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Return Preparer Enforcement Program

Overview

The IRS Criminal Investigation Return Preparer Program (RPP) was implemented in 1996, and established procedures to foster compliance by identifying, investigating and prosecuting abusive return preparers. The program was developed to enhance compliance in the return-preparer community by engaging in enforcement actions and/or asserting appropriate civil penalties against unscrupulous or incompetent return preparers. This is a significant problem for both the IRS and our taxpayers. Abusive return preparers frequently prepare bad returns for large numbers of taxpayers who, at best, are stuck with paying additional taxes and interest and at worse, depending on culpability, are subject to penalties and maybe even criminal prosecution.

Taxpayers should be very careful when choosing a return preparer. You should be as careful as you would in choosing a doctor or a lawyer. While most preparers provide excellent service to their clients, a few unscrupulous return preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

Definition

A Return Preparer is defined as any person (including a partnership or corporation) who prepares for compensation all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.

Return Preparer Fraud generally involves the orchestrated preparation and filing of false income tax returns (in either paper or electronic form) by unscrupulous preparers who may claim, for example:

• inflated personal or business expenses,
• false deductions,
• unallowable credits or excessive exemptions,
• fraudulent tax credits, such as the Earned Income Tax Credit (EITC).

The preparers' clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns.

Return Preparation and Electronic Filing

The advent of electronic filing of income tax returns (ELF) and the availability of Refund Anticipation Loans (RAL) has provided additional means for abusive preparers to commit fraud.

Criminal Investigation, since 1977, has been screening suspected fraudulent returns. This is done by the Criminal Investigation Fraud Detection Centers (FDC) at each of the 10 IRS campuses where tax returns are filed. The purpose of the FDC is to detect refund fraud and return preparer schemes and refer them to the Criminal Investigation field offices for further investigation. Since its inception, Criminal Investigation, at the processing centers, has been successful in identifying in excess of $2 billion in fraudulent refunds. 

CI in conjunction with Information Technology Services (ITS) has developed the Electronic Fraud Detection System (EFDS). EFDS is a computer system used by CI that greatly enhances CI’s ability to identify and stop fraudulent filings. EFDS receives computer identification output of potentially fraudulent electronic filed tax returns, provides increased data for analysis and assists in the development of information relating to paper and ELF schemes. CI also uses YOUR leads to identify fraudulent return schemes. 

Tactics Used by Dishonest Preparers

Dishonest return preparers use a variety of methods to formulate fraudulent and illegal deductions reducing taxable income. These include, but are not limited to, the following:

• Preparing fraudulent Schedule C, Profit or Loss from Business, claiming deductions for expenses that have not been paid by the taxpayer to offset Form 1099, Miscellaneous Income, or income earned from outside employment, 
• Including false and inflated itemized deductions on Schedule A, Itemized Deductions, for:
  • charitable contributions 
  • medical and dental expenses 
• Claiming false Schedule E, Supplemental Income and Loss, losses 
• Claiming false dependents

Helpful Hints when choosing a Return Preparer

IRS Criminal Investigation (CI) reminds you;

• Taxpayers are responsible for the accuracy of all entries made on their tax returns, which include related schedules, forms and supporting documentation. This remains true whether the return is prepared by the taxpayer or by a return preparer. 
• Be careful in selecting the tax professional who will prepare your return. Some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional are: 
  • Avoid return preparers who claim they can obtain larger refunds than other preparers. 
  • Avoid preparers who base their fee on a percentage of the amount of the refund. 
  • Use a reputable tax professional that signs your tax return and provides you with a copy for your records. 
  • Consider whether the tax professional offers electronic filing options and other payment options that you want. 
  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return, months, even years, after the return has been filed. 
  • Never sign a blank tax form. 
  • Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received? 
• Tax Evasion is a crime, a felony, punishable up to 5 years imprisonment and a $250,000 fine. 

When in doubt, check it out! Taxpayers hearing claims from preparers offering larger refunds than other preparers are encouraged to check it out with a trusted tax professional or the IRS before getting involved.

Statistical Data - Abusive Return Preparers
Enforcement statistics on investigations initiated, prosecutions recommended, indictments, convictions and months to serve in prison.

FY 2004 Examples of Abusive Return Preparer Investigations
Summaries of investigations have been written from public record documents filed in the district courts where the case was prosecuted.

• FY 2003 Archive Examples of Abusive Return Preparer Investigations
• FY 2002 Archive Examples of Abusive Return Preparer Investigations

Reporting Fraud and Abuse Within the IRS E-File Program

All Authorized IRS e-file Providers must be on the lookout for fraud and abuse in the IRS e-file Program. Here's what to look for and how to report it.

Where Do You Report Suspected Tax Fraud Activity?

If you suspect tax fraud or know of an abusive return preparer, you should report this activity to your nearest Internal Revenue Service office. This information can be communicated by phone or in writing to your local IRS office. You can contact the IRS by phone at 1-800-829-0433.

IRS Criminal Investigation has a presence on www.irs.gov and this same information is available on the Abusive Return Preparer Enforcement page.

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