25.24.4. Return Preparer Misconduct Field Collection

(1) Unscrupulous return preparers may alter taxpayer tax data without the taxpayer’s knowledge or consent (for example, by falsifying dependent information, expenses, deductions, credits, income, refund amount, etc.) and/or misdirect a portion or all of the refund for their personal benefit. Taxpayers may become aware of misconduct through taxpayer initiated contact (Toll-Free, Field Assistance (FA), Taxpayer Advocate Service (TAS), etc.) or through IRS enforcement investigative processes (Revenue Agent (RA) or Tax Compliance Officer (TCO) contact, Automated Underreporter (AUR) correspondence, campus examination correspondence, Revenue Officer (RO) contact, Criminal Investigation (CI) inquiries, etc.).

(1) The policy statement relating to return preparer misconduct can be found in IRM 1.2.1.16.1, Policy Statement 25-2, Return Preparer Misconduct.

(2) Per the Taxpayer Bill of Rights (IRC §7803(a)(3)), taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from TAS if they are experiencing financial hardship or if the IRS has not resolved their tax issues properly and timely through normal channels. IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and effectively communicate those rights. Refer to https://www.irs.gov/Taxpayer-Bill-of-Rights, for additional information.

(1) The Director, Headquarters Collection, is the executive responsible for providing policy and guidance for field employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers’ rights. See IRM 1.1.16.2.3, Headquarters Collection, for additional information.

(2) The Director of Headquarters Collection, reports to the Director, Collection, and is responsible for the delivery of policy and guidance that impacts the collection process. See IRM 1.1.16.2.3.1, Collection Policy, for additional information.

(3) The Return Preparer Coordinators plan and coordinate compliance activities related to return preparers with other functions, areas, and campuses.

(1) Periodic program and manager reviews are conducted to:

• Assess the effectiveness of specific programs within Collection or across the organization,

• Ensure that case actions are in accordance with the procedures in this IRM,

• Validate policies and procedures, and

• Identify and share best/proven practices.

(1) The following table lists commonly used terms, acronyms and their definitions.

(1) The following table contains related IRM sections referenced in this IRM:

(1) The following table provides definitions of return preparer types.

(2) These return preparer definitions are relevant only for purposes of RPM guidance.

(1) There are four basic fact patterns to return preparer misconduct.

1. Category 1: Unauthorized Filing - The taxpayer was in contact with a preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ did not sign a return or authorize a return filing. The preparer submits a return using the taxpayer’s identifying information and directs all or part of the refund to an account not belonging to the taxpayer.

2. Category 2: Altered return with no additional refund due the taxpayer - The taxpayer authorized a preparer to file a return, but the preparer later alters the return to increase the expected refund, if any. The taxpayer received at least the amount of the expected refund from the IRS or the preparer and the preparer or other person received all or part of the increased refund amount.

3. Category 3: Altered return information with an additional refund due to the taxpayer - The same facts as Category 2 except the taxpayer receives only a portion or none of the expected refund.

4. Category 4: Misdirected direct deposit - The taxpayer was in contact with the preparer and authorized the filing of a return. The preparer changed either the mailing address for the refund check or the deposit information, such as the bank routing and/or account numbers. The return filed is otherwise as intended to be filed by the taxpayer.

(2) Review all documentation in the RPM complaint to determine the correct category. The category determines the action to be taken and the relief that can be provided and may change as research is completed.

(1) If the taxpayer alleges a preparer altered tax data on a return or misdirected all or a portion of a refund, then the taxpayer must submit sufficient documentation to support the allegation.

(2) Documentation for complaint consideration includes the following:

1. Form 14157, Return Preparer Complaint, completed by the taxpayer.

2. Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, completed and signed by the taxpayer (at least one taxpayer if married filing joint).

3. Signed, valid tax return as intended to be filed unless the taxpayer does not have a filing requirement

4. Signature of the preparer on the return filed by the preparer or preparer information on an electronic return

   Note: If there is no signing preparer see (3)

5. Name and address of the preparer on the Form 14157, Return Preparer Complaint, or Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, or within taxpayer’s written correspondence

6. Report from a law enforcement agency (only for Categories 3 and 4): This could include a report made to the police department, State Attorney General (AG), Criminal Investigation (CI), and/or Treasury Inspector General for Tax Administration (TIGTA). The law enforcement agency report must be signed by a police officer or equivalent, depending on the report received (or otherwise demonstrably shown it was accepted by that law enforcement agency). It must contain the following:

• Tax year(s) involved, and

• Preparer’s first and last name and address, and

• Statement describing the preparer misconduct and theft of the refund

(3) In a case involving a "ghost" or non-signing preparer, in addition to the documentation in (2) above, at least one additional piece of corroborating evidence that the preparer was in the business or held him/herself out as being in the business of preparing tax returns is required.

(4) Examples of evidence the preparer held him/herself out as being in the business of preparing tax returns include the following (this list is not all inclusive):

• Copy of the tax return(s) provided by the preparer if signed by the preparer as the paid preparer (for purposes of establishing the preparer held him/herself out as a preparer)

• Preparer’s PTIN or EIN

• Preparer’s business card

• Flyer or advertisement with the name of the return preparation service or the preparer

• Professional or business letterhead with the name of the preparer

• Business name on check from preparer

• A letter addressed to the taxpayer from TIGTA, civil preparer investigation (IRC § 6700, Promoting Abusive Tax Shelters, or IRC § 6701, Penalties for Aiding and Abetting Understatement of Tax Liability), or IRS Criminal Investigation (CI) regarding an ongoing investigation of the preparer (for purposes of establishing the preparer held him/herself out as a preparer).

• Affidavit of the person who hosted or sponsored the preparer

  Example: If the preparer’s services were provided at a church hall, then the minister could provide an affidavit with details about when the tax return preparation services were offered.

• Documentation of state or local law enforcement investigation of the preparer

(5) In addition, one piece of corroborating evidence that the person named on the Form 14157, Return Preparer Complaint, interacted with the taxpayer and submitted the return filed is required.

1. The evidence must show the following:

Required Information
Preparer name
Tax year(s) in question, with
Applicable corresponding dates indicating an exchange between the taxpayer and the preparer about the filing of a tax return

2. Evidence the taxpayer interacted with the person named on the Form 14157, Return Preparer Complaint, may include the following:

Examples of Acceptable Evidence
Cover letter, including the tax return, received from the preparer when the return was prepared
Copy of Form 8879, IRS e-file Signature Authorization, with signature or evidence it was received from the preparer
Copy of negotiated check the taxpayer gave to the preparer for payment of services
Credit card statement with the charge in the preparer’s name (or the preparer’s business name) for payment of services
Copy of "refund" check the taxpayer received from the preparer
Receipt from the preparer reflecting a fee for the preparation of a tax return for the tax year in question
Email, text message or other written communication between the taxpayer and preparer about tax return preparation Exception: If internal research, e.g., CC NAMEI, MeF information through EUP, etc., shows that the taxpayer’s return and the individual tax return for the preparer named by the taxpayer were filed from the same IP address or other information is present indicating an association, use this information as one piece of evidence showing interaction. Request additional information if needed.

(6) Additional relevant documentation may include the following:

(1) In addition to the required documentation to support the RPM complaint, a refund trace may be required on ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ cases. Tracing the refund will validate the taxpayer’s statement about whether a refund was issued or deposited into an account in the taxpayer’s name.

(2) Use the table below to determine if a refund trace is required.

(3) Research refund information via CC IMFOLI, TXMOD, TRDBV, and MeF Return Request Display (RRD) through EUP.

1. Indicator DD:0 (paper check)

2. Indicator DD:9 (direct deposit)

3. Refund Anticipation Loan (RAL) indicator of "1"

4. Refund Anticipation Check (RAC) indicator of "2"

(4) Complete Form 4844, Request for Terminal Action, and forward to the Designated Identity Theft Adjustment (DITA) team to request a refund trace. See Exhibit 25.24.4-1, for an example of a completed form. Upon completion of the refund trace, DITA will return the results.

(5) Depending on the RPM category, the refund trace information will be used in conjunction with other requirements to determine the correct adjustment amount. Review all available refund trace information for all cases, if applicable, regardless of category for information on the amount of the refund, if any, received by the taxpayer.

(6) Refund trace information will reflect a negotiated check or completed FMS Form 150.1 or Form 150.2, which provide information as to the individual’s name and where the refund was deposited.

(1) Verification of the preparer is required on all complaints alleging RPM. Research the account to determine whether the original return was signed by a preparer or there was a "ghost" preparer.

1. If the return was filed electronically, research CC TRDBV and/or access EUP to review MeF original tax return information.

2. If a paper return was filed, the original return may need to be requested from Files to determine if there is a signing or "ghost" preparer scenario.

3. If there is preparer information per CC TRDBV and the name of the preparer matches the name of the preparer on the complaint, then there is no need to request the document from Files. If the name does not match or there is no preparer information, then request the document from Files.

(2) The two levels of verification required are the following:

1. Documentation and/or IDRS research must show the preparer named on Form 14157, Return Preparer Complaint, is in the business of preparing tax returns or held him/herself out as being in the business of preparing tax returns, AND

2. Evidence the person named on the Form 14157, Return Preparer Complaint, interacted with the taxpayer and submitted the return filed with the IRS.

(3) Verify the identity of the preparer from the following IRS records:

• CC INOLE to verify the TIN or EIN provided

• CC RPVUE to verify PTIN

• CC NAMEI or CC NAMEB to locate TIN or EIN

(4) Use this table for verifying the preparer.

(1) An official report from a law enforcement agency (e.g., police department, State Attorney General (AG), CI, TIGTA) is required in RPM Category 3 and 4 cases for the taxpayer to be eligible for an additional refund.

(2) The official law enforcement agency report must be signed by a law enforcement agency officer or equivalent, depending on the report received (or otherwise demonstrably accepted by the law enforcement agency) and contain the following:

1. Tax year(s) involved,

2. Return preparer’s first and last name and address, and

3. A statement describing the preparer misconduct and theft of refund.

(3) If signing preparer information is present, the individual named on the law enforcement agency report must match the name of the preparer named in the complaint and on the original return. If it is a non-signing preparer situation, then the preparer name on the law enforcement agency report must match the preparer named in the complaint.

(4) If the preparer name does not match, then the taxpayer is not entitled to an additional refund. The taxpayer may still be eligible for an account adjustment and removal of the preparer portion of the refund depending on the refund verification results.

(1) Category 1 is defined as a taxpayer who was in contact with a preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ did not sign a return or authorize the filing of a return, but a return was filed with his/her name and TIN.

(2) The IRS will resolve these cases using RPM procedures and result in the taxpayer receiving a refund.

Information that may assist with the determination may include:

• ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

• ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

• ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(3) Category 1 complaints will result in treating the original return filed as a nullity. The complaint will be treated with procedures similar to those for identity theft. Do not input identity theft indicators for the first year RPM is verified. Any subsequent years in which the preparer filed a return without the taxpayer’s knowledge will be considered identity theft and the account will be adjusted to match the taxpayer’s return and a subsequent refund may be issued barring no other issues.

(1) Category 2 complaints involve a taxpayer who was in contact with a preparer and authorized a return be filed, but states tax data, e.g., exemptions, income, expenses, deductions, credits, etc., on the return was altered before the return was filed or the return otherwise includes items that they did not authorize.

(2) The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. If the refund trace shows the taxpayer received more than they were entitled to then the taxpayer may be liable for the erroneous refund amount. See IRM 25.24.4.7, Erroneous Refund, below.

(3) Category 2 complaints will result in treating the original return filed as a nullity.

(1) Category 3 is defined as a taxpayer who was in contact with a preparer and authorized a return filing, but alleges tax data (exemptions, income, expenses, deductions, credits, etc.) on his/her return was altered after they signed it or the return otherwise includes items that they did not authorize and the taxpayer states either they did not receive a refund or received only a portion of the refund expected.

(2) The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. The taxpayer may receive a refund plus interest for the amount not received.

(3) Allowed Category 3 complaints result in the original return filed being treated as a nullity.

(1) Category 4 is defined as a taxpayer who was in contact with a preparer and authorized a return be filed, but states only the direct deposit information or address was altered, diverting the refund to the preparer and no refund or only a portion of the refund was received.

(2) The IRS may administratively remove the portion of the refund attributable to preparer misconduct and the taxpayer may receive a refund if the required documentation is provided.

(3) Category 4 complaints will not result in treating the original tax return as a nullity.

(1) When the taxpayer responds to a request for missing information, reevaluate the complaint and determine if the additional information is sufficient to provide relief.

(2) Follow the If/And/Then table below as appropriate.

(1) Disallow complaints in full in any category if:

1. The taxpayer does not adequately respond to the request for specific additional information.

   Exception: Category 2 is not a claim for refund.

   Exception: If the only missing element of a Category 3 complaint is a law enforcement agency (e.g., police department, AG, CI, TIGTA) report, then see IRM 25.24.4.9.2, Partial Disallowance, below.

2. The preparer and/or the documentation cannot be verified.

(2) If the taxpayer’s actual return is included in the documentation and the complaint is disallowed, a refund trace is required.

(3) If the RPM claim is disallowed and taxpayer’s actual return is present, see the table below when disallowing the complaint:

(1) Partial disallowance procedures can apply in RPM Categories 1, 3, and 4 and may apply if there are Refund Statute Expiration Date implications.

(2) Depending on the facts and circumstances including the refund trace results, the taxpayer may have received more than they stated in the RPM complaint and the complaint is partially disallowed.

1. If the taxpayer received more of a refund than they stated in the RPM complaint, it would impact the amount of the additional refund issued.

   Example: For a Category 3 complaint the taxpayer states they received a portion of the refund in the amount of $500. The actual return shows a refund of $1,500. The complaint is reviewed and considered complete. The refund trace shows the taxpayer received a refund but in the amount of $1,000. Per IRM 25.24.4.6.3.2, Category 3 Accepted Complaint, the taxpayer is eligible for account adjustment, removal of the preparer portion of the refund and the remaining balance of the refund. Because the refund amount of $500 is less than the $1,000 the taxpayer expects, this is considered a partial disallowance.

2. If the law enforcement agency report contains materially inconsistent information, but the complaint was otherwise complete, then the taxpayer is eligible for an account adjustment, but not for a refund.

(3) Prepare Form 3870 , Request for Adjustment, to request DITA adjust the account and issue a Letter 106C, Claim Disallowance, paragraph "Q".

(1) Prepare Form 3870, Request for Adjustment, to correct the account. The Form 3870 instructions must include the following:

1. "Return Preparer Misconduct" on Form 3870, Request for Adjustment, as the reason for adjustment

2. The category number that fits the individual taxpayer scenario, i.e., Category 1, 2, 3, or 4

3. Whether the taxpayer received the correct refund, no refund, or an amount greater than expected

4. Name and address of the preparer

5. Amount of refund to be issued, if applicable

6. Applicable penalty and interest assertion

7. Erroneous Refund category D, if applicable

8. The received date of the signed return as intended to be filed to ensure the correct received date is used for interest and statute of limitations calculations.

(2) Attach to Form 3870:

1. Copy of the taxpayer’s original return or TRDBV print

2. Copy of the signed return intended to be filed annotated "TP Intended Return"

   Exception: Note on the Form 3870, Request for Adjustment, if the taxpayer does not have a filing requirement.

3. Copy of Form 14157, Return Preparer Complaint, and/or copy of Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.

4. Taxpayer documentation supporting the RPM claim

5. If a Claim Disallowance Letter (105C, Claim Disallowance Letter, or 106C, Partial Claim Disallowance Letter) is required:

Include ...
Whether the claim is denied in part or in full
The appropriate paragraph(s) (see appropriate letter in Correspondex for the available paragraph(s)), including a paragraph explaining why the claim was disallowed
Your contact information (name and telephone number)

(3) Forward Form 3870, Request for Adjustment, to the appropriate function based on the type of assessment:

1. For adjustments other than those involving Examination or AUR assessments, forward Form 3870, Request for Adjustment, by mail, fax or electronic submission to the SB/SE Designated Identity Theft Adjustment Group (DITA) at the Philadelphia Campus:
   Internal Revenue Service
   DITA Mail Stop 4-G20.500
   2970 Market St.
   Philadelphia, PA 19104
   E-Fax # 1-855-786-6575
   The outlook mailbox for electronic submission is *SBSE CCS DITA

   Note: Form 3870, Request for Adjustment, must be mailed if an original return is attached.

2. To adjust an assessment made by Examination or Automated Underreporter (AUR) assessment, follow reconsideration procedures at IRM 5.1.15.4, Audit, Automated Underreporter (IMF/BMF AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR) Reconsideration.

3. For audit reconsideration, forward Form 3870, Request for Adjustment, per IRM Exhibit 4.13.7-3, Routing of Area Office Reconsideration Requests (as of 10/01/2013) and IRM Exhibit 4.13.7-4, Central Reconsideration Unit (CRU) Addresses. This includes a return filed under the taxpayer’s social security number by the return preparer and a subsequent assessment by Examination.

4. For AUR reconsideration, forward Form 3870, Request for Adjustment, per IRM Exhibit 4.13.7-6, Addresses for AUR Reconsideration Requests. This includes a return filed under the taxpayer’s social security number by the return preparer and a subsequent AUR assessment.

(1) In RPM cases the filing of an altered return by a preparer may not meet the definition of a valid return. When a complaint is accepted, the posted return is considered a nullity. The statute of limitations does not start until a signed return is received from the taxpayer regardless of whether the taxpayer authorized the filing or the initial return. The return filed in a Category 4 case is not considered a nullity and the ASED stands.

(2) If a complaint is received after the ASED, evaluate the complaint to determine if the posted return is a valid return.

(3) For returns submitted with accepted Category 1-3 complaints, request on Form 3870, Request for Adjustment, that DITA update the ASED based on the received date of the signed, intended to be filed return.

(4) If an unsigned return is submitted with the complaint and a signed return is not secured, disallow the claim and do not update the ASED.

(1) The RSED is generally the later of three years from the date the return is filed or two years from the date the tax was paid.

(2) Generally prepaid credits must be claimed within three years of the due date of the return including extensions to file. If a return is received more than three years from the return due date with extensions, a refund of prepaid credits will not be made.

(3) If the RSED is expired, credits will be moved to excess collection and a claim disallowance letter issued.

(1) The RPM ERSED is two years from the date of the erroneous refund or direct deposit.

(1) Identify these civil penalties during the initial analysis by reviewing IDRS TXMODA, BMFOLT, and IMFOLT for the penalty reference numbers and for the respective Master File Tax codes associated with each penalty.

(2) These civil penalty modules are identified by MFT 13 for Business Master File (BMF) or MFT 55 for Individual Master File (IMF), with the following penalty reference numbers:

• 606 or 581 - IRC 6695A

• 624 or 714 - IRC 6695(a)

• 624 or 715 – IRC 6695(b)

• 624 or 716 – IRC 6695(c)

• 624 or 717 – IRC 6695(d)

• 624 or 718 – IRC 6695(e)

• 626 – IRC 6695(f)

• 627 – IRC 6695(g)

• 628 – IRC 6700

• 631 – IRC 6701

• 633 – IRC 6713

• 634 – IRC 6707

• 636 – IRC 6708

• 645 – IRC 6694(a)

• 648 – IRC 6707A

• 650 – IRC 6694(b)

(1) Return Preparer Coordinators (RPC) can be a valuable resource. RPC are responsible for most return preparer penalties. You may contact the RPC to:

1. Determine if a Return Preparer Penalty case file is available.

2. Perform additional research on preparers and their activity using the Return Preparer Database, IDRS Command Code RPVUE, PTIN Database, Electronic Services Authorization Management (ESAM) Database for Electronic Filing Identification Numbers (EFIN), etc.

3. Obtain a client list. This list may help provide leads for the collection investigation and can be used to corroborate a return preparer’s claim that they have ceased doing business as a return preparer.

   Example: By contacting the former clients of a return preparer who claims they have ceased doing business, the revenue officer may find out that the return preparer is still preparing returns, but has changed the name of the business and is not signing the returns and/or is having others sign as the preparer (e.g., spouse, employee, etc.). Former clients may also prove valuable for obtaining asset information and levy sources.

(2) To locate the RPC for your area use the following link http://mysbse.web.irs.gov/examination/tip/rp/contacts/12293.aspx