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Part 4. Examining Process

Chapter 1. Planning and Special Programs

Section 10. Return Preparer Program Coordinator

4.1.10  Return Preparer Program Coordinator

4.1.10.1  (02-05-2008)
Overview of Return Preparer Program

  1. 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.

  2. The Area Return Preparer Coordinator (RPC) will be responsible for planning and coordinating the implementation of Area and National Headquarters Return Preparer Strategy.

4.1.10.1.1  (02-05-2008)
Area Return Preparer Coordinator Responsibilities

  1. The RPC will be responsible for:

    1. Planning and coordinating compliance activities related to return preparers with other functions, areas, and campuses.

    2. 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.

    3. 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.

    4. 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.

    5. Accumulating, monitoring and reporting all on-going penalty investigations.

    6. Communicating with the examiner when a fraud referral is pending on a particular preparer whose penalty case has begun.

    7. Evaluate referral information for development of Program Action Cases.

    8. Chairing the area penalty steering committee.

    9. Preparing summarization of potential Program Action Cases (PAC) for the area Preparer Steering Committee (PSC).

    10. Preparing requests for PAC approval.

    11. Coordinating all compliance activity of income tax returns prepared by return preparers approved for program action.

    12. Reviewing preparer penalty cases closed by compliance.

    13. Working with Disclosure Office and Government Liaison to obtain leads from local state tax agencies on abusive preparers.

    14. Serving as the Area contact with the Office of Professional Responsibility (OPR).

    15. Initiating compliance activity for CPA’s, Attorneys or Enrolled Agents who misrepresent their status before the Service.

    16. Serving as Area contact with the CAF unit.

    17. Interacting with Criminal Investigation QRP and the Campus Fraud Detection Units.

    18. Initiating compliance activity under Rev. Proc. 81–38.

    19. Serving as liaison with Stakeholder Liaison and SPEC employees on programs/issues that impact return preparers.

    20. 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.

    21. Other duties as assigned.

4.1.10.1.2  (02-05-2008)
Return Preparer Program Priorities

  1. 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:

    1. Program Action Cases - Development, approval and delivery of local project work as the exam plan allows.

    2. 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.

    3. Return Preparer Penalties - Employee education, assistance, monitoring and reviewing of civil preparer penalties.

    4. 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.

4.1.10.2  (02-05-2008)
Preparer Steering Committee

  1. Each Area Planning and Special Programs (PSP) Territory Manager will establish a multi-functional Preparer Steering Committee (PSC).

  2. 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.

  3. The PSC will be responsible for:

    1. Establishing communication between Planning and Special Programs, the CI Questionable Refund Program Coordinator, and the Campus Compliance RPC.

    2. Reviewing information, sample results, and referral to recommend approval of Program Action Case by the Territory Manager, PSP and the SB/SE Area Director.

    3. Periodically reviewing all active Program Action Cases and recommending continuation or termination.

    4. Reviewing all closed Program Action Case reports.

    5. Reviewing all Appeals of sanctions from the e-file monitoring program and recommend sustaining or rescinding the sanctions.

    6. Meetings should be held as program needs demand.

4.1.10.3  (02-05-2008)
Program Action Cases Overview (PAC)

  1. 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.

  2. 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.

4.1.10.3.1  (02-05-2008)
PAC Inventory Sources (Other Than Criminal Investigation)

  1. PACs are originated using referrals and leads from a variety of sources:

    1. Referral Report (referral reports to Examination, Employee Plans and Exempt Organization Division) - Form 3449.

    2. Criminal Investigation Information Item - Form 3949.

    3. Inquiry Referral (Taxpayer Service Assistors Referrals) - Form 4442.

    4. Referrals from IRS e-file Monitoring Visits.

    5. Referrals from EITC Due Diligence Program visits.

    6. SB/SE Lead Development Center (LDC) Referrals.

    7. Campus processing referrals.

    8. Office of Professional Responsibility (OPR) Referrals.

    9. Referrals from the public.

    10. Referrals of problem preparers identified during workload classification.

    11. TIGTA assistance requests - TIGTA usually provides the returns that will be examined.

    12. Benford’s Law Analysis - used to identify problematic preparers.

    13. Referrals from LMSB and TEGE.

    14. Other sources - as deemed appropriate.

4.1.10.3.1.1  (02-05-2008)
Criminal Investigation Referrals

  1. Fraud Detection Center (Campus FDC) Overflow – provided by National Return Preparer Analyst.

  2. Return Preparer Analysis Tool (RPAT) – provided by SB/SE Exam Return Selection.

  3. Fraud Detection Center Newly Emerging BMF problem preparers – provided by Exam Return Selection.

  4. Discontinued subject and closed primary return preparer investigations – provided by CI.

    1. 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.

    2. 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.

    3. 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.

4.1.10.3.1.2  (02-05-2008)
CI Request for a "Parallel" PAC

  1. An investigation to assist in determining harm to the government from a return preparer who is the subject of an ongoing criminal investigation.

  2. CI usually provides the returns that will be examined.

  3. The request template (see Exhibit 4.1.10–2, PAC Referral Request Template Letter) serves three functions:

    1. Request initiation of PAC in support of a criminal investigation involving return preparers.

    2. 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.

    3. Provide the name of the cooperating revenue agent on the criminal investigation (if assigned).

  4. See LEM 4.1.10.3.1.2(4).

  5. 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.

  6. 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.

4.1.10.3.2  (02-05-2008)
PAC Development Factors

  1. The RPC should review available information about the preparer to determine if a PAC is warranted.

  2. 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

  3. Additional factors to be coordinated with PSP management include:

    • Exam Plan workload and planning needs

    • Examination Activity Codes available in the PAC

    • Area resources available

    • Availability, type and quantity of other priority examination work in the group or POD

4.1.10.3.3  (02-05-2008)
Pre-PAC Contact with Criminal Investigation

  1. 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.

4.1.10.3.4  (02-05-2008)
Lead Development Center (LDC) Clearance for PAC

  1. 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).

  2. 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.

  3. 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.

  4. 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.

  5. 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.

4.1.10.3.5  (02-05-2008)
PAC Approval Process

  1. 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.

  2. The Memorandum should include some or all of the following PAC information, as appropriate:

    1. The name(s), dba(s), address(es), and TIN(s) of the preparer.

    2. Statements discussing the referral or lead and relevant related information.

    3. Statements discussing the questionable issues, schemes and/or misconduct.

    4. A summary of the client return quantities prepared in each of the available tax years.

    5. The number of client returns to be examined in the initial PAC sample.

    6. Statements relating to clearance by the LDC and by CI.

    7. Statements discussing potential harm to the Government.

    8. The number and percentage of client returns with refunds and/or Earned Income Credits.

    9. Client and/or witness affidavits.

    10. Copies of RAR’s, tax returns and other relevant documents reflecting significant and/or material adjustments.

    11. Statement as to the professional status of the preparer (CPA, enrolled agent, attorney, unenrolled agent, etc.)

  3. The PSC will carefully consider all relevant information to ensure that there is strong evidence of the preparer’s misconduct.

  4. 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.

  5. Following approval of the PAC by the Area Director, the RPC will:

    1. 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.

    2. Prepare and mail the Letter 3164N, Third-Party Contact, to the return preparer per the procedures in IRM 4.1.10.5.

    3. 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.

    4. 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.

    5. PACs that have Earned Income Tax Credit as a classified issue must use a National Tracking Code 9696.

4.1.10.3.6  (02-05-2008)
Program Action Case Return Identification and Selection

  1. The RPC will identify, classify and select the initial sample of client returns from the preparer’s client list.

  2. 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.

4.1.10.3.6.1  (02-05-2008)
Sources to Identify Returns

  1. "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.

  2. "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.

    1. 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.

  3. "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.

  4. 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.

    1. To order original returns to be considered for a PAC, use Form 5347, Examination Multiple Request Master File .

  5. You must always establish exam controls for original returns ordered using the following:

    1. Source Code 49 (primary return only)

    2. Status Code 06

    3. Appropriate Tax Year

    4. AAC for PSP (PBC, SBC, EGC)

    5. Activity Code

    6. Appropriate National Preparer Project Code

    7. Appropriate local PAC tracking code

    8. Aging Reason Code 49

    9. Appropriate local ERCS Freeze Code

4.1.10.3.6.2  (02-05-2008)
Client Return Selection and Classification Considerations

  1. Using local Classification Instructions, review client returns for:

    1. Issues described in the PAC approval memo.

    2. Large, Unusual or Questionable (LUQ) items of income, expense and/or credit.

    3. Patterns, trends and inconsistencies.

4.1.10.3.7  (02-05-2008)
Establishing Exam Controls on Selected PAC Client Returns

  1. 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).

    1. 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.

    2. Status Code 08

    3. Appropriate Tax Year

    4. Valid AIMS Assignee Code (AAC) for PSP (PBC, SBC, EGC)

    5. Valid Activity Code

    6. 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

    7. Appropriate local PAC tracking code

    8. Aging Reason Code 49 should be reflected on all return preparer program returns including primary and multiple-year returns.

    9. Appropriate local ERCS Freeze Code.

  2. The RPC will update the status of any original returns selected for examination in the initial sample to Status Code 08.

  3. 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.

4.1.10.3.8  (02-05-2008)
Case building of Selected PAC Returns

  1. Generally, each client return case file should include the following:

    1. Original tax return or TRPRT print or MACS print or RTVUE.

    2. Classification Sheet.

    3. AMDISA or ERCS print.

    4. INOLES; IMFOLI; IMFOLT; IMFOLR; and IRPTRL.

    5. 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.

    6. 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.

    7. A copy of Letter 3164N, Third Party Contact to Preparers, if applicable. See 4.1.10.5 below.

    8. 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.

4.1.10.3.9  (02-05-2008)
Monitoring Program Action Cases

  1. The RPC will evaluate the results of the client examinations using any or all of the following methods as appropriate:

    1. 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.

    2. Contact group managers at least monthly to discuss the progress of each PAC.

    3. Monitor closed client return examination results by reviewing PAC Project Check Sheets.

    4. 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.

    5. 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.

    6. Ensure each examiner has considered the return preparer penalty provisions of IRC § 6694 and IRC § 6695 and fully developed the issue(s), as appropriate.

    7. 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.

    8. Request monthly ACIS Project Code and/or Tracking Code reports on closed client cases.

  2. Evaluate the results of each PAC at least quarterly, applying (at a minimum) the following considerations:

    1. Determine that examination adjustment amounts and hours per return are reported for PAC exams using either the Project Check Sheet, ERCS reports or ACIS.

    2. 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.

    3. Review "No Change" and "No Show" rates and the resulting impact on productivity levels for the resources in use.

    4. Determine continued availability of examination resources compared with other priorities.

    5. Review Appeals results as reported in the Appeals Officer Memorandums resolving PAC examinations and develop recommendations (if any) for evaluating PAC productivity.

  3. During the PAC, the RPC will monitor the examinations of the preparer's taxpayers and the assessment of preparer penalties. If applicable, consideration should be given for a subsequent referral back to the LDC.

  4. A referral back to the LDC may be warranted under the following circumstances:

    1. 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.

    2. The preparer’s activities are responsible for significant dollar losses to the government and/or a large number of returns are impacted.

    3. The preparer’s activities affect more than one Area.

    4. Any other factors the RPC determines impact compliance.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

4.1.10.3.10  (02-05-2008)
Expanding PACs

  1. 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.

  2. In order to expand a PAC using Area resources, the RPC will need to:

    1. Request approval from the PSP Territory Manager.

    2. Ensure that consideration is given to the Examination Work Plan.

    3. If the Area proceeds with PAC expansion, provide notification to the Headquarters Program Analyst.

    4. The results of the expanded PAC should be closely monitored. A few returns should be examined and the results closely monitored.

    5. If the results indicate the preparer is not responsible for the errors on the returns, then the remaining unopened cases may be surveyed.

    6. If the expansion results indicate significant non-compliance, see the following paragraph to determine where to send additional returns for examination.

  3. If substantial non-compliance exists and expansion is desired, the decision must be made as to where to best work the cases.

  4. 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:

    1. Documentation required is easily transmitted via fax or mail.

    2. Face to face or other in depth taxpayer interview is not required.

    3. Simple Schedule C issues, including those with EITC identified as the primary issue.

  5. Also, less complex issues such as:

    1. Simple Schedule A deductions including Employee Business Expenses (EBE)

    2. Unreported/underreported income

    3. Payments to an IRA or Keogh

    4. Credits---Child Care, Credit for the Elderly, EITC, Fuel

    5. Self-Employment Tax

    6. Alternative Minimum Tax

  6. The criteria for referring return preparer cases to Campus is:

    1. 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.

    2. 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.

    3. Referrals generally should be post refund. Exceptions should be coordinated with the receiving function.

    4. 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.

    5. 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.

    6. Complete Form 13649, Multi-Case Inventory Referral and submit the request to the designated function on the form.

    7. Respond for acceptance or rejection of the referral within 30 days.

  7. 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.

4.1.10.3.11  (02-05-2008)
PAC Termination

  1. 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.

  2. 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.

  3. 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.

  4. The approved Termination Package is to be filed in the PAC administrative file. The RPC will:

    1. Advise the group manager of the PAC’s termination.

    2. Advise the group manager that any PAC cases still in status 10 may be surveyed using disposal code 31 or 32.

    3. Notify the LDC of the PAC’s termination and request their database be updated.

    4. Remove the PAC from the List of Current PACs.

    5. When all cases associated with the PAC have closed to Status 90, request the Tracking Code be marked "Inactive."

4.1.10.4  (02-05-2008)
PAC Conducted in Conjunction with an Ongoing Criminal Investigation

  1. Some special issues arise when program action cases are conducted as part of an ongoing criminal investigation:

    1. The Case Memorandum included in each client file must indicate that the case is part of an open criminal investigation.

    2. 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.

    3. Civil penalties against the return preparer under IRC § 6694 and IRC § 6695 should be considered and developed as with any other PAC.

    4. 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.

    5. 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.

    6. When the criminal prosecution is completed or the criminal case is terminated, the proposed penalties will be released back to exam for completion.

    7. 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.

4.1.10.5  (02-05-2008)
Third- Party Notification in PACs

  1. 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 taxpayer's 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.

  2. 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.

  3. 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.

  4. 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."

  5. The exceptions to taxpayer notification under IRC section 7602(c)(3) apply in preparer investigations. The exceptions are:

    1. Taxpayer authorizes third-party contact;

    2. Notice would jeopardize collection of any tax;

    3. Notice may involve reprisal against any person; and

    4. A criminal investigation of the taxpayer is pending.

  6. PAC requested in conjunction with an ongoing criminal investigation.

    1. 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.

    2. 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.

    3. 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.

4.1.10.6  (02-05-2008)
Lead Development Center

  1. 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.

4.1.10.6.1  (02-05-2008)
Referrals to the Lead Development Center

  1. 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.

4.1.10.6.2  (02-05-2008)
Processing of Referrals

  1. 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.

    1. 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.

    2. Referrals not accepted by LDC will be returned to the Area RPC for consideration of a PAC.

4.1.10.6.2.1  (02-05-2008)
Receipt of Approved Cases in PSP

  1. 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.

4.1.10.6.2.2  (02-05-2008)
Contact Information

  1. See LEM 4.1.10.6.2.6

4.1.10.7  (02-05-2008)
Return Preparer Penalty Program Penalty Cases

  1. 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.

  2. 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.

  3. 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.

  4. The RPC will advise exam employees concerning preparer penalties under IRC § 6694 and IRC § 6695.

  5. SB/SE penalty investigations under IRC § 6700 and IRC § 6701 must be approved by the LDC.

4.1.10.7.1  (02-05-2008)
Creating Return Preparer Penalty Cases

  1. 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.

  2. 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.

    1. 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.

    2. 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.

  3. 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.

4.1.10.7.2  (02-05-2008)
Tracking Return Preparer Penalty Cases

  1. Form 5809 is used to advise the RPC of the initiation of a preparer penalty investigation.

  2. The RPC is responsible for monitoring the closed investigations and active preparer investigations in the RPC's Area; thus, the RPC should develop a tracking system for all preparer investigations, which will include the historic records of those investigations.

  3. 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.


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