITC payments. TIGTA review of 3,547 return preparers found 30 percent of the returns had some characteristic that indicted a potential error in claiming the EITC. This does not necessarily indicate fraud, but better follow up with return preparers has been recommended.

Addressing persistent noncompliance

The IRS will be in contact when it identifies a pattern of tax returns with the characteristics of erroneous claims – this might even be oversight in failing to complete due diligence worksheets. The first line response is a letter. A visit to your office might follow.

TIGTA found that a number of return preparers identified in its sample had not gone through the IRS compliance program. The IRS could not explain why it had excluded these preparers.

Sufficient documentation was not available to explain the scoring and selection model that the agency used for a FY 2016 Return Preparer Compliance Workplan. Another concerning finding in the report was that an office visit did not improve compliance in 39 percent of cases.

One of the agency recommendations amounted to developing a second stage for tax preparers who continued to be noncompliant even after an office visit. A new procedure might be coming to indentify and refer egregious preparers “to other functions.”

What could change?

The IRS agreed that the agency does not have written procedures to proactively refer return preparers who continue to have problems. It agreed that additional actions should be available when preparers continue to be noncompliant. What these might be and when they would go into effect are unclear.

As you begin gearing up for the next tax season, take any correspondence from the IRS related to EITC compliance seriously. You may not fully understand what triggered the IRS interest, contact a tax attorney to help you resolve the issues and put the right controls in place to ensure compliance.