Tax Preparer Regulation
IRS Needs a Documented Framework to Achieve Goal of Improving Taxpayer Compliance Gao ID: GAO-11-336 March 31, 2011Paid preparers prepare about 60 percent of all tax returns filed, and their actions significantly affect the Internal Revenue Service's (IRS) ability to administer tax laws. Previously, GAO found that some preparers made significant errors in preparing tax returns and proposed stricter regulation of preparers. IRS is implementing new requirements for paid preparers that it believes will increase tax compliance, which will reduce the gross tax gap between taxes owed and taxes paid, last estimated at $345 billion for 2001. GAO was asked to (1) describe IRS's plans for implementing and ensuring paid preparer compliance with the requirements; (2) assess IRS's resource estimates for the requirements; and (3) assess IRS's plans to use the requirements to improve taxpayer compliance and evaluate their effect. To meet these objectives, GAO reviewed IRS planning documents and interviewed IRS officials and representatives and members of paid preparer associations.
IRS has implemented a registration requirement for paid preparers that includes obtaining a preparer tax identification number (PTIN) and plans to implement competency testing and continuing education requirements. IRS also plans to require paid preparers to adhere to standards of practice and the revisions are currently being reviewed by the Office of Management and Budget. In addition, IRS has conducted an outreach campaign consistent with key practices to inform paid preparers of the new requirements. For example, IRS developed a standardized message that it distributed in different formats. IRS is developing strategies for how to ensure that paid preparers comply with the new requirements, according to the director of IRS's Return Preparer Office. IRS is funding the paid preparer requirements through user fees, which it is setting consistent with established criteria for cost estimating. For example, in setting the PTIN user fee to ensure it covered program costs, IRS identified key costs associated with registration, estimated fixed costs, and based some variable costs on similar registration efforts. IRS has discussed but not documented a framework for how it plans to use the requirements to improve taxpayer compliance. For example, IRS plans to develop a comprehensive database containing information on paid preparers and related tax returns. Also, IRS has yet to document how it will assess the requirements' effect, for example, by identifying what baseline data IRS needs. Without a documented framework, IRS may have difficulty (1) assessing whether it has adequately planned for what data it needs to collect and (2) deciding how to allocate resources given competing priorities. A framework could also help assure paid preparers, who bear the burden of complying with the requirements, that IRS will assess whether the requirements provide their intended benefit. GAO recommends that IRS document a framework for using the paid preparer requirements to improve taxpayer compliance and evaluate their effect on taxpayer compliance. In commenting on a draft of this report, IRS agreed with the recommendation.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: James R. White Team: Government Accountability Office: Strategic Issues Phone: (202) 512-5594GAO-11-336, Tax Preparer Regulation: IRS Needs a Documented Framework to Achieve Goal of Improving Taxpayer Compliance
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United States Government Accountability Office:
GAO:
Report to the Subcommittee on Financial Services and General
Government, Committee on Appropriations, U.S. Senate:
March 2011:
Tax Preparer Regulation:
IRS Needs a Documented Framework to Achieve Goal of Improving Taxpayer
Compliance:
GAO-11-336:
GAO Highlights:
Highlights of GAO-11-336, a report to the Subcommittee on Financial
Services and General Government, Committee on Appropriations, U.S.
Senate.
Why GAO Did This Study:
Paid preparers prepare about 60 percent of all tax returns filed, and
their actions significantly affect the Internal Revenue Service‘s
(IRS) ability to administer tax laws. Previously, GAO found that some
preparers made significant errors in preparing tax returns and
proposed stricter regulation of preparers. IRS is implementing new
requirements for paid preparers that it believes will increase tax
compliance, which will reduce the gross tax gap between taxes owed and
taxes paid, last estimated at $345 billion for 2001.
GAO was asked to (1) describe IRS‘s plans for implementing and
ensuring paid preparer compliance with the requirements; (2) assess IRS‘
s resource estimates for the requirements; and (3) assess IRS‘s plans
to use the requirements to improve taxpayer compliance and evaluate
their effect. To meet these objectives, GAO reviewed IRS planning
documents and interviewed IRS officials and representatives and
members of paid preparer associations.
What GAO Found:
IRS has implemented a registration requirement for paid preparers that
includes obtaining a preparer tax identification number (PTIN) and
plans to implement competency testing and continuing education
requirements, as shown in the figure below. IRS also plans to require
paid preparers to adhere to standards of practice and the revisions
are currently being reviewed by the Office of Management and Budget.
In addition, IRS has conducted an outreach campaign consistent with
key practices to inform paid preparers of the new requirements. For
example, IRS developed a standardized message that it distributed in
different formats. IRS is developing strategies for how to ensure that
paid preparers comply with the new requirements, according to the
director of IRS‘s Return Preparer Office.
Figure: Proposed Timeline for IRS‘s Implementation of Paid Preparer
Requirements:
[Refer to PDF for image: timeline]
Continuing education requirement-–TBD:
* 15 annual hours required;
* User fee: TBD.
September 28, 2010:
PTIN registration began:
* Fee of $64.25 charged;
* Registrants asked about personal tax compliance and felonies.
Mid-year, 2011:
Competency testing available:
* User fee-–To be determined (TBD).
December 31, 2013:
PTIN revoked if competency test not passed.
January 31, 2014:
Searchable database of paid preparers available.
Source: IRS.
[End of figure]
IRS is funding the paid preparer requirements through user fees, which
it is setting consistent with established criteria for cost
estimating. For example, in setting the PTIN user fee to ensure it
covered program costs, IRS identified key costs associated with
registration, estimated fixed costs, and based some variable costs on
similar registration efforts.
IRS has discussed but not documented a framework for how it plans to
use the requirements to improve taxpayer compliance. For example, IRS
plans to develop a comprehensive database containing information on
paid preparers and related tax returns. Also, IRS has yet to document
how it will assess the requirements‘ effect, for example, by
identifying what baseline data IRS needs. Without a documented
framework, IRS may have difficulty (1) assessing whether it has
adequately planned for what data it needs to collect and (2) deciding
how to allocate resources given competing priorities. A framework
could also help assure paid preparers, who bear the burden of
complying with the requirements, that IRS will assess whether the
requirements provide their intended benefit.
What GAO Recommends:
GAO recommends that IRS document a framework for using the paid
preparer requirements to improve taxpayer compliance and evaluate
their effect on taxpayer compliance. In commenting on a draft of this
report, IRS agreed with the recommendation.
To view the full product, including the scope and methodology, click
on [hyperlink, http://www.gao.gov/products/GAO-11-336]. For more
information, contact James White at (202) 512-9110 or whitej@gao.gov.
[End of section]
Contents:
Letter:
Background:
IRS Has Implemented a Registration Requirement for Paid Preparers and
Plans to Implement the Additional Requirements Gradually:
IRS Is Funding the New Paid Preparer Program through User Fees, Which
IRS Is Setting Consistent with Established Criteria:
IRS Has Not Documented a Framework for Using the Requirements to
Improve Taxpayer Compliance and Measuring Their Effect:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Internal Revenue Service:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Applicability of New Requirements by Type of Paid Preparer:
Table 2: Setting the PTIN Registration User Fee:
Table 3: Collecting, Using, and Reviewing the PTIN Registration User
Fee:
Figures:
Figure 1: Proposed Timeline for IRS's Implementation of Paid Preparer
Requirements:
Abbreviations:
CPA: Certified Public Accountant:
EA: Enrolled Agent:
IRS: Internal Revenue Service:
OMB: Office of Management and Budget:
PTIN: preparer tax identification number:
RPIPO: Return Preparer Implementation Project Office:
RPO: Return Preparer Office:
TIGTA: Treasury Inspector General for Tax Administration:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 31, 2011:
The Honorable Richard J. Durbin:
Chairman:
The Honorable Jerry Moran:
Ranking Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate:
Paid tax return preparers prepare approximately 60 percent of all tax
returns filed. The Internal Revenue Service (IRS) has acknowledged
that paid preparers' actions have an enormous impact on its ability to
administer tax laws effectively. In previous work, described in our
background section, we found that some paid preparers made significant
errors in preparing tax returns, and we proposed stricter oversight of
preparers as an option to address this issue. While paid preparers
could be subject to penalties with respect to the preparation of tax
returns, until recently IRS had not regulated the conduct and
competency of all paid preparers. IRS is implementing new
requirements, such as requiring certain types of paid preparers to
pass a competency test. IRS has concluded that these requirements will
increase tax compliance, which will reduce the gross tax gap between
what is owed in taxes and what is paid voluntarily and on time. IRS's
most recent estimate for the gross tax gap was $345 billion for 2001.
[Footnote 1]
You asked that we assess IRS's administration of the new requirements
for paid preparers. In response, this report's objectives are to (1)
describe IRS's plans for implementing and ensuring paid preparer
compliance with the requirements; (2) assess IRS's resource estimates
for developing and implementing the requirements; and (3) assess IRS's
plans to use the requirements to improve taxpayer compliance and
evaluate the effect of the requirements.
To describe IRS's plans for implementing and ensuring paid preparer
compliance with the requirements, we analyzed IRS documents and
interviewed officials from IRS's Return Preparer Office (RPO) and
Return Preparer Implementation Project Office (RPIPO) based on IRS's
plans for the requirements, internal control standards, and our prior
work on communicating with the public about a new initiative. To
assess IRS's resource estimates, we reviewed IRS documents on the user
fee that IRS is charging paid preparers for obtaining a preparer tax
identification number (PTIN) and interviewed officials from IRS's RPO,
RPIPO, and Chief Financial Officer's office based on prior GAO work on
cost estimating and user fees. To assess IRS's plans to use the
requirements to improve taxpayer compliance and evaluate the effect of
the requirements, we reviewed IRS documents and interviewed RPO and
RPIPO officials utilizing IRS's plans for the requirements and prior
GAO work on evaluating performance. In addition, for all three
objectives, we interviewed representatives from paid preparer
associations and a representative from a retail tax return preparation
chain. For further details on our scope and methodology, see appendix
I.
We conducted this performance audit from July 2010 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
A paid preparer is any person who prepares for compensation, or who
employs one or more persons to prepare for compensation, all or a
substantial portion of a tax return or claim for refund of tax.
[Footnote 2] Paid preparers prepared almost 60 percent of all federal
tax returns filed in 2008 and 2009. IRS does not know how many paid
preparers there are but estimates there are between 900,000 and 1.2
million. Prior to the new requirements for paid preparers there were
no national standards that a paid preparer was required to satisfy
before being compensated for preparing a federal tax return.
Currently, attorneys, certified public accountants (CPA), enrolled
agents[Footnote 3] (EA), enrolled actuaries,[Footnote 4] enrolled
retirement plan agents,[Footnote 5] and other individuals authorized
to practice before IRS are subject to standards of practice under
Department of the Treasury Circular No. 230.[Footnote 6] Most EAs are
required to pass an examination and complete annual continuing
education, while attorneys and CPAs are licensed by states but are
still subject to Circular 230 standards of practice if they practice
before IRS. Previously, other paid preparers were not regulated,
required to pass a competency examination, complete continuing
education, or adhere to the standards of practice in Circular 230. The
states of Oregon, California, New York, and Maryland all regulate paid
preparers, but oversight in each state varies. IRS has noted that the
lack of uniform federal regulation of all paid preparers has resulted
in greatly varying oversight of paid preparers depending on the paid
preparer's professional affiliations, or lack thereof, and the
geographical area in which they practice.
In previous work, we and the Treasury Inspector General for Tax
Administration (TIGTA) found that some paid preparers made significant
errors preparing tax returns and we recommended that IRS conduct
research to determine the extent to which paid preparers file accurate
and complete tax returns.[Footnote 7] We also recommended that IRS
develop a plan to require stricter regulation of paid preparers and
suggested Congress adopt a nationwide paid preparer regulatory regime
similar to Oregon's paid preparer regulatory regime[Footnote 8] if it
judged that Oregon's regulatory regime accounted for at least a modest
portion of the higher federal tax return accuracy in the state.
[Footnote 9]
In June 2009, the Commissioner of Internal Revenue initiated a review
of paid preparers to help IRS strengthen its partnerships with paid
preparers and ensure that paid preparers adhere to applicable
professional standards and follow tax laws. IRS recommended changes to
the oversight of paid preparers in its December 2009 Return Preparer
Review report.[Footnote 10] These recommended changes included
mandatory registration for paid preparers who are required to sign a
federal tax return; competency testing and continuing education for
paid preparers who are required to register with IRS and who are not
attorneys, CPAs, or EAs; and holding all paid preparers to Circular
230 standards of practice, regardless of whether or not the preparers
are required to sign a federal tax return. IRS intends these new
requirements to improve service to taxpayers, increase confidence in
the tax system, and increase taxpayer compliance.[Footnote 11]
IRS Has Implemented a Registration Requirement for Paid Preparers and
Plans to Implement the Additional Requirements Gradually:
IRS has implemented a requirement that paid preparers obtain a PTIN if
they prepare all or substantially all of a tax return filed after
December 31, 2010.[Footnote 12] Figure 1 shows IRS's tentative
schedule for implementing the other new requirements. In addition to
the requirements shown in figure 1, IRS will require all paid
preparers to adhere to Circular 230 standards of practice. Revisions
to the Circular 230 regulations are currently being reviewed by the
Office of Management and Budget (OMB), according to an official
involved in the implementation of the new requirements. When the
revisions to the Circular 230 regulations have been finalized, paid
preparers will be required to adhere to its standards of practice.
Figure 1: Proposed Timeline for IRS's Implementation of Paid Preparer
Requirements:
[Refer to PDF for image: timeline]
Continuing education requirement-–TBD:
* 15 annual hours required;
* User fee: TBD.
September 28, 2010:
PTIN registration began:
* Fee of $64.25 charged;
* Registrants asked about personal tax compliance and felonies.
Mid-year, 2011:
Competency testing available:
* User fee-–To be determined (TBD).
December 31, 2013:
PTIN revoked if competency test not passed.
January 31, 2014:
Searchable database of paid preparers available.
Source: IRS.
[End of figure]
The dates for implementing the competency testing and continuing
education requirements are tentative because OMB is currently
reviewing the proposed revisions to the Circular 230 regulations.
Because these proposed regulations are not final, IRS has not decided
how it will implement some details of the competency testing and
continuing education requirements. Nevertheless, the RPO Director
discussed with us his thoughts on approaches IRS might take.
Paid preparers may register for a PTIN online or on paper via Form W-
12, IRS Paid Preparer Tax Identification Number (PTIN)
Application.[Footnote 13] Paid preparers who currently have a PTIN
[Footnote 14] must register in the new PTIN registration system but in
most cases can retain their old PTIN as long as IRS can verify
identifying information for the existing PTIN. Online registrants are
supposed to receive a provisional PTIN immediately while paper
registrants are supposed to receive a provisional PTIN in 4-6 weeks.
[Footnote 15] As of March 20, 2011, according to an IRS official
involved in implementing the new requirements, IRS had issued 692,297
PTINs, approximately 60 percent of which were issued to paid preparers
with existing PTINs and approximately 40 percent of which were issued
to paid preparers without existing PTINs.
Most, but not all, paid preparers were able to obtain a PTIN online.
According to an official involved in the implementation of the new
requirements, approximately 92 percent of paid preparers who attempted
to obtain PTINs by the start of the filing season got them online. The
rest either attempted to obtain a PTIN by paper or were directed to
obtain a PTIN by paper, likely as a result of an online authentication
issue. Officials and members of multiple paid preparer organizations
stated that some preparers have encountered technical problems when
using the PTIN registration system but also noted that IRS's
administration of the PTIN registration system has improved. The RPO
Director said that IRS has worked to address problems with the
registration system since it was initiated. For example, married paid
preparers with different last names from their spouses who filed tax
returns under the married filing jointly status were experiencing
difficulty obtaining a new PTIN. The RPO director said that IRS solved
this problem. For the 2011 tax filing season, IRS will allow paid
preparers who are able to demonstrate a good faith effort to obtain a
PTIN, but were unsuccessful, to use their old PTINs or Social Security
numbers on tax returns.
When applying for a PTIN, paid preparers are asked to self-disclose if
they are compliant with their personal and business taxes, under
penalty of perjury. The RPO Director said that IRS plans to initiate
automated tax compliance checks on all paid preparers. IRS plans to
limit the checks to whether the preparers have filed all federal tax
returns and paid or entered into an agreement to pay federal tax
debts. Paid preparers are also asked if they have been convicted of a
felony in the past 10 years, under penalty of perjury. The PTIN
application includes space to write an explanation for both tax
compliance and felony information. The RPO Director said that IRS
plans to check the accuracy of registrants' tax compliance and
background information by late 2011 and that registrants who provide
false information on their PTIN applications will have severely
limited appeal rights if IRS proposes to deny them PTINs. Paid
preparers who are attorneys, CPAs, or EAs are asked to self-identify
their professional credentials. The RPO Director said that IRS does
not have a single-source database through which it can verify these
professional credentials (it only has information on EAs).[Footnote
16] IRS plans to sample randomly attorneys and CPAs for verification
of their self identification, and the RPO Director said that IRS is
working toward developing a database that contains information about
attorneys and CPAs that will allow for automated verification.
IRS plans to hold paid preparers to Circular 230 standards of practice
and will establish a new category of practitioner--registered tax
return preparer.[Footnote 17] These paid preparers will be limited in
their practice before IRS to preparing tax returns, claims for refund,
and other documents for submission to IRS but will be required to
adhere to professional ethical standards when doing so or face a
penalty. Additionally, paid preparers who are supervised by an
attorney, CPA, EA, enrolled actuary, or enrolled retirement plan agent
at a law firm, CPA firm, or other recognized firm and do not sign tax
returns but obtain a PTIN, while not being granted rights to practice
before IRS, will be required to meet the same standards. The RPO
Director said that if paid preparers are denied a PTIN or have their
PTIN revoked, paid preparers will have the right to appeal this denial
or revocation in the same manner as other Circular 230 sanctions.
Applicability of the new paid preparer requirements will vary by type
of paid preparer, as shown in table 1:
Table 1: Applicability of New Requirements by Type of Paid Preparer:
Preparer type: Registered ta[Check] return preparers;
PTIN registration: [Check];
Competency testing: [Check];
Continuing education: [Check];
Circular 230 standards: [Check][A].
Preparer type: Attorneys/CPAs/EAs;
PTIN registration: [Check];
Competency testing: [Empty];
Continuing education: [Empty];
Circular 230 standards: [Check][B].
Preparer type: Enrolled actuaries, enrolled retirement plan agents,
and preparers of forms not covered by competency test;
PTIN registration: [Check];
Competency testing: [Empty];
Continuing education: [Empty];
Circular 230 standards: [Check][C].
Preparer type: Supervised ta[Check] return preparers;
PTIN registration: [Check];
Competency testing: [Empty];
Continuing education: [Empty];
Circular 230 standards: [Check][D].
Source: GAO analysis of IRS documents.
[A] Registered tax return preparers are granted limited rights to
represent taxpayers before IRS and subject to Circular 230 standards
of practice by the proposed amendments.
[B] Attorneys', CPAs', and EAs' rights to represent taxpayers under
Circular 230 are unchanged by the proposed amendments.
[C] Enrolled actuaries' and enrolled retirement plan agents' rights to
represent taxpayers before IRS under Circular 230 are unchanged by the
proposed amendments. Preparers of forms not covered by the competency
examination are granted limited rights to represent taxpayers before
IRS and subject to Circular 230 standards of practice.
[D] Supervised tax return preparers who obtain PTINs are exempt from
the competency testing and continuing education requirements but are
not permitted to sign tax returns as paid preparers and are not
granted rights to represent taxpayers before IRS. They will be subject
to certain duties and restrictions relating to the preparation of
returns under Circular 230.
[End of table]
According to the RPO Director, some types of paid preparers will be
exempt from the new competency testing and continuing education
requirements because they are subject to competency testing and
continuing education requirements set by their professional licensing
bodies.[Footnote 18]
IRS proposed regulations amending Circular 230 will require
individuals (see table 1 above) to pass a competency test to become an
officially registered tax return preparer.[Footnote 19] Paid preparers
who have a valid PTIN before competency testing is available will have
until 2013 to pass a competency test. Paid preparers who register for
a PTIN after testing is available must pass a competency test before
obtaining a PTIN. The RPO Director said that IRS is allowing this
delay in testing for preparers who register for a PTIN before testing
is available to encourage paid preparers to register for a PTIN as
soon as possible while giving them time to prepare for the competency
test. The RPO Director also said that IRS plans to develop and
implement one competency test for individuals who prepare returns from
the individual tax return (Form 1040) series and will assess whether
IRS needs to add additional tests in the future. The RPO Director also
said that IRS plans to have the test available at national and
international locations, which will allow individuals to consult forms
and instructions during the test, and that individuals will pay a fee
each time they take the test. After completing the competency test,
registered tax return preparers will be subject to suitability checks,
which IRS plans to conduct to determine whether the individual has
engaged in disreputable conduct.[Footnote 20] According to the RPO
Director, IRS plans to link suitability checks for registered tax
return preparers to the competency test so that when paid preparers
take the competency test they will be fingerprinted, thereby
submitting to a suitability check.
IRS plans to implement a continuing education requirement, whereby
registered tax return preparers (see table 1 above) will be required
to take 15 hours of training annually--3 hours of federal tax law
updates, 2 hours of ethics, and 10 hours of additional federal tax
topics. The RPO Director said that IRS plans to approve continuing
education providers and audit a random sample of continuing education
courses.
IRS Is Conducting an Outreach Campaign Consistent with Key Practices
to Inform Paid Preparers of the New Requirements:
In support of the new requirements for paid preparers, IRS established
a communications team and vested in it responsibility for educating
paid preparers and taxpayers about the new requirements. In prior
reports, we have discussed the importance of focusing on external
communications as a key internal control standard and identified key
practices for communicating with the public about a new initiative.
[Footnote 21] In line with key practices for communicating with the
public about a new initiative, IRS's communications team, for example,
prepared an action plan, identified stakeholders to engage, and
developed a standardized message that it distributed in different
formats--by presentations at IRS Nationwide Tax Forums, executive
talks to industry groups, and written correspondence with tax
professionals. Consistent with established criteria for improving the
usefulness of communication, the RPO Director said that IRS plans to
develop secure online mailboxes for paid preparers that will be used
for IRS-paid preparer communication.
The official leading IRS's communications team said that IRS has not
yet developed a plan for how it will monitor and evaluate the success
of its outreach efforts, a key practice for communicating with the
public. Since the requirements are just beginning to be implemented,
the effectiveness of the outreach campaign will not be known until
after the requirements are implemented. Officials and members of paid
preparer associations we interviewed said that IRS has conducted an
effective outreach campaign. However, officials and members of one
paid preparer association we interviewed worry that some paid
preparers remain unclear about the applicability of the new
requirements to certain types of paid preparers, and officials and
members of two paid preparer organizations we interviewed said that
some paid preparers have likely not heard of the new requirements.
IRS Is Developing Strategies for How to Ensure Paid Preparer
Compliance with the New Requirements:
In its strategic plan for 2009-2013, IRS established strategies
designed to help it meet its objective of ensuring that paid preparers
adhere to Circular 230 standards of practice and follow the law,
including penalizing paid preparers who do not follow tax laws and
leveraging research to identify fraudulent and noncompliant paid
preparers.[Footnote 22] According to the RPO Director, IRS plans to
implement initiatives intended to ensure paid preparers' compliance
with the new requirements but has yet to make many decisions because
it is waiting for information from the PTIN registration system that
will allow it to implement effective initiatives.
During the first year after the PTIN requirement has been implemented,
IRS plans to focus on bringing paid preparers into compliance and
improving its communications and outreach, and not on penalizing paid
preparers for noncompliance, according to the RPO Director. For
example, the RPO Director said that IRS plans to contact paid
preparers who file returns signed with an old PTIN, a SSN, or other
identification number after the filing season is over. The RPO
Director said that IRS will direct them to obtain a PTIN that will
retroactively cover their practice during the recently completed
filing season. The RPO Director also said that in cases of egregious
noncompliance, such as paid preparers ignoring an IRS contact
directing them to use a PTIN, IRS plans to contact paid preparers
directly. IRS has the authority to penalize paid preparers who are
required to but fail to include a PTIN on a tax return.[Footnote 23]
IRS has undertaken one initiative for ensuring paid preparer
compliance with the new requirements and is evaluating other future
compliance initiatives. IRS sent letters in November 2010 to 10,000
paid preparers to remind them of their responsibility to comply with
requirements for paid preparers, including registering for a PTIN.
According to officials involved in the implementation of the new
requirements, IRS is visiting some of the paid preparers who received
letters to confirm their compliance based on an analysis of IRS visits
to paid preparers in 2010. An official involved with the
implementation of the new requirements also said that IRS plans to
evaluate the results of the visits. The RPO Director also said that
IRS plans to identify individuals who prepare tax returns for others
but do not sign the tax return as paid preparers, and is currently
evaluating methods by which it might do so. Additionally, the RPO
Director said that IRS seeks to develop a risk-based scoring model to
maximize the efficacy of its compliance efforts.
IRS plans to launch a publicly accessible database of all registered
paid preparers by January 31, 2014, so that taxpayers can check
whether a paid preparer has registered. The RPO Director said that the
database will likely include preparers' contact information, whether
or not preparers have passed the competency test, professional
credentials, and tax preparation legal problems, if applicable. The
RPO Director also said that IRS will not launch the database until it
is sure it has the capability to rapidly respond to any associated
problems with the data because paid preparers mistakenly identified as
noncompliant could be negatively affected financially.
IRS Is Funding the New Paid Preparer Program through User Fees, Which
IRS Is Setting Consistent with Established Criteria:
IRS is funding the administration of the paid preparer requirements
through user fees for PTIN registration, competency testing, and
continuing education.[Footnote 24] IRS has only determined the user
fee for PTIN registration so far, which is $50 per PTIN.[Footnote 25]
IRS contracted with a vendor to establish and maintain the PTIN
registration system, and the vendor will charge a $14.25 fee, bringing
the total fee for PTIN registration to $64.25. In determining the
level of the PTIN registration user fee, IRS has taken actions or made
plans consistent with established criteria for setting user fees and
using the resulting revenue. These criteria, which we identified in
prior reports, include a set of key questions that should be
considered when designing and implementing user fees and best
practices for developing cost estimates.[Footnote 26] Key questions to
consider when designing and implementing a user fee are contained
within four primary components: setting, collecting, using, and
reviewing. Table 2 below shows key questions to consider when setting
a user fee, key criteria for establishing a credible estimate of a
program's costs, and IRS's actions in setting the PTIN registration
user fee.
Table 2: Setting the PTIN Registration User Fee:
Key questions and criteria: How do users benefit from the program?;
IRS action: IRS determined that paid preparers benefit by being able
to prepare returns, and thus IRS can charge a user fee for PTIN
registration.
Key questions and criteria: How will the fee be linked to costs?
Develop estimating plan and define program characteristics;
IRS action: IRS documented key pieces of the PTIN registration program
that will need to be funded, such as customer support and marketing,
IT, compliance, operations support, and foreign paid preparer
registration.
Key questions and criteria: How will the fee be linked to costs?
Determine estimating structure;
IRS action: IRS estimated PTIN registration program administration
costs, including start-up, personnel, IT investment, and other related
program costs.
Key questions and criteria: How will the fee be linked to costs?
Identify ground rules & assumptions;
IRS action: IRS estimated that there are between 900,000 and 1.2
million paid preparers, and that program costs are uncertain and could
be higher or lower than estimated.
Key questions and criteria: How will the fee be linked to costs?
Obtain data and develop and document an estimate;
IRS action: IRS developed detailed spreadsheets of PTIN estimates
based on cost data and documented a user fee to cover its total PTIN
costs.
Key questions and criteria: How will the fee be linked to costs?
Present estimate to management;
IRS action: Treasury and OMB reviewed IRS's PTIN user fee cost-
estimate.
Source: GAO and GAO analysis of IRS documents and interviews with IRS
officials.
Note: Key questions and criteria are from Federal User Fees: A Design
Guide, GAO-08-386SP and GAO Cost Estimating and Assessment Guide, GAO-
09-3SP.
[End of table]
IRS identified key costs associated with PTIN registration and grouped
them into five categories: (1) foreign paid preparer registration
processing, (2) paid preparer program compliance, (3) communications
and customer support, (4) IT, and (5) operations support.
Approximately 75 percent of the costs IRS plans to cover with the PTIN
registration user fee are variable and are contained within the two
categories of foreign paid preparer registration processing and paid
preparer program compliance, which includes tax compliance and
criminal background screenings for paid preparers. To calculate the
cost of foreign paid preparer registration processing, IRS estimated
the number of PTIN registrants who will be foreign paid preparers and
the cost to process each registration. To calculate the cost of
screening paid preparers for tax compliance and a criminal background,
IRS extrapolated to the paid preparer requirements the costs of
screening individuals applying to become IRS e-File providers[Footnote
27] for tax compliance and a criminal background. The RPO Director
acknowledged that these estimates are uncertain and therefore the
actual costs could be higher or lower.
Approximately 25 percent of the costs IRS is planning to cover with
the PTIN registration user fee are fixed and are contained within the
remaining three categories: communications and customer support, IT,
and operations support. For these three categories, IRS estimated
various component costs, including staff salary and benefits. IRS
developed these cost figures assuming that as many as 1.2 million
individuals will register for a PTIN, an estimate based on the number
of individuals who signed tax returns as paid preparers in 2006 with a
PTIN, SSN, or other identification number. IRS has acknowledged that
this estimate is uncertain. Because these costs are fixed, their
average will depend on the number of paid preparers who register for a
PTIN.
In addition to setting the user fee, there are key questions that
should be addressed when implementing a new user fee that cover
collecting, using, and reviewing the fee. Table 3 shows IRS's actions
to date, as well as planned actions, to address these key questions.
Table 3: Collecting, Using, and Reviewing the PTIN Registration User
Fee:
Key questions: Collecting a user fee; When should the user fee be
collected, and can the collection system be structured to decrease
administrative costs?
IRS action: Paid preparers pay the user fee when they register for
their PTIN online or by paper. IRS contracted with a vendor to manage
the PTIN registration system.
Key questions: Using a user fee; How can the fee be used?
IRS action: IRS has authority to use funds from the PTIN user fee to
cover program costs.[A].
Key questions: Reviewing a user fee; How often is the fee reviewed,
and what information is included in the review?
IRS action: As required by OMB, IRS plans to review the user fee every
two years.
Source: GAO and GAO analysis of IRS documents and interviews with IRS
officials.
Note: Key questions and criteria are from Federal User Fees: A Design
Guide, GAO-08-386SP.
[A] IRS has legislative authority to retain and spend user fees
collected, provided the fees are based on the cost to IRS of providing
a service. Treasury, Postal Service, and General Government
Appropriations Act, 1995, Pub. L. No. 103-329 (Sept. 30, 1994), as
amended by Pub. L. No. 109-115 § 209 (Nov. 30, 2005).
[End of table]
An official who helped to estimate the PTIN registration user fee
acknowledged that the PTIN registration cost estimates are uncertain
and subject to change. The official stated that IRS plans to conduct a
first review of the PTIN registration user fee in the summer of 2011.
Additionally, the RPO Director said that IRS will be able to change
the user fee following the review if actual costs are higher or lower
than predicted.
IRS Has Not Documented a Framework for Using the Requirements to
Improve Taxpayer Compliance and Measuring Their Effect:
IRS has discussed but not documented a framework for how it plans to
develop service and enforcement efforts that leverage the new paid
preparer requirements to improve taxpayer compliance. Likewise it has
not developed a framework for evaluating the effect of any planned
service and enforcement efforts or the effect of the requirements
themselves on improving taxpayer compliance. One of IRS's goals for
the paid preparer requirements is to better leverage the tax preparer
community to improve taxpayer compliance. The RPO Director shared with
us ideas on how to achieve that goal. For example, according to the
RPO Director, IRS plans to develop a comprehensive database containing
information on paid preparers and the tax returns they prepare. IRS
plans to use information from this database to test which strategies
are most effective for improving the quality of tax returns prepared
by different types of paid preparers.[Footnote 28] Likewise, IRS has
discussed how to measure the effect of the requirements, for example,
the effects that requiring continuing education and testing have on
tax return accuracy. In planning, the RPO has included other IRS
divisions, such as the Small Business/Self-Employed division, which is
responsible for examining tax returns, and the Research, Analysis, and
Statistics unit, which will help monitor and evaluate whether the new
requirements improve taxpayer compliance. Although IRS discussed with
us its planned approaches for using the requirements to improve
taxpayer compliance, it has not yet produced a document that lays out
this approach. Likewise, as discussed previously, IRS has yet to
decide how it will enforce paid preparers' compliance with the
requirements.
Documenting a framework for using the requirements and measuring their
effect is consistent with three steps we found leading public sector
organizations take to increase the accountability of their
initiatives: (1) define clear missions and desired outcomes; (2)
measure performance to gauge progress; and (3) use performance
information as a basis for decision-making.[Footnote 29] IRS has
defined an overarching desired outcome of increasing taxpayer
compliance and could increase its accountability by including the next
two steps in a documented framework. Likewise, we have reported that
it is important to develop assessment plans prior to full project
implementation in order to ensure that the data necessary for
evaluation are collected.[Footnote 30] We also previously reported
that we were unable to assess whether California's and Oregon's paid
preparer requirements led to improved return accuracy because data
were not available on return accuracy prior to the enactment of the
requirements.[Footnote 31] Both IRS and we have acknowledged the
importance of measuring performance, including using baseline data and
having intermediate and end outcomes.[Footnote 32] Since the PTIN
registration requirement has been implemented and IRS plans to
implement the other requirements gradually, it is important for IRS to
identify and collect baseline data to have a basis by which to measure
the effect of the requirements, IRS's strategies to leverage the
requirements to increase taxpayer compliance, and the strategies'
relative costs. In addition, we have also reported that establishing a
timeline that includes critical phases and essential activities that
need to be completed by particular dates to achieve results is
important for accountability. The timeline can help pinpoint
performance shortfalls and gaps, suggest midcourse corrections, and
demonstrate progress toward goals.[Footnote 33]
The RPO Director stated that IRS decided to begin implementing the
requirements before determining how to use them to improve taxpayer
compliance and measure their impact because it would take less time
than waiting to implement all of the requirements until it documented
its plans. As noted above, IRS's approach to implementing the
requirements is sequential, so the details of its compliance strategy
will not be known for some time. However, not documenting the basic
framework being followed may create problems.
The lack of a documented framework may have negative repercussions for
several reasons. First, without a documented framework, the various
IRS divisions and offices involved in implementing the new
requirements may have difficulty assessing whether there is a sound
analysis plan and whether adequate plans are in place to collect the
data needed to carry out the analysis. Without such assessments IRS is
at risk of incurring additional evaluation costs by, for example,
conducting unplanned data analyses, collecting irrelevant data, or
failing to collect needed data in a timely manner.[Footnote 34]
Second, the RPO Director stated that IRS does not know when the
comprehensive database on paid preparers will be completed because
there are many competing priorities for IRS resources. A documented
framework with proposed steps and a timeline could help IRS make more
informed resource allocation decisions. Third, members and officials
from paid preparer associations whom we interviewed stressed that it
is essential for IRS to evaluate whether the requirements are
improving taxpayer compliance, and some stated that the requirements
will be worthwhile only if they result in an improvement. The impact
of these requirements depends on the compliance of paid preparers and
paid preparers bear the burden of complying with the requirements.
Demonstrating to paid preparers that IRS will evaluate whether the
requirements provide the benefit of improved taxpayer compliance could
improve preparers' voluntary compliance with the requirements.
The framework will likely evolve over time and become more detailed.
Initially, the framework may be a high level road map for achieving
taxpayer compliance results sooner and perhaps at a lower cost and
could include information on IRS's strategies and tactics for
improving taxpayer compliance and what data need to be collected now.
The framework may change as IRS assesses the effectiveness of the paid
preparer requirements and future strategies for using the requirements
to improve taxpayer compliance.
Conclusions:
IRS has made much progress in starting to implement the new paid
preparer requirements, including educating paid preparers about the
requirements, implementing the PTIN requirement, and developing a PTIN
user fee. In order to launch this important initiative, IRS began
implementing the requirements before laying out strategies for how to
leverage them and measure their impact in an effort to realize
benefits sooner. Implementation is under way, but IRS has not
documented a framework for how to achieve the goal of improving
taxpayer compliance. Without such a documented framework to guide its
overall effort, IRS may not adequately or effectively identify and
collect key baseline data now, modify its strategies to improve
outcomes, allocate its resources most effectively given competing
priorities, or maximize paid preparers' compliance with the
requirements. Initially, the framework may not be detailed. Instead it
may evolve as IRS develops and assesses additional strategies.
Recommendation for Executive Action:
We recommend that the Commissioner of Internal Revenue document a
strategic framework showing how IRS intends to use the paid preparer
requirements to improve taxpayer compliance and assess their
effectiveness.
Agency Comments:
In a letter commenting on a draft of this report, IRS agreed with the
recommendation. IRS stated that it has begun working on a strategic
framework and plans for the final product to detail the overall
mission, vision, and overall goals to ensure return preparer oversight
will ultimately achieve improved taxpayer compliance and tax
administration. IRS also provided technical comments, which we
incorporated as appropriate. IRS's comments are reprinted in appendix
II.
We are sending copies of this report to the Commissioner of Internal
Revenue and other interested parties. The report is also available at
no charge on the GAO Web site at [hyperlink, http://www.gao.gov]. If
you or your staff have any questions about this report, please contact
me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix III.
Signed by:
James White:
Director, Tax Issues Strategic Issues Team:
[End of section]
Appendix I: Scope and Methodology:
To describe IRS's plans for implementing and ensuring compliance with
the new paid preparer requirements, we reviewed documents, including
Treasury's proposed and final regulations containing the new
requirements. Additionally, we interviewed officials from IRS's Return
Preparer Implementation Project Office and Return Preparer Office
(RPO) responsible for implementing the paid preparer requirements. To
describe IRS's outreach campaign to inform paid preparers of the new
requirements, we reviewed IRS documents on communication with external
stakeholders and the public about the new requirements. Additionally,
we interviewed the official responsible for leading IRS's
communication with external stakeholders and the public. We analyzed
this information against key communications internal control standards
we identified in GAO's Internal Control Management and Evaluation Tool
and key practices for communicating with the public about a new
initiative that we identified in GAO's Digital Television Transition:
Increased Federal Planning and Risk Management Could Further
Facilitate the DTV Transition.[Footnote 35]
To assess IRS's resource estimates to develop and implement the new
requirements, we reviewed IRS documents on the preparer tax
identification number (PTIN) user fee that IRS is charging paid
preparers for obtaining a PTIN and interviewed officials from the
Return Preparer Implementation Project Office, RPO, and IRS's Chief
Financial Officer's office. We examined this information using key
questions that agencies should consider when developing and
implementing user fees that we identified in GAO's Federal User Fees:
A Design Guide and best practices that agencies should follow when
developing cost estimates that we identified in GAO Cost Estimating
and Assessment Guide.[Footnote 36] In table 2, we examined key
questions to consider when setting a user fee and key criteria for
establishing a credible estimate of a program's cost, and IRS's
actions in setting the PTIN registration user fee. In table 3, we
examined key questions to consider when collecting, using, and
reviewing a user fee, and IRS's actions and planned actions in
collecting, using, and reviewing the PTIN registration user fee. We
determined whether IRS had considered the key questions and criteria
and did not examine the appropriateness of the specific program costs
that IRS plans to fund with the PTIN user fee.
To assess IRS's plans to use the requirements to improve taxpayer
compliance and evaluate the effect of the paid preparer requirements,
we reviewed IRS documents and interviewed Return Preparer
Implementation Project Office and RPO officials. We examined this
information using IRS's plans in the December 2009 Return Preparer
Review and its guidance on measuring performance in the Internal
Revenue Manual Exhibit 1.5.1-5, Process to Create a Performance Model
for New (or Revised) Programs. We also examined this information using
our past work on evaluating a program in Agency Performance Plans:
Examples of Practices That Can Improve Usefulness to Decisionmakers;
Executive Guide: Effectively Implementing the Government Performance
and Results Act; Tax Administration: Planning for IRS's Enforcement
Process Changes Included Many Key Steps but Can Be Improved; Designing
Evaluations; Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations; and Tax Preparers:
Oregon's Regulatory Regime May Lead to Improved Federal Tax Return
Accuracy and Provides a Possible Model for National Regulation.
[Footnote 37]
In addition, for all three objectives we interviewed members and
officials of paid preparer associations that IRS had convened as
industry stakeholders, which included the major types of paid
preparers that IRS intended the requirements to cover. These
associations were the American Bar Association, American Institute of
Certified Public Accountants, National Association of Enrolled Agents,
National Society of Accountants, and National Association of Tax
Professionals. We also interviewed a representative from H&R Block, a
retail tax return preparation chain that IRS consulted as part of an
independent preparer panel and representatives of two additional
return preparer associations, the American Payroll Association and
American Society of Pension Professionals and Actuaries, that included
types of paid preparers that IRS, at the time, intended the
requirements to cover. IRS has since decided that individuals who
prepare only employee benefit plan returns are not covered by the
requirements. We summarized the members' and officials' responses to a
variety of questions about the paid preparer requirements.
We shared the criteria on which we based our descriptions and
assessments in our three objectives with IRS during the course of our
audit work.
We conducted this performance audit from July 2010 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
DEPUTY COMMISSIONER:
WASHINGTON, D.C. 20224:
March 25, 2011:
Mr. James R. White:
Director, Tax Issues:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. White:
I have reviewed your draft report entitled 'Tax Preparer Regulations:
IRS Needs a Documented Framework for Achieving Goal of Improving
Taxpayer Compliance" (GA0-11336). I appreciate your recognition of our
accomplishments to date in registering over 690,000 paid preparers,
conducting an outreach program informing paid preparers of the new
requirements and developing user fees using a methodology consistent
with established criteria for cost estimating.
Paid tax return preparers prepare approximately BO percent of all tax
returns filed. In calendar year 2009, the IRS processed approximately
83,000,000 individual income tax returns prepared by paid tax return
preparers. The IRS acknowledges the role that tax return preparers
play in tax administration. As such, the IRS included the following
objectives in its strategic plan: 1) strengthen partnerships with tax
practitioners, tax return preparers, and other third parties in order
to ensure effective tax administration; and, 2) ensure that all tax
practitioners, tax return preparers, and other third parties In the
tax system adhere to professional standards and follow the law. In
June 2009, the Commissioner launched the Return Preparer Review to
help accomplish these objectives. The IRS recommendations were shared
in December 2009 in Publication 4832, Return Preparer Review. The new
preparer requirements that GAO studied in this report were the result.
We are committed to moving forward with implementation of all of the
new return preparer requirements, including testing and continuing
education, as effectively and expeditiously as possible.
We will take appropriate actions to address or further review issues
as they are identified. We agree with your recommendation, and look
forward to continued engagement by the Government Accountability
Office. Our specific comments regarding your recommendation are
enclosed.
If you have any questions, please contact me, or members of your staff
can contact David R. Williams, Return Preparer Program, at (202)927-
8428.
Sincerely,
Signed by:
Steven T. Miller:
Deputy Commissioner for Services and Enforcement:
Enclosure:
[End of letter]
Enclosure:
Recommendation:
The Internal Revenue Service should document a strategic framework
showing how the IRS intends to use the paid preparer requirements to
improve taxpayer compliance and assess their effectiveness.
Corrective Action:
The IRS agrees with this recommendation and in fact began work on the
strategic framework for return preparer oversight in September of
2010. The final product will detail the overall mission, vision, and
overall goals to ensure return preparer oversight will ultimately
achieve improved taxpayer compliance and tax administration.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
James White, (202) 512-9110:
Acknowledgments:
In addition to the contact person named above, Jeff Arkin, Assistant
Director; Amy Bowser; Maya Chakko; Ellen Grady; Donna Miller; Cindy
Saunders; and Dan Webb made key contributions to this report.
[End of section]
Footnotes:
[1] IRS estimated that it would eventually collect about $55 billion
of the gross tax gap through late payments and IRS enforcement
actions, leaving a net tax gap of around $290 billion.
[2] 26 U.S.C. § 7701(a)(36).
[3] An enrolled agent is an individual who has, either through past
service and technical experience at IRS or by demonstrating special
competence through a written examination, earned the ability to
represent taxpayers before IRS.
[4] An enrolled actuary is an individual who has been enrolled as an
actuary by the Joint Board for the Enrollment of Actuaries by
fulfilling certain knowledge and experience requirements and may
represent taxpayers before IRS with respect to issues involving
retirement plans.
[5] An enrolled retirement plan agent is an individual who has, either
through past service and technical experience at IRS or by
demonstrating special competence through a written examination, earned
the ability to represent taxpayers before IRS with respect to issues
involving retirement plans.
[6] Circular No. 230 contains regulations governing the practice of
practitioners before IRS. 31 C.F.R. part 10.
[7] GAO, Paid Tax Return Preparers: In a Limited Study, Chain
Preparers Made Serious Errors, [hyperlink,
http://www.gao.gov/products/GAO-06-563T] (Washington, D.C.: Apr. 4,
2006) and TIGTA, Most Tax Returns Prepared by a Limited Sample of
Unenrolled Preparers Contained Significant Errors, TIGTA 2008-40-171
(Washington, D.C.: Sept. 3, 2008).
[8] Oregon requires paid preparers to complete qualifying education,
pass a state-administered examination, and register to be certified as
a Licensed Tax Preparer. Paid preparers must complete 30 hours of
continuing education and reregister in each subsequent year. Oregon
also requires that all preparers work under the supervision of a
Licensed Tax Consultant, CPA, public accountant, or attorney.
[9] GAO, Internal Revenue Service: Fiscal Year 2009 Budget Request and
Interim Performance Results of IRS's 2008 Tax Filing Season,
[hyperlink, http://www.gao.gov/products/GAO-08-567] (Washington, D.C.:
Mar. 13, 2008) and Tax Preparers: Oregon's Regulatory Regime May Lead
to Improved Federal Tax Return Accuracy and Provides a Possible Model
for National Regulation, [hyperlink,
http://www.gao.gov/products/GAO-08-781] (Washington, D.C.: Aug. 15,
2008).
[10] IRS, Return Preparer Review, IRS Publication 4832 (December 2009).
[11] In addition to new requirements for paid preparers, IRS is in the
process of implementing a mandate contained in the Worker,
Homeownership, and Business Assistance Act of 2009 (Pub. L. No.111-92)
for some paid preparers to file tax returns electronically. We
evaluated IRS's implementation of the mandate in GAO, Electronic Tax
Return Filing: Improvements Can Be Made before Mandate Becomes Fully
Implemented, [hyperlink, http://www.gao.gov/products/GAO-11-344]
(Washington, D.C.: Mar. 7, 2011).
[12] Furnishing Identifying Number of Tax Return Preparer (Final
Rule), 75 Fed. Reg. 60,309 (Sept. 30, 2010). In IRS Notice 2011-6, IRS
has provided a list of forms for which a paid preparer will not be
required to obtain a PTIN in order to prepare.
[13] Foreign paid preparers and paid preparers who are conscientious
objectors to Social Security numbers can register for a PTIN by
submitting a supplemental form with their application.
[14] IRS created the PTIN several years ago as a number that paid
preparers could obtain and use as a substitute for their Social
Security number on tax returns.
[15] Attorneys' and CPAs' PTINs will not be provisional. Other paid
preparers' PTINs will be provisional until IRS can verify the
information on their application or until paid preparers pass a
competency test.
[16] Attorneys and CPAs are professionally certified at the state
level. EAs are professionally certified by IRS.
[17] Regulations Governing Practice Before the Internal Revenue
Service (Proposed Rule), 75 Fed. Reg. 51,713 (Aug. 23, 2010) (to be
codified at 31 C.F.R. part 10).
[18] Enrolled actuaries and enrolled retirement plan agents will be
exempt from the paid preparer competency testing requirement if they
only prepare tax returns within their limited practice areas, and will
be exempt from the continuing education requirement.
[19] 75 Fed. Reg. 51,713.
[20] 75 Fed. Reg. 51,713. Attorneys and CPAs may practice before IRS
by submitting a declaration that they are in good standing with their
licensing authority and that the taxpayer has authorized them to
represent the taxpayer. 5 U.S.C. § 500(b), (c). IRS is authorized to
require others wanting to practice before IRS to demonstrate good
character, good reputation, necessary qualifications, and competency
to advise persons in presenting their cases. 31 U.S.C. § 330(a).
Section 10.51 of Circular 230 (31 C.F.R. § 10.51) provides a list of
conduct considered disreputable, including criminal convictions, and
therefore punishable by sanction or disbarment.
[21] See GAO, Internal Control Management and Evaluation Tool,
[hyperlink, http://www.gao.gov/products/GAO-01-1008G] (Washington,
D.C.: Aug. 2001) and Digital Television Transition: Increased Federal
Planning and Risk Management Could Further Facilitate the DTV
Transition, [hyperlink, http://www.gao.gov/products/GAO-08-43]
(Washington, D.C.: Nov. 19, 2007).
[22] See IRS, IRS Strategic Plan 2009-2013, IRS Publication 3744.
[23] 26 U.S.C. § 6695(c).
[24] IRS is authorized to prescribe regulations establishing user fees
for government services or things of value. 31 U.S.C. § 9701. User
fees must be fair and be based on the cost to the government, the
value of the service to the recipient, public policy or interest
served, and other relevant facts. OMB Circular No. A-25 establishes
federal policy regarding user fees and provides guidance for agency
implementation of these fees.
[25] 26 C.F.R. § 300.9.
[26] See GAO, Federal User Fees: A Design Guide, [hyperlink,
http://www.gao.gov/products/GAO-08-386SP] (Washington, D.C.: May 29,
2008) and GAO Cost Estimating and Assessment Guide, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: Mar. 2009).
[27] IRS e-file providers are businesses or organizations authorized
by IRS to participate in IRS's program to file taxpayers' returns
electronically. Select individuals from these businesses or
organizations must be listed on their applications, and IRS screens
these individuals' tax compliance histories and criminal backgrounds.
[28] For more information on the management information system IRS
will need to have in order to develop an enforcement strategy based on
paid preparer data, see TIGTA, It Will Take Years to Implement the
Return Preparer Program and to Realize Its Impact, 2010-40-127
(Washington D.C.: Sept. 30, 2010).
[29] GAO, Executive Guide: Effectively Implementing the Government
Performance and Results Act, [hyperlink,
http://www.gao.gov/products/GAO/GGD-96-118] (Washington D.C.: June
1996).
[30] GAO, Tax Administration: Planning for IRS's Enforcement Process
Changes Included Many Key Steps but Can Be Improved, [hyperlink,
http://www.gao.gov/products/GAO-04-287] (Washington D.C.: Jan. 20,
2004).
[31] GAO, Tax Preparers: Oregon's Regulatory Regime May Lead to
Improved Federal Tax Return Accuracy and Provides a Possible Model for
National Regulation, [hyperlink,
http://www.gao.gov/products/GAO-08-781] (Washington D.C.: Aug. 15,
2008).
[32] GAO, Agency Performance Plans: Examples of Practices That Can
Improve Usefulness to Decisionmakers, [hyperlink,
http://www.gao.gov/products/GAO/GGD/AIMD] 99-69 (Washington D.C.: Feb.
26, 1999) and IRS, Internal Revenue Manual 1.5.1-5, Process to Create
a Performance Model for New (or Revised) Programs.
[33] GAO, Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations, [hyperlink,
http://www.gao.gov/products/GAO-03-669] (Washington D.C.: July 2,
2003).
[34] GAO, Designing Evaluations, [hyperlink,
http://www.gao.gov/products/GAO/PEMD-10.1.4] (Washington D.C.: Mar.
1991).
[35] GAO, Internal Control Management and Evaluation Tool, GAO-01-
1008G (Washington, D.C.: Aug. 2001) and Digital Television Transition:
Increased Federal Planning and Risk Management Could Further
Facilitate the DTV Transition, [hyperlink,
http://www.gao.gov/products/GAO-08-43] (Washington, D.C.: Nov. 19,
2007).
[36] GAO, Federal User Fees: A Design Guide, [hyperlink,
http://www.gao.gov/products/GAO-08-386SP] (Washington, D.C.: May 29,
2008) and GAO Cost Estimating and Assessment Guide, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: Mar. 2009).
[37] GAO, Agency Performance Plans: Examples of Practices That Can
Improve Usefulness to Decisionmakers, [hyperlink,
http://www.gao.gov/products/GAO/GGD/AIMD-99-69] (Washington D.C.: Feb.
26, 1999); Executive Guide: Effectively Implementing the Government
Performance and Results Act, [hyperlink,
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: Jun.
1996); Tax Administration: Planning for IRS's Enforcement Process
Changes Included Many Key Steps but Can Be Improved, [hyperlink,
http://www.gao.gov/products/GAO-04-287] (Washington D.C.: Jan. 20,
2004); Designing Evaluations, [hyperlink,
http://www.gao.gov/products/GAO/PEMD-10.1.4] (Washington D.C.: Mar.
1991); Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations, [hyperlink,
http://www.gao.gov/products/GAO-03-669] (Washington D.C.: Jul. 2,
2003); and Tax Preparers: Oregon's Regulatory Regime May Lead to
Improved Federal Tax Return Accuracy and Provides a Possible Model for
National Regulation, [hyperlink,
http://www.gao.gov/products/GAO-08-781] (Washington D.C.: Aug. 15,
2008).
[End of section]
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