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IRS Reissues SB/SE Interim Guidance on Handling Taxpayer Allegations of Return Preparer Fraud

JUN. 3, 2013

SBSE-05-0613-0034

DATED JUN. 3, 2013
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Citations: SBSE-05-0613-0034

 

June 3, 2013

 

 

Expiration Date: January 1, 2014

 

 

Impacted IRM: Proposed 5.1.27

 

 

MEMORANDUM FOR

 

DIRECTOR, ADVISORY AND INSOLVENCY

 

DIRECTORS, FIELD COLLECTION AREA OPERATIONS

 

 

FROM:

 

Scott D. Reisher

 

Director, Collection Policy

 

 

SUBJECT:

 

Return Preparer Fraud or Misconduct

 

 

The purpose of this memorandum is to re-issue interim guidance memorandum dated June 5, 2012, with control number SBSE-05-0612-035, titled "Return Preparer Fraud or Misconduct." This memorandum provides guidance on required actions when a taxpayer alleges Return Preparer Fraud or Misconduct. New Internal Revenue Manual (IRM) 5.1.27, Return Preparer Fraud or Misconduct, will be issued to include this guidance.

A taxpayer becomes a victim of Return Preparer Fraud or Misconduct when the tax return preparer completes a return for a taxpayer and without the taxpayer's knowledge makes changes to the return, which results in an improper refund to the preparer or a third party. Taxpayers may not know there is an issue until the IRS contacts them about the return well after refunds have been issued.

When a taxpayer claims he or she has no knowledge of the improper return entries and did not complete the return, we must treat the taxpayer as a potential victim of Return Preparer Fraud or Misconduct. Collection activity must cease on liabilities assessed against the taxpayer in connection with a refund or portion of a refund that the taxpayer never received.

When a taxpayer alleges Return Preparer Fraud or Misconduct:

  • Temporarily suspend all collection actions on the affected tax modules. Specifically, this includes:

    • Issuing new levies, including systemic Federal Payment Levy Program (FPLP) levies (See IRM 5.11.7.2.6, Blocking or Releasing FPLP Levy).

    • Filing any new Notices of Federal Tax Liens (NFTL).

    • Issuing Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, or Letter 3174, New Warning of Enforcement.

    • Initiating seizure action.

  • Be sensitive to the adverse impact that being a victim of Return Preparer Fraud or Misconduct may have upon the taxpayer and his or her ability to pay.

 

There are many variations of Return Preparer Fraud or Misconduct. For example, some cases may involve the preparer filing the return on paper, where the alterations to the return occur after the taxpayer has approved the return. In other cases, however, the taxpayer has indicated approval of the return by signing Form 8879, IRS e-file Signature Authorization, and then the preparer alters the return before electronically filing it.

In some cases, the preparer may split the refund by using Form 8888, Allocation of Refund (Including Savings Bond Purchases), so that the taxpayer receives the amount of refund he or she is expecting, while the preparer asks the IRS to direct deposit the portion of the refund resulting from the inflated items into his or her own bank account or other account over which the preparer exercised control. In other cases, the preparer may have the entire refund direct-deposited into his or her account, and then wire transfer the amount the taxpayer was expecting into the taxpayer's bank account.

When a taxpayer appears to be a victim of Return Preparer Fraud or Misconduct, set a deadline allowing the taxpayer a reasonable amount of time to provide a completed Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, signed under penalties of perjury along with the following documentation:

  • Form 14157, Return Preparer Complaint.

  • Tax return preparer information, including name, address, taxpayer identification number (name and address information must be provided).

  • Signed copy of the tax return provided to the taxpayer by the return preparer. This is the unaltered tax return presented to the taxpayer.

  • If the taxpayer does not have a copy of the return provided by the preparer, they must provide a signed copy of the return as intended to be filed.

  • Copy of the taxpayer's bank statement reflecting the refund amount received by direct deposit, if applicable.

  • Copy of the paper check(s) reflecting the amount received by paper check, if applicable.

  • Copy of return preparer information provided by the taxpayer that is pertinent:

    • Return preparer's first and last name, address, and telephone number.

    • Return preparer's taxpayer identification number (PTIN).

    • Return preparer's social security number (SSN).

    • If the return was prepared at a business, church, or college, provide as much detail as possible; e.g. address, telephone number, and a copy of any advertisements.

  • Copy of Form 8879, IRS e-file Signature Authorization.

  • Other documentation to support the claim.

 

The revenue officer will review all the documentation provided to determine if Return Preparer Fraud or Misconduct occurred. If Return Preparer Fraud or Misconduct has occurred, the revenue officer will take the following actions:

 

1. Request a certificate of release under IRC 6326 erroneous lien provisions pursuant to IRM 5.12.3.5. These releases contain a statement that the filing was erroneous and are requested through Field Collection Advisory. Advisory also issues the Letter 544, Letter of Apology -- Erroneous Filing of Notice of Federal Tax Lien. At the taxpayer's written request, a copy of the release and letter of apology may be furnished to creditors or credit bureaus. Instruct the taxpayer to provide names, mailing addresses, and permission to disclose the information.

2. Release levies on the affected tax modules.

3. Complete Form 3870, Request for Adjustment, with specific instructions on actions needed to correct the taxpayer's account. Do not attach IDRS prints to Form 3870.

4. Attach a copy of Form 14157-A and documentation to Form 3870.

5. Forward Form 3870 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

 

Outlook mailbox for electronic submission is *SBSE CCS DITA

 

DITA has the ability to make adjustments involving overstated withholding or credits. If the balance due is the result of an audit or Automated Underreporter (AUR) assessment, follow current IRM procedures for reconsideration.

If you do not receive the requested documentation from the taxpayer by the deadline established or the documentation does not support the taxpayer's claim of Return Preparer Fraud or Misconduct, advise the taxpayer the claim has been denied and resume collection activities.

The following chart provides examples of Return Preparer Fraud or Misconduct. If a determination of Return Preparer Fraud or Misconduct is made, take the following actions.

                      If                                       Then

 

 ______________________________________________________________________________

 

 

 The taxpayer visited a tax return           Prepare Form 3870 to adjust the

 

 preparer and did not sign or authorize      taxpayer's account to reflect the

 

 the filing of a return, but a return was    taxpayer's actual return rather

 

 filed with their name/SSN, and              than the return filed by the

 

                                             preparer.

 

 

 the taxpayer did not receive any refund     The appropriate refund will be

 

 for the return filed by the tax return      issued to the taxpayer.

 

 preparer.

 

 

 (Included in this scenario is the

 

 situation where the taxpayer visited

 

 the tax return preparer to receive a

 

 tax estimate or a loan based on the

 

 anticipated income tax refund. The

 

 taxpayer signed and dated documents

 

 during the visit before the beginning

 

 of filing season or the documents

 

 were not official IRS forms.)

 

 ______________________________________________________________________________

 

 

 The taxpayer visited a tax return           Prepare Form 3870 to adjust the

 

 preparer and did not sign or authorize      taxpayer's account to reflect the

 

 the filing of a return, but a return was    taxpayer's actual return rather

 

 filed with their name/SSN,                  than the return filed by the

 

                                              preparer.

 

 

 and the taxpayer received all or a          The appropriate refund will be

 

 portion of the refund for the return        issued to the taxpayer. If the

 

 filed by the tax return preparer.           taxpayer received more than the

 

                                             refund shown on the taxpayer's

 

                                             actual return, the IRS

 

                                             should collect any excess

 

 (Included in this scenario is the           amount from the taxpayer.

 

 situation where the taxpayer visited

 

 the tax return preparer to receive a

 

 tax estimate or a loan based on the

 

 anticipated income tax refund. The

 

 taxpayer signed and dated documents

 

 during the visit before the beginning

 

 of filing season or the documents were

 

 not official IRS forms.)

 

 

 The taxpayer authorized the return          Prepare Form 3870 to adjust the

 

 filing, but tax data (exemptions, income,   taxpayer's account to reflect the

 

 expenses, deductions, credits, etc.) on     taxpayer's actual return rather

 

 their return was altered after they         than the return filed by the

 

 signed it or the return otherwise           preparer.

 

 includes items they did not authorize,      Do not pursue the taxpayer for

 

 and the taxpayer received the amount        collection of the falsified

 

 of refund expected.                         portion of the refund.

 

 ______________________________________________________________________________

 

 

If you have any questions, please contact me, or members of your staff should contact Collection Policy analyst JoAnn Zidanic.

cc:

 

Director, Field Collection

 

www.irs.gov
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