IRS '10,000 Letters' Program Angers CPAs
Intrusive and intimidating IRS initiative.
January 28, 2010
CPAs are complaining about an intrusive and intimidating Internal Revenue Service (IRS) initiative that began in early January when the IRS started sending “over 10,000” letters to tax return preparers (commercial and professional), with follow-up visits to “thousands” of letter recipients. This is part of an IRS program to be sure that preparers are “assisting clients appropriately” and part of Commissioner Shulman’s overall effort to increase oversight of return preparers. The IRS may intend this as an encouragement to do a better job, but CPA practitioners see this as poorly timed and intimidating during the busy tax season as they seek to apply the tax law correctly to client situations.
The Letter does not suggest that the preparer has engaged in any wrongdoing and contains general cautions about the kinds of common errors the IRS is seeing. Detailed issues are listed in the letter related to reviewing the books and records for Schedule C filers, checking itemized deductions, verifying dependents on EITC (Earned Income Tax Credit) returns and asking the right questions of first-time homebuyers. The letter seems to imply that preparers should review the underlying records for Schedule A deductions and C businesses, but this is not required by either the AICPA Statements on Standards for Tax Services (SSTSs) or IRS Circular 230. We believe that the requirement to inquire further would only apply if the information is incorrect, incomplete or inconsistent on its face or on the basis of facts known by the practitioner.
The letter reminds tax practitioners of the consequences of filing incorrect returns, with references to monetary penalties, suspension or expulsion from participation in e-file, civil injunctions barring the return preparer from preparing tax returns and referral to criminal prosecution. The letter is only going out so a small group of the overall preparer population and practitioners receiving them, are concerned about why they were selected. The IRS states that the letters are going randomly to those who prepare a large number of the types of returns which the IRS typically sees frequent errors, so there has apparently been at least a general review of the preparer’s returns.
After the letter is received, the IRS calls the practitioner to schedule an appointment, with some urgency implied. In at least one case, the IRS called a practitioner at home and spoke with the spouse by name, asking for a response within three hours and then calling back before that time was up. Another practitioner, who was unable to schedule a meeting during a busy time was threatened with having the refusal passed up the line to a supervisor.
The IRS plans to visit “thousands” of the preparers who received these letters “in the coming weeks … to review common errors and discuss their obligations and responsibilities to prepare accurate returns.” The visits will take place in the taxpayer’s office or in a mutually agreed location. The visits will last approximately three hours. Although this seems long for a general information and reminder visit, the IRS states that the meetings are for education and that no preparer penalties will be assessed during the visits, and that this is not a compliance audit. Practitioners view these visits at the height of busy season as poorly timed.
Other IRS initiatives seem even more heavy-handed. The IRS has stated that it “will more widely use investigative tools during this filing season aimed at deterring return preparer non-compliance. One of those tools will include “visits to return preparers by IRS agents positing as a taxpayer.” This program has apparently been going on quietly for several years. In its news release on efforts to ensure accurate return preparation preparer, the IRS states that it “… will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate. Every year, hundreds of criminal investigations are initiated against problem return preparers. In 2009, 124 were sentenced, with the average incarceration rate running 18 months.”
The AICPA is seeking clarification of the program and will provide comments and suggestions to the IRS.
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William Stromsem, CPA, JD, is a director in the AICPA Tax Division.