part4-10
- 4.1.10.1
Overview of Return Preparer Program - 4.1.10.2
Preparer Steering Committee - 4.1.10.3
Program Action Cases Overview (PAC) - 4.1.10.4
PAC Conducted in Conjunction with an Ongoing Criminal Investigation
- 4.1.10.5
Third- Party Notification in PACs - 4.1.10.6
Lead Development Center - 4.1.10.7
Return Preparer Penalty Program Penalty Cases
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Each Area Planning and Special Programs (PSP) Territory Manager will
designate staff members to coordinate on an area basis all SB/SE compliance
aspects of the Return Preparer Program. -
The Area Return Preparer Coordinator (RPC) will be responsible for planning
and coordinating the implementation of Area and National Headquarters Return
Preparer Strategy.
-
The RPC will be responsible for:
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Planning and coordinating compliance activities related to return preparers
with other functions, areas, and campuses. -
Ensuring uniformity in the application of the return preparer provisions
throughout the SB/SE Area by making himself/herself available to advise compliance
personnel on penalty issues and through educational outreach activities. -
Monitoring activities of the Return Preparer Program and the application
of civil preparer penalties, identifying problems within the program and notifying
area offices and National Headquarters of appropriate solutions. -
Accumulate and maintain files on potentially abusive preparers from referrals
received from area office functions, ERO site visits, campus compliance and
CI both area and campus. -
Accumulating, monitoring and reporting all on-going penalty investigations.
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Communicating with the examiner when a fraud referral is pending on a
particular preparer whose penalty case has begun. -
Evaluate referral information for development of Program Action Cases.
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Chairing the area penalty steering committee.
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Preparing summarization of potential Program Action Cases (PAC) for the
area Preparer Steering Committee (PSC). -
Preparing requests for PAC approval.
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Coordinating all compliance activity of income tax returns prepared by
return preparers approved for program action. -
Reviewing preparer penalty cases closed by compliance.
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Working with Disclosure Office and Government Liaison to obtain leads
from local state tax agencies on abusive preparers. -
Serving as the Area contact with the Office of Professional Responsibility
(OPR). -
Initiating compliance activity for CPA’s, Attorneys or Enrolled
Agents who misrepresent their status before the Service. -
Serving as Area contact with the CAF unit.
-
Interacting with Criminal Investigation QRP and the Campus Fraud Detection
Units. -
Initiating compliance activity under Rev. Proc.
81–38. -
Serving as liaison with Stakeholder Liaison and SPEC employees on programs/issues
that impact return preparers. -
Processing applications for former IRS employees who apply to become Enrolled
Agents and participating in the vetting of individuals who pass the Special
Enrollment Examination. -
Other duties as assigned.
-
-
The overall priority of the Return Preparer Program as part of the exam
plan will vary from year to year. General priorities within the program are
as follows:-
Program Action Cases – Development, approval and delivery of local project
work as the exam plan allows. -
National priority programs as developed including, but not limited to,
National PAC Programs, EITC Due Diligence Program, and programs such as E-file
Monitoring that have seasonal priority. -
Return Preparer Penalties – Employee education, assistance, monitoring
and reviewing of civil preparer penalties. -
Other Return Preparer Compliance activities including
Rev. Proc. 81–38; 1981–2 C.B. 592, issues, CAF related
issues, referrals to the Office of Professional Responsibility, etc.
-
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Each Area Planning and Special Programs (PSP) Territory Manager will
establish a multi-functional Preparer Steering Committee (PSC). -
Members should include the SB/SE – Return Preparer Coordinator(s), SB/SE
– E-File Monitoring Coordinator(s) (EMC), Criminal Investigation (CI) – Questionable
Refund Program Coordinator (QRPC), and a representative designated by the
Area Director, if desired. -
The PSC will be responsible for:
-
Establishing communication between Planning and Special Programs, the
CI Questionable Refund Program Coordinator, and the Campus Compliance RPC. -
Reviewing information, sample results, and referral to recommend approval
of Program Action Case by the Territory Manager, PSP and the SB/SE Area Director. -
Periodically reviewing all active Program Action Cases and recommending
continuation or termination. -
Reviewing all closed Program Action Case reports.
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Reviewing all Appeals of sanctions from the e-file monitoring program
and recommend sustaining or rescinding the sanctions. -
Meetings should be held as program needs demand.
-
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PACs are preparer investigations where clients of questionable preparers
are examined to determine whether preparer penalties and/or injunctive actions
against the preparers are warranted. If a preparer’s misconduct appears
to be pervasive and not isolated to a single taxpayer, consideration should
be given to opening a PAC. -
PACs should be limited to situations where information indicates a return
preparer has engaged in a widespread practice of making material errors that
demonstrates intentional misconduct or clear incompetence in preparing income
tax returns.
-
PACs are originated using referrals and leads from a variety of sources:
-
Referral Report (referral reports to Examination, Employee Plans and Exempt
Organization Division) – Form 3449. -
Criminal Investigation Information Item – Form
3949. -
Inquiry Referral (Taxpayer Service Assistors Referrals) –
Form 4442. -
Referrals from IRS e-file Monitoring Visits.
-
Referrals from EITC Due Diligence Program visits.
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SB/SE Lead Development Center (LDC) Referrals.
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Campus processing referrals.
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Office of Professional Responsibility (OPR) Referrals.
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Referrals from the public.
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Referrals of problem preparers identified during workload classification.
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TIGTA assistance requests – TIGTA usually provides the returns that will
be examined. -
Benford’s Law Analysis – used to identify problematic preparers.
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Referrals from LMSB and TEGE.
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Other sources – as deemed appropriate.
-
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Fraud Detection Center (Campus FDC) Overflow – provided by National
Return Preparer Analyst. -
Return Preparer Analysis Tool (RPAT) – provided by SB/SE Exam
Return Selection. -
Fraud Detection Center Newly Emerging BMF problem preparers –
provided by Exam Return Selection. -
Discontinued subject and closed primary return preparer investigations
– provided by CI.-
All return preparer investigations do not result in prosecution recommendations.
SB/SE can accept for audit discontinued subject investigations and closed
primary investigations. In addition, discontinued grand jury investigations
can be referred as long as the referral does not contain grand jury information. -
To avoid delays in classification and assignment, these cases should not
be referred as prime leads. Instead, upon closure of these investigations,
the Special Agent in Charge (SAC) will forward a memorandum ”
Closed CI Investigation Forwarding Memo”
with the scheme package and/or
appropriate files through the designated Area Return Preparer Coordinator.
See Exhibit 4.1.10–1. -
Pertinent non-grand jury information included with the
Form 9131, Request for Grand Jury Investigation, will be used to
refer discontinued grand jury investigation. Copies of returns should be included
in the referral package. Originals should be returned to the proper campus.
-
-
An investigation to assist in determining harm to the government from
a return preparer who is the subject of an ongoing criminal investigation. -
CI usually provides the returns that will be examined.
-
The request template (see Exhibit 4.1.10–2, PAC Referral Request Template Letter) serves three functions:
-
Request initiation of PAC in support of a criminal investigation involving
return preparers. -
See LEM 4.1.10.3.1.2 (3)(b) for justification if
more than the initial number of client returns needs to be examined from the
outset. -
Provide the name of the cooperating revenue agent on the criminal investigation
(if assigned).
-
-
See LEM 4.1.10.3.1.2(4).
-
Criminal Investigation requests for additional audits must be approved
by SB/SE‘s Planning and Special Programs (PSP). A PAC Referral Request
Template, see Exhibit 4.1.10–2,
PAC Referral Request, can be used to request additional audits when
it is necessary for the success of the criminal investigation. This template
should not be used for Schedule-A deduction schemes. In those investigations,
case agents should coordinate with their assigned Fraud Detection Center analyst
who will provide the referral information to The Management and Program Analyst,
Refund Crimes. -
The Management and Program Analyst, Refund Crimes, is responsible for
referring Schedule A client audits to W&I or SB/SE for correspondence
audits. A duplicate request should not be sent to SB/SE. Audit resources are
extremely limited and CI must work with the examination function to optimize
Service resources. The following is a link to the PSP preparer web site:http://sbse.web.irs.gov/EPD/PSP/Preparer.htm.
-
The RPC should review available information about the preparer to determine
if a PAC is warranted. -
Factors for consideration of PAC action should include, but not be limited
to:-
The egregious nature of the questionable conduct – i.e., does the
preparer engage in a widespread practice of making material errors and/or
demonstrate intentional misconduct -
The number of client taxpayers affected by the preparer’s conduct
-
The POD in which the preparer is located and the examination group’s
available resources -
The type(s) of returns involved – 1040, 1040EZ, 1040A, 1040X, 1041,
1120, 1120S, 1065 and the tax years available -
The dollar amounts and materiality of potential adjustments
-
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Additional factors to be coordinated with PSP management include:
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Exam Plan workload and planning needs
-
Examination Activity Codes available in the PAC
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Area resources available
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Availability, type and quantity of other priority examination work in
the group or POD
-
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When a preparer has been identified for possible Program Action, the
RPC must contact the local CI Return Preparer Coordinator and/or the CI Questionable
Refund Coordinator to ensure that any civil action will not conflict with
an open criminal investigation.
-
Because a return preparer can violate both IRC
§ 6694 and IRC § 6701,
it is important that coordination between the RPC and the LDC occurs at various
stages of the process. Before developing a PAC, the RPC will refer the preparer
to the LDC using the LDC Referral form at Exhibit 4.1.10–3
, LDC Referral Form. The LDC will determine if
IRC § 6700 or IRC § 6701 investigation is currently ongoing, if
one should be initiated, or if none is planned.Note:
Under
IRC § 6701(f)(2), no penalty shall be assessed under IRC §
6694(a) or (b) on any person with respect to any document for which a penalty
is assessed under IRC § 6701(a). -
If an IRC § 6700 or IRC § 6701 promoter investigation has
been approved or approval is pending, the PAC will NOT be developed and the
RPC will provide support and evidence to the person conducting the investigation. -
If an IRC § 6700 or IRC § 6701 promoter investigation is not
already approved or pending approval but there is indication of promoter activity,
the LDC will review the lead on an expedited basis to determine if a promoter
investigation is warranted. If so, the preparer will be approved as an IRC
§ 6700 or IRC § 6701 promoter investigation. The PAC will NOT be
developed, and the RPC will provide support and evidence to the person conducting
the investigation. -
If an IRC § 6700 or IRC § 6701 promoter investigation has
not been approved, but there is a history of egregious, non-compliant preparer
behavior evidenced by, among other indications, prior civil penalty actions,
significant tax deficiency implications and/or widespread geographic compliance
impact, the LDC may initiate an IRC § 6700 or IRC § 6701 investigation
in lieu of a PAC. -
If an IRC § 6700 or IRC § 6701 promoter investigation has
not been approved or is not pending approval and the LDC determines there
is no indication of promoter activity or prior egregious non-compliant behavior,
the LDC will provide clearance to the RPC and add the preparer’s name
to the database or update an existing record to reflect the PAC. The LDC will
annotate the database indicating the RPC is the assigned contact.
-
After clearance of the PAC from LDC and CI, the RPC will prepare a Memorandum
summarizing the PAC and present it for review and approval by the PSC. -
The Memorandum should include some or all of the following PAC information,
as appropriate:-
The name(s), dba(s), address(es), and TIN(s) of the preparer.
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Statements discussing the referral or lead and relevant related information.
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Statements discussing the questionable issues, schemes and/or misconduct.
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A summary of the client return quantities prepared in each of the available
tax years. -
The number of client returns to be examined in the initial PAC sample.
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Statements relating to clearance by the LDC and by CI.
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Statements discussing potential harm to the Government.
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The number and percentage of client returns with refunds and/or Earned
Income Credits. -
Client and/or witness affidavits.
-
Copies of RAR’s, tax returns and other relevant documents reflecting
significant and/or material adjustments. -
Statement as to the professional status of the preparer (CPA, enrolled
agent, attorney, unenrolled agent, etc.)
-
-
The PSC will carefully consider all relevant information to ensure that
there is strong evidence of the preparer’s misconduct. -
Following a recommendation by the PSC to initiate the PAC, the PSP Territory
Manager will submit the memorandum to the Exam Area Director for approval.
If a separate memorandum is prepared for the Area Director’s signature,
it must include a full disclosure discussion of the PAC information presented
to the PSC.Note:
A single memorandum (or signature document) may be used
to record both the PSC recommendation and the Area Director’s approval.
Attaching the signed PSC recommendation memo to the Area Director’s
Memorandum will satisfy the full disclosure requirement. -
Following approval of the PAC by the Area Director, the RPC will:
-
Inform the LDC of the PAC’s approval and forward to the LDC a copy
of the approval documents. The LDC will update their promoter/preparer database
accordingly. -
Prepare and mail the Letter 3164N, Third-Party Contact, to the return preparer per the procedures
in IRM 4.1.10.5. -
Assign the appropriate National Return Preparer Project Code to the PAC.
See Exhibit 4.1.10–4, PAC National
Project Codes Based On Source Of Referral. -
Request a unique and separate local ERCS Tracking Code for each new PAC.
The Area AIMS or ERCS Coordinator usually assigns and controls local Tracking
Codes. -
PACs that have Earned Income Tax Credit as a classified issue must use
a National Tracking Code 9696.
-
-
The RPC will identify, classify and select the initial sample of client
returns from the preparer’s client list. -
See LEM 4.1.10.3.6(2) for the initial sample size
of the client returns from the preparer’s client list. These cases will
generally be worked by TCO’s unless the complexity of the issues require
revenue agent assignment.
-
“RPVUE”
– IDRS command code RPVUE provides IMF and
BMF preparer client volume information and client lists. RPVUE lists nine
data fields for each IMF client (Forms 1040 only) and, therefore, is only
of limited usefulness in classifying individual returns. Since RPVUE does
not list any BMF data, it cannot be used to classify business returns. Identification
and classification can be done on-screen or using hard copy screen-prints. -
“MACS”
– The MACS computer searches the entire filed
tax return population against user-specified filter criteria to identify a
preparer’s client returns, providing hard-copy printouts of selected
return information in single-year and 3-year “return like”
formats.
Tax return data provided by MACS is identical to that provided by command
code RTVUE. MACS is acceptable for classification, but may not always be as
useful as TRPRT or original returns. Classification can be done on-screen
(thru ADDAPT) or using printouts.-
A MACS Research Request is required before MACS can be used in support
of a PAC. MACS prints can be used in lieu of original tax returns to establish
exam controls, build case files and conduct examinations. Any unselected MACS
prints should be destroyed. See IRM 4.3.4.13,
Proper Handling of MACS Facsimiles and Other MACS Documents.
-
-
“TRPRT”
– Available on IDRS for electronically filed
returns, TRPRT prints are extremely “return like”
and
include every line item on the return. When available, TRPRT prints –
considered “original returns”
– are the best document
to use for classifying and selecting returns for exam. Any unselected TPRPT
prints should be destroyed. -
Original Returns – Using original returns to identify
and classify clients for examination should be done on a limited basis since
exam controls must be established to order the returns and extra cost and
time resources must be expended to secure the returns. Exam controls must
also be closed on any original returns not selected for examination and the
returns then re-filed. See Exhibit 4.1.10–1, Closed CI Investigation Forwarding Memo, and for the Source
Code Job Aid and Related Return Source Codes go to the AIMS website at:http://sbse.web.irs.gov/aims/docs/sourcecodejobaid.xls.
-
To order original returns to be considered for a PAC, use
Form 5347, Examination Multiple Request Master File
.
-
-
You must always establish exam controls for original returns ordered
using the following:-
Source Code 49 (primary return only)
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Status Code 06
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Appropriate Tax Year
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AAC for PSP (PBC, SBC, EGC)
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Activity Code
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Appropriate National Preparer Project Code
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Appropriate local PAC tracking code
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Aging Reason Code 49
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Appropriate local ERCS Freeze Code
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Using local Classification Instructions, review client returns for:
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Issues described in the PAC approval memo.
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Large, Unusual or Questionable (LUQ) items of income, expense and/or credit.
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Patterns, trends and inconsistencies.
-
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The RPC will establish ERCS exam controls for each client return selected
for examination in the initial sample (other than original returns, for which
ERCS controls have already been established).-
Source Code 49 will be used for only the primary
return selected as part of the PAC. If multi-year cases are developed in PSP
for delivery to group, only the primary return should reflect source code
49. All related and multi-year examinations should reflect the appropriate
source codes when establishing and auditing related returns and multi-year
examinations. -
Status Code 08
-
Appropriate Tax Year
-
Valid AIMS Assignee Code (AAC) for PSP (PBC, SBC, EGC)
-
Valid Activity Code
-
Appropriate National Preparer Project Code (no local project codes should
be used). See Exhibit 4.1.10–4,
PAC National Project Codes Based on Source of Referrals -
Appropriate local PAC tracking code
-
Aging Reason Code 49 should be reflected on all return preparer program
returns including primary and multiple-year returns. -
Appropriate local ERCS Freeze Code.
-
-
The RPC will update the status of any original returns selected for
examination in the initial sample to Status Code 08. -
A unique local ERCS Freeze Code (designated specifically for use with
PACs) should be input on ERCS for all client returns in the initial sample.
Because the RPC is required to release this freeze code, a PAC client return
cannot be closed without RPC review.
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Generally, each client return case file should include the following:
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Original tax return or TRPRT print or MACS print or RTVUE.
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Classification Sheet.
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AMDISA or ERCS print.
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INOLES; IMFOLI; IMFOLT; IMFOLR; and IRPTRL.
-
Case Memorandum – This is a memo addressed to the examiner. It details
the preparer’s scheme, the issues of concern and the proper project,
tracking and aging reason codes. The memo instructs the examiner that any
contact with a taxpayer/client is a third-party contact that needs to be documented
on Form 12175, Third Party
Contact Report Form. See IRM 4.1.10.5, Third-Party Notification in PACs. The memo must include instructions
to the examiner that, when picking up any related /prior/subsequent year returns,
the returns are to be established on ERCS using the appropriate related return/prior/subsequent
year return Source Code and the same Project, Tracking, and Aging reason Codes
used with the key return. Additionally, the memo should direct that, when
applicable, the examiner will assert IRC § 6694
and/or IRC § 6695 preparer
penalties. -
PAC Project Check Sheet – This is a feedback sheet to collect information
regarding the results of the examination. The examiner should forward the
completed Project Check Sheet directly to the RPC. See Exhibit
4.1.10–5, Program Action Case Project Check Sheet.
-
A copy of Letter 3164N,
Third Party Contact to Preparers, if applicable. See 4.1.10.5 below. -
The RPC should consider making a presentation to the exam group designated
to work the PAC. The presentation would discuss details of the preparer’s
scheme and the information and documents necessary to properly develop any
preparer penalty case(s) resulting from the PAC.
-
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The RPC will evaluate the results of the client examinations using any
or all of the following methods as appropriate:-
ERCS reports of open client returns (Status 10/12) by Tracking Code and
Project Code will tell the RPC if the returns are being worked in a timely
manner. -
Contact group managers at least monthly to discuss the progress of each
PAC. -
Monitor closed client return examination results by reviewing PAC Project
Check Sheets. -
If a pattern of “no show”
closings develops, immediately
discuss the issue with the group manager. Since the purpose of the PAC is
to evaluate the quality of the preparer’s work, the examiner should,
at a minimum, secure a current client address and/or summons the client, as
necessary. Contact with the client taxpayer is crucial to building a return
preparer penalty case. -
If a pattern of “No Changes”
or closures with issues
of only minimal significance becomes apparent, talk to the group manager.
If the client returns have been found to be substantially correct and/or the
issue(s) of concern are not found, not adjusted or not the fault of the preparer,
the PAC should be terminated. Open client examinations should be completed
as part of the PAC, but the remaining client returns in the initial sample
should not be examined (i.e., they should be surveyed). Terminating the PAC
will minimize any unnecessary burden on the taxpayers and release the committed
resources for other priorities. -
Ensure each examiner has considered the return preparer penalty provisions
of IRC § 6694 and
IRC § 6695 and fully developed the issue(s), as appropriate. -
Prior to releasing PAC freeze codes, the RPC should review the case feedback
to determine whether the relevant PAC issues have been addressed and/or whether
appropriate PAC procedures and examination techniques have been applied and
discuss the findings with the group manager, as necessary. Once the case is
determined to be correct, the RPC will authorize release of the freeze code. -
Request monthly ACIS Project Code and/or Tracking Code reports on closed
client cases.
-
-
Evaluate the results of each PAC at least quarterly, applying (at a
minimum) the following considerations:-
Determine that examination adjustment amounts and hours per return are
reported for PAC exams using either the Project Check Sheet, ERCS reports
or ACIS. -
Determine dollars per hour generated by the PAC compared to results from
other exam work – for a PAC to be considered productive, the yield should
be greater than Discriminant Index Function (DIF) work. -
Review “No Change”
and “No Show”
rates
and the resulting impact on productivity levels for the resources in use. -
Determine continued availability of examination resources compared with
other priorities. -
Review Appeals results as reported in the Appeals Officer Memorandums
resolving PAC examinations and develop recommendations (if any) for evaluating
PAC productivity.
-
-
During the PAC, the RPC will monitor the examinations of the preparers
taxpayers and the assessment of preparer penalties. If applicable, consideration
should be given for a subsequent referral back to the LDC. -
A referral back to the LDC may be warranted under the following circumstances:
-
Five or more IRC § 6694 and/or IRC § 6695 preparer penalties have been assessed
against the preparer during the past two years and the preparer has failed
to correct their behavior. -
The preparer’s activities are responsible for significant dollar
losses to the government and/or a large number of returns are impacted. -
The preparer’s activities affect more than one Area.
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Any other factors the RPC determines impact compliance.
-
-
If the RPC determines that an injunction may be appropriate, they should
consult the Area Abusive Tax Avoidance Transactions (ATAT) Coordinator. The
ATAT Coordinator and the RPC will jointly prepare a referral to the LDC requesting
approval of an IRC § 7407 injunction investigation. -
After completing the initial sample of client returns, the RPC must
determine whether PAC examination results are sufficient to decide if the
PAC results are sufficient to determine if preparer penalties or an injunction
is warranted. -
If PAC results are insufficient to determine if preparer penalties or
an injunction is warranted, the RPC should consider expanding the scope and
selecting an additional sample of client returns for examination. These returns
are usually examined using Area resources. -
If PAC results are sufficient to make the termination decision but extensive
non-compliance (and/or other factors) is evident within the client population,
the decision could still be made to expand the PAC. In this case the expanded
scope generally will include all remaining client returns (i.e., those not
yet examined) and will generally be considered for Correspondence Examination
at a Campus unless the identified issues are not conducive to Correspondence
Examination procedures. Coordination with the Headquarters Program Analyst
for the Return Preparer Program is required.
-
If additional client returns will be examined, the determination must
be made as to how many additional returns will be examined and where they
should be examined. Consideration is to be given to the most efficient location
to examine these client returns, while keeping in mind the overall purpose
of the return preparer program. -
In order to expand a PAC using Area resources, the RPC will need to:
-
Request approval from the PSP Territory Manager.
-
Ensure that consideration is given to the Examination Work Plan.
-
If the Area proceeds with PAC expansion, provide notification to the Headquarters
Program Analyst. -
The results of the expanded PAC should be closely monitored. A few returns
should be examined and the results closely monitored. -
If the results indicate the preparer is not responsible for the errors
on the returns, then the remaining unopened cases may be surveyed. -
If the expansion results indicate significant non-compliance, see the
following paragraph to determine where to send additional returns for examination.
-
-
If substantial non-compliance exists and expansion is desired, the decision
must be made as to where to best work the cases. -
Generally, any PAC expansion involving issues that may be worked at
the Campus, will be referred to the campus. The issues that are conducive
to Campus Examination are as follows:-
Documentation required is easily transmitted via fax or mail.
-
Face to face or other in depth taxpayer interview is not required.
-
Simple Schedule C issues, including those with EITC identified as the
primary issue.
-
-
Also, less complex issues such as:
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Simple Schedule A deductions including Employee Business Expenses (EBE)
-
Unreported/underreported income
-
Payments to an IRA or Keogh
-
Credits—Child Care, Credit for the Elderly, EITC, Fuel
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Self-Employment Tax
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Alternative Minimum Tax
-
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The criteria for referring return preparer cases to Campus is:
-
A minimum of 18 months on Assessment Statute Expiration Date (ASED) is
optimum. Referrals with less than 18 months on ASED should still be referred
but acceptance will be determined on individual basis. -
Returns referred should have potential deficiency to justify examination
resource expenditures. Returns referred for examination should meet the potential
deficiency criteria on the primary issue and not the aggregate of all potentially
questionable issues on the return. -
Referrals generally should be post refund. Exceptions should be coordinated
with the receiving function. -
Description of the questionable issue(s) and area(s) of noncompliance
should be provided along with any work papers, proformas, RARs, position papers,
etc. developed related to the referral. -
Historical data and results of any tests, related examinations or closed
examinations should be provided along with a description of anticipated results
and projected yield. -
Complete Form 13649,
Multi-Case Inventory Referral and submit the request to the designated
function on the form. -
Respond for acceptance or rejection of the referral within 30 days.
-
-
In addition, Exhibit 4.1.10–6, Form 13649, Multi-Case Inventory Referral,
must be completed and forwarded to Campus as directed in the instructions (See LEM Exhibit 4.1.10–6 for page 3 of this exhibit).
A listing of the returns to be examined must also be prepared for Campus.
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When the RPC and the group manager decide to terminate the PAC, the
group manager should prepare a memorandum detailing the reasons for termination.
The memo will be included with the Termination Package. -
The RPC will prepare a PAC Termination Memorandum discussing the reasons
for terminating the PAC. The memo should include information regarding Disposal
Codes used, preparer penalties proposed, asserted, and/or sustained in Appeals
and the PAC evaluations made by the RPC. See IRM 4.1.10.3.8
, Monitoring Program Action Cases. -
The Termination Package consists of the RPC’s memo, the group
manager’s memo and relevant documents from the PAC administrative file.
The Package is submitted to the Planning and Special Programs Territory Manager
for approval. The approved termination package is then sent back to the RPC. -
The approved Termination Package is to be filed in the PAC administrative
file. The RPC will:-
Advise the group manager of the PAC’s termination.
-
Advise the group manager that any PAC cases still in status 10 may be
surveyed using disposal code 31 or 32. -
Notify the LDC of the PAC’s termination and request their database
be updated. -
Remove the PAC from the List of Current PACs.
-
When all cases associated with the PAC have closed to Status 90, request
the Tracking Code be marked “Inactive.”
-
-
Some special issues arise when program action cases are conducted as
part of an ongoing criminal investigation:-
The Case Memorandum included in each client file must indicate that the
case is part of an open criminal investigation. -
The name and contact number of the special agent working the case should
be included in the memorandum along with any special instructions for reporting
exam results to CI. -
Civil penalties against the return preparer under
IRC § 6694 and IRC § 6695 should
be considered and developed as with any other PAC. -
Civil penalty development must stop at the point of contact with the preparer.
Examiners should not make contact with the preparer until the criminal investigation
is complete. -
All civil preparer penalties developed while the criminal case is ongoing
should be updated to status 41 and forwarded to suspense in Technical Services
pending the completion of the criminal case. -
When the criminal prosecution is completed or the criminal case is terminated,
the proposed penalties will be released back to exam for completion. -
Third Party Notification rules do not apply when
examining client cases in conjunction with an ongoing criminal investigation.
See IRM 4.1.10.5, Third-Party
Notification in PAC.
-
-
Under IRC § 7602(c), the Service
may have to provide a taxpayer with notice if it intends to initiate a contact
with a third party in order to collect or determine the taxpayers tax liability.
Under IRC § 6671, preparer and promoter penalties
are treated as “taxes”
for all purposes of the Code. Thus,
the same concerns that would exist in a normal examination for purposes of
third-party contact disclosure exist when examining a preparer and/or promoter.
Examiners should become familiar with the extensive third-party contact procedures
provided in IRM 4.10.1.6.12,
Third Party Contacts
— Background, and IRM 5.1.17, Third-Party Contacts. Furthermore.
examiners should become familiar with the procedures for third-party contacts
in preparer and promoter cases found in IRM 20.1.6.1.11
, Third Party Contacts—IRC Section 7602(c),
and IRM 4.32.2.7.3.2,
Third-Party Contacts. -
The examination of a preparer’s client/taxpayer under a PAC is
considered a third-party contact with respect to the preparer. Therefore,
Letter 3164-N, Third Party
Contact To Preparers, must be issued to the preparer after the PAC
is approved and before any of the related client/taxpayers are first contacted
for examination. Generally, the RPC will mail the letter to the preparer and
wait 10 days before mailing the cases to the group. -
The RPC will retain a copy of the third-party notification letter in
the PAC Administrative File and place a copy of the letter in each client’s
Examination case file. -
The Case Memorandum placed in each case file should include the following
statement: “The examiner must document contacts with return
preparer clients and other third parties and must follow the procedures in
IRM 4.10.1.6.12.3.1,Recording Third Party Contacts, for
completing Form 12175, Third Party Contact Report Form.
Note that the exceptions to taxpayer notification under
IRC § 7602(c)(3) apply in equal force in return preparer examinations,
so that the Service may not have to report specific third-party contacts,
for example when a threat of reprisal exists. See IRM 4.10.1.6.12.4, Exceptions to Taxpayer Notification Requirements.” -
The exceptions to taxpayer notification under
IRC section 7602(c)(3) apply in preparer investigations. The exceptions
are:-
Taxpayer authorizes third-party contact;
-
Notice would jeopardize collection of any tax;
-
Notice may involve reprisal against any person; and
-
A criminal investigation of the taxpayer is pending.
-
-
PAC requested in conjunction with an ongoing criminal investigation.
-
Per IRM 4.10.6.12.4.4, Criminal Investigation Cases,
third-party notification requirements do not apply to
any tax period under investigation by Criminal Investigation. Therefore, Letter
3164N, Third Party Contact To Preparers will
NOT be issued. -
The pending criminal investigation exception under IRC §7602(c)(3)(C)
applies to third party contacts made by examiners while working pursuant to
a CID request and assisting in establishing harm to the government for an
ongoing criminal investigation. -
Per IRM 20.1.6.12(6), Third Party Contacts – Criminal Investigations,
examiners may conduct examinations of program action taxpayers regarding
civil issues at the same time that special agents are independently conducting
a criminal investigation of the related preparer. However, just as the pending
criminal investigation exception applies to third party contacts made by special
agents, it also applies to examiners assisting CID by performing examinations
of program action taxpayers.
-
-
The Lead Development Center (LDC) was established to centralize the
receipt and development of leads on Abusive Tax Schemes and Promoters, as
well as the authorization and referral of promoter investigations to PSP for
assignment to the Field. LDC has the authority to approve SB/SE promoter/preparer
investigations under IRC § 6700, IRC § 6701, IRC § 7407
and IRC § 7408.Note:
For
more information about the LDC, see IRM 4.32.2.3.2, SB/SE Lead Development Center.
-
Generally, referrals to the LDC concern any person who is being considered
for promoter penalties under IRC § 6700, IRC § 6701, IRC §
7407 and IRC § 7408.
-
Once the lead is received, the LDC will conduct research to develop
the leads and will build the cases to support the authorization of IRC §
6700 or IRC § 6701 investigations.-
Investigations approved by the Center’s Program Manager, will be
returned to the Field for investigation and development of potential IRC §
6700 or IRC § 6701 penalty and IRC § 7408 injunction actions. -
Referrals not accepted by LDC will be returned to the Area RPC for consideration
of a PAC.
-
-
Approved LDC investigations will be returned to the Area PSP as part
of the ATAT program. These cases will be controlled by the Abusive Schemes/ATAT
Coordinator.
-
IRM 20.1.6, Preparer, Promoter Penalties,
discusses the available return preparer penalties, the development of the
penalties by examiners and the procedures for the examiners to follow. -
The RPC should be familiar with IRM 20.1.6, Preparer, Promoter Penalties, and IRM
4.11.51, Examining Officers Guide – Return Preparer
Program, dealing with preparer penalties. -
The RPC should develop outreach/educational presentations to make to
compliance groups and make it known that the RPC is available to speak at
group meetings, etc. -
The RPC will advise exam employees concerning preparer penalties under
IRC § 6694 and IRC § 6695. -
SB/SE penalty investigations under IRC §
6700 and IRC § 6701 must
be approved by the LDC.
-
Form 5809, Preparer
Penalty Case Control Card, is used to establish a return preparer penalty
case on ERCS. The form has three parts. When an examiner starts a penalty
case, Copy B-Return Preparer Coordinator (Started) of Form 5809 is forwarded
to the RPC. -
Penalty cases are established on ERCS only. There are two alternate
methods of establishing these cases on ERCS. Contact your local RPC to determine
which method is preferred in your Area.-
One method is to use the Return Preparers TIN and Name. This is advantageous
when one Examiner will be conducting a Return Preparer Penalty investigation
regardless of the number of penalties that may ultimately be asserted. Rather
than create a card for each client penalty investigation, all of the penalty
examinations can be condensed into one and the sum total of hours applied
and penalty amounts for each year and penalty type can be input without creating
a separate Form 5809 and ERCS record for each. -
The other method is to use the clients TIN and the Name of the Return
Preparer who is the subject of the penalty investigation. A separate Form
5809 and an ERCS record is created for each Return Preparer Penalty investigation.
This method is preferred when multiple examiners will each be conducting a
separate Return Preparer Penalty investigation on a specific preparer for
a particular year. Each examiner charges their time and any penalties assessed
are input to the particular client affiliated record created. The disadvantage
to creating separate cards is when there is one examiner conducting a preparer
penalty investigation and that person has to prepare a Form 5809 for each
penalty, divide the times applied to each, and have them input separately
onto ERCS.
-
-
The MFT will be between P1 and P9 depending on the type of penalty.
See Document 6036, Examination
Division Reporting System Codes Booklet, for a list of penalties by
Activity Code and related MFTs.
-
Form 5809 is used to advise the RPC
of the initiation of a preparer penalty investigation. -
The RPC is responsible for monitoring the closed investigations and
active preparer investigations in the RPCs Area; thus, the RPC should develop
a tracking system for all preparer investigations, which will include the
historic records of those investigations. -
ERCS may be used to monitor penalty cases. A preparer penalty report
is available by Territory. ERCS can also be queried by Activity Code to track
preparer penalties.
