Audit: As e-filing increases, IRS needs to monitor paid preparers

As tax returns increasingly are filed electronically, the IRS needs to keep an eye on whether preparers are following new rules, according to a new federal audit.

The IRS has so far received more than 79 percent of individual tax returns electronically in 2011 — just a hair short of the agency’s goal of having 80 percent of individuals e-file by 2012.

Paid preparers — many of whom are required to e-file following 2009 congressional action — have played a sizable role in that effort. Of the close to 67 million individual returns prepared professionally in 2011, 90 percent were filed electronically.

But the Treasury Department’s inspector general for tax administration also said that, as the IRS implements new oversight of the tax-preparer population, the agency also needs to better monitor compliance with the e-file mandate.

For instance, the inspector general found that a sliver — 6 percent — of returns professionally prepared did not have a valid Preparer Tax Identification Number (PTIN), which the IRS is issuing as part of its oversight effort.

Under the current mandate, preparers who think they will file at least 100 individual returns must do so electronically. Starting Jan. 1, those preparing returns for 11 or more taxpayers will have to do the same.

As it stands, individual taxpayers are also allowed to personally file by paper, even if their return was professionally prepared. The new report found that also makes it difficult to tell how many preparers are complying with e-file requirements.

“While the e-file mandate for paid preparers is helping the IRS with its goal to electronically receive 80 percent of individual tax returns by Calendar Year 2012, our review found that improvements are necessary to be sure that there is sufficient oversight over the use of PTINs and to ensure preparers’ compliance with all aspects of the new e-file requirements,” Russell George, the tax administration inspector general, said in a news release.

Both the inspector general and the IRS, in its response to the report, did also note that the agency is currently concentrating on educating preparers about the new e-file requirements — a so-called “soft” approach to enforcement.

“In 2012, we anticipate that the e-filing mandate will result in an increase in the number of returns filed electronically,” the IRS said in its response to the report. “After the completion of the 2012 filing season, we will begin to monitor preparers’ adherence to the e-file mandate.”

The audit also found that more than 300 prisoners – 43 serving life sentences – had been issued tax preparer ID numbers from the IRS. The agency has now decided to suspend those PTINs, and will not issue any further ID numbers to prisoners.

---