Internal Revenue Manual - 4.1.10 Return Preparer Program Coordinator (Cont. 1)

Part 4. Examining Process
Chapter 1. Planning and Special Programs
Section 10. Return Preparer Program Coordinator (Cont. 1)

4.1.10.7
Return Preparer Penalty Program Penalty Cases

4.1.10.7.3 (02-05-2008)
Reviewing Penalty Cases

The RPC will review all return preparer penalty cases and ensure the proper case file assembly. All preparer penalty cases will be will be closed directly to the RPC from the group in status 41 via Form 3210, Document Transmittal.

4.1.10.7.3.1 (02-05-2008)
No-Change Preparer Penalty Cases

The RPC should review the case file and ensure the preparer penalty has been properly developed.
1. If the RPC disagrees with the agent’s findings, the RPC should contact the examiner and discuss the case.
2. The RPC may return the case file to the examiner for further development if necessary.
3. Confirm that Letter 1120, No Change Letter - Preparer's Penalty, was issued if contact was made with the preparer.

4.1.10.7.3.2 (02-05-2008)
Agreed Preparer Penalty Cases

The RPC should review the case file to ensure the issue was properly developed and determine that the correct penalty has been applied.
If the RPC disagrees with the agents findings, the RPC should contact the examiner and discuss the case.
The RPC may return the case file to the examiner for further development if necessary.

4.1.10.7.3.3 (02-05-2008)
Unagreed Preparer Penalty Cases

The RPC should review the case file to ensure the issue was properly developed and the correct penalty has been applied.
1. The RPC should ensure the examiner has included all available evidence to support the preparer penalty.
2. If the primary position of the examiner is to assert the penalty for IRC § 6694(b), the examiner should consider proposing an alternative position for IRC § 6694(a).
3. Verify that the preparer was offered a managerial conference.
4. Verify that the 30 day letter was issued if statute time allowed it.
If the RPC disagrees with the agents findings, the RPC should contact the examiner and discuss the case.
The RPC may return the case file to the examiner for further development if necessary.

4.1.10.7.4 (02-05-2008)
Closing Return Preparer Penalty Cases

The RPC should take the following steps when closing a return preparer penalty case.
Update the case file with the appropriate return preparer penalty information. The RPC should remove the Form 5809, Preparer Penalty Case Control Card-Original, and associate it with Copy C (Started).
Review Form 8278, Computation and Assessment of Miscellaneous Penalties, to ensure it is correct and includes the following information:
1. Confirm that the correct SSN or EIN is listed on the form.
2. Confirm that the correct MFT has been selected.
3. Confirm that the statute date is correct.
4. Confirm that correct penalty code/penalty reference number has been selected.
5. Confirm that related tax return information has been completed on page 4.
6. If both IRC § 6694(a) and IRC § 6694(b) apply, ensure the combined assessment does not exceed the IRC § 6694(b) penalty amount .
7. Sign the Form 8278, Computation and Assessment of Miscellaneous Penalties, as reviewer. Case processing will send the case back if the reviewer’s signature is not present.
8. Verify if any advanced payment has been made on appealed cases.
Determine where the case should be forwarded if it is unagreed/unprotested, no change, agreed, or appealed.
1. The unagreed/unprotected no change, or agreed case will be updated on ERCS to status 51. Use Form 3210, Document Transmittal, to mail the case to the appropriate Centralized Case Processing site listed in the table in LEM 4.1.10.7.4(4)(a).
2. If the proposed preparer penalty is for IRC § 6694(a) or IRC § 6694(b) and the preparer has responded to the 30 day letter ( Letter 1125, Transmittal of Examination Report, ) with an adequate protest, update the case on ERCS to status 21 and use Form 3210, Document Transmittal, to mail the case to the appropriate Technical Services office.
3. Verify if any advanced payment has been made on appealed cases.
4. If the case involves a penalty that is entitled to post assessment appeal, and there is a payment posting voucher in the case with an appeal request, fax Form 8278, Computation and Assessment of Miscellaneous Penalties, and Form 3244, Payment Posting Voucher, to the appropriate Field Office Resource Team (FORT) manager in Centralized Case Processing (CCP) for assessment. Use the CCP contacts and fax numbers found in LEM 4.1.10.7.4(4)(b).
5. Upon receipt of the completed faxed document by CCP, update the case on ERCS to status 21 and use Form 3210 to mail the case to Technical Services.

4.1.10.7.5 (02-05-2008)
Penalties on Preparers Referred to Criminal Investigation

When a preparer who is the object of a PAC is referred to CI and CI has accepted the preparer case, there may be civil penalties that can be assessed against the preparer.
1. Once CI has accepted the preparer case, compliance personnel should not contact the preparer.
2. Penalties under IRC § 6694(b) have no statute of limitations or assessment. Any pending preparer penalty cases under IRC § 6694(b) should be put in PSP suspense – Status 41.
3. The RPC will monitor the suspense inventory and periodically contact CI to find out the status of the prosecution.
4. When the criminal prosecution is completed and/or dropped, the IRC § 6694(b) penalty cases should be sent back to the originating group for completion/assessment.
5. Civil penalties under IRC § 6694(a) and IRC § 6695 have a fixed statute of limitations or assessment. These cases should not be established on ERCS if referral of the preparer is being considered.
6. If these cases have been established on ERCS, they should be surveyed using disposal code 31 and Form 1900Income Tax Survey After Assignment.

4.1.10.8 (02-05-2008)
Referrals to the Office of Professional Responsibility

The Office of Professional Responsibility (OPR) is charged with administering and enforcing the regulations governing practice before the IRS, as detailed in Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service. See OPR’s website at: http://nhq.no.irs.gov/OPR.
OPR investigates allegations of disreputable conduct and incompetence involving Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries and Appraisers.
Circular 230 provides for a range of formal and informal sanctions. The most serious sanctions are suspension or disbarment from representation of taxpayers before the IRS.
The RPC should be thoroughly familiar with Circular 230 and be prepared to advise field personnel concerning preparer misconduct and the preparation of referrals to OPR.
Examples of conduct which would warrant a referral to OPR may include the following:
1. Failure to exercise due diligence (§ 10.22(a)).
2. Conviction of any criminal offense under the revenue laws of the United States (§ 10.51(a)).
3. Conviction of any criminal offense involving dishonesty or breach of trust (§ 10.51(b)).
4. Conviction of any felony under Federal or State law for which the conduct involved renders the practitioner unfit to practice before the IRS (§ 10.51(c)).
5. Giving false or misleading information or participating in any way in the giving of false or misleading information in connection with any matter pending or likely to be pending before the IRS (§ 10.51(d)).
6. Willfully failing to file a Federal tax return or evading the assessment of any Federal tax or knowingly counseling or suggesting to a client or prospective client an illegal plan to evade Federal taxes or payment thereof (§ 10.51(f)).
7. Disbarment or suspension from practice as an attorney, certified public accountant, public accountant, or actuary (§ 10.51(i)).
8. Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws (§ 10.51(l)).
9. Contemptuous Conduct, such as threats, yelling, abusive language or any other inappropriate conduct (§ 10.51(k)).
10. Assertion of penalties under IRC § 6694, IRC § 6695, IRC § 6700 and IRC § 6701.
Referral of enrolled practitioners to OPR is mandatory in the following situations per IRM 4.11.55.4.2.2.1, Situations Requiring a Mandatory Referral.
1. When IRC § 6694(a) penalties are assessed and closed agreed, sustained in Appeals, or closed unagreed without Appeals contact.
2. When IRC § 6694(b) penalties are assessed and closed agreed, sustained in Appeals, or closed unagreed without Appeals contact.
3. Anytime a penalty for negotiation of a refund check under IRC § 6694(f) is assessed.
4. Anytime a penalty for aiding and abetting under IRC § 6701 is assessed. In addition, referrals should be considered where the section 6701 penalty was considered but not imposed.
5. Anytime a penalty for promoting abusive tax shelters under IRC § 6700 is assessed.
6. Anytime injunctive action under IRC § 7407 or IRC § 7408 is pursued.
Referrals should be made to OPR as soon as it appears that a practitioner may be in violation of Circular 230.
Form 8484, Report of Suspected Practitioner Misconduct, may be used to make a referral to OPR. Use of this form is optional; however, a written report made in any other format must contain all of the information required by the form. See http://nhq.no.irs.gov/OPR/f8484.pdf
The written report should include a summary of the suspected misconduct that provides as much detail as possible regarding the misconduct in question and supporting documentation (if available). The information should be mailed or faxed to: See LEM 4.1.10.8(9).
A copy of any referral to OPR should be routed through the Area RPC since the RPC may be aware of other information regarding the subject of the referral.
The OPR web site also has a searchable database containing the names of all the individuals currently under suspension or disbarment.

4.1.10.9 (02-05-2008)
Unenrolled Return Preparers Disciplinary Actions

Rev. Proc. 81-38 delegates the authority to the Area Director to bar unenrolled return preparers from practice before the Service.
An unenrolled return preparer may be barred from practice before the Service for the same issues as enrolled preparers may under Circular 230.
The action has to be originated by the Area RPC at the Area level.
A letter stating the reasons for the proposed sanction is prepared by the RPC.
The letter along with the supporting documentation is forwarded to the area PSC for review.
If the PSC agrees with the recommendation, the letter along with supporting documentation is forwarded to the Area Director for signature.
The unenrolled preparer is entitled to 30 days to appeal the initial letter and request a conference.
If the initial letter is appealed, a conference should be held by the Area Director or the Director’s designee.
If the preparer fails to appeal the initial letter, or the preparer had a conference at the local level and the proposed sanction is sustained, a Final Letter of Determination is prepared and signed by the Area Director.
The Final Notice gives the preparer another 30 days to appeal.
If the Final Notice is appealed, the RPC must prepare a report stating the Area’s position as to why the preparer should be sanctioned.
The report and the Appeal are forwarded to the Office of Professional Responsibility for final settlement.
The RPC will be notified by OPR of their final determination.
The RPC is responsible for notifying Area Compliance personnel when the unenrolled preparer is barred from practice.
Sample disbarment letters are found at Exhibit 4.1.10–7 , Initial Notice of Disbarment, and Exhibit 4.1.10–8, Final Notice of Ineligibility.

4.1.10.10 (02-05-2008)
Bypass of the Taxpayer’s Representative

Where a recognized representative has unreasonably delayed or hindered an examination by failing to furnish, after repeated requests, non-priviledged information necessary to the examination, the Internal Revenue Service employee conducting the examination may be given permission to bypass the representative and contact the taxpayer directly for such information. 26 C.F.R. § 601.506(b); (Statement of Procedural Rules).

Note:

For detailed information on examination bypass procedures, see IRM 4.11.55.3, By-Pass of a Representative.
IRM 4.10.3.2.1.1, Powers of Attorney, discusses unreasonable delay or hindrance by the taxpayer’s representative and instances where the examiner should consider bypass of the representative.
The examiner must carefully document the case file with all instances of unreasonable hindrance or delay. Unreasonable hindrance or delay may include, among other actions, failing to promptly submit requested taxpayer records or information, failing to respond to telephone messages or correspondence, or failing to keep scheduled appointments.
The examiner’s manager should be advised at the earliest time the examiner is considering bypass.
If the examiner and the manager agree that bypass should be considered, the manager must contact the representative with a "warning " letter.
Letter 4020–A, Warning Letter for Bypass Procedures for Preparers, covered under Circular 230, is the initial letter to be sent by the manager to enrolled preparers i.e. those covered by Circular 230. See Exhibit 4.1.10–9 .
Letter 4020–B, Warning Letter for Bypass Procedures for Unenrolled Preparers, is the initial letter to be sent by the manager to unenrolled preparers, i.e. those covered by Rev. Proc. 81-38. See Exhibit 4.1.10–10, Warning Letter for Bypass Procedures for Unenrolled Preparers.
A copy of Letter 4020-A or Letter 4020-B should be sent to the Territory Manager and the Area RPC should be advised of the potential bypass. These letters should not be sent to the taxpayer.
IRM 4.11.55, Issues Involving a Taxpayer's Representative, discusses the various rules of practice before the IRS as well as advises examiners on issues of representatives' unreasonable hindrance or delay. In addition, it provides detailed procedures on bypassing a representative, when warranted.
Letter 4020-C, Final Bypass Letter, must be signed by the Territory Manager.
A copy of Letter 4020-C, Final Bypass Letter, must be sent to the taxpayer.
Also, a copy of Letter 4020-C, Final Bypass Letter, must be sent to the Area RPC.
When a representative is bypassed, the examiner must continue to send copies of all correspondence, etc. to the representative.
As discussed in IRM 4.11.55.4.2.2.2, Situations Which May Warrant a Referral to OPR should be considered when an enrolled representative is bypassed.
Unreasonable hindrance or delay of an investigation may constitute a violation of Treasury Department Circular No. 230 (31 C.F.R. Part 10), Regulations Governing the Practice of Attorneys, Certified Public Accounts, Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service. Employees who have reason to believe that a practitioner has violated Circular 230 should make a referral of the suspected violation to the Office of Professional Responsibility. See IRM 4.11.55.4.2.3, Referral to OPR Procedures, for further information on reporting suspected violations to OPR. Only OPR can determine whether a violation of Circular 230 has occurred.
See IRM 4.11.55.4.3, Referrals of Unenrolled Preparers.

4.1.10.11 (02-05-2008)
Misrepresentation by Preparers on Powers of Attorney Form 2848

Form 2848, Power of Attorney and Declaration of Representative, may be submitted to Area employees by individuals claiming to be an Attorney, CPA or Enrolled Agent when, in fact, they are not. For guidance on this issue, see IRM 4.11.55.1.2.2, POA Not Authorized To Practice Before The IRS.
When a power of attorney is presented to an IRS employee by an individual claiming to be an attorney, CPA or Enrolled Agent, the employee should verify their professional standing.
1. The Area RPC should be familiar with the websites in their Area available to verify professional standing of CPAs and Attorneys. The PSP web site has a listing that is a starting point for identifying the various state agencies at: http://sbse.web.irs.gov/EPD/PSP/Preparer.htm
2. Enrolled Agent’s status can be verified by e-mailing the EA’s name and address to (See LEM 4.1.10.11(2)(b)) and requesting confirmation of the individual’s status.
If the employee’s search indicates that the individual does not have the professional status they claim, the Form 2848 , Power of Attorney and Declaration of Representative, is referred to the RPC.
The RPC is responsible for pursuing these invalid Form 2848's. The following steps should be taken:
1. Get a fax copy of the Form 2848.
2. Advise the employee not to send the Form 2848 to the CAF unit if they have not done so.
3. Confirm the employee’s search results.
4. If the RPC’s search confirms the Form 2848 is not a misrepresentation, advise the employee.
5. Advise the employee not to honor the Form 2848.
6. If the RPC’s search confirms the Form 2848 is a misrepresentation, a letter should be sent to the representative asking for verification of their professional standing with a 30 day window for a response. To speed the process, the RPC may choose to call the representative. See Exhibit 4.1.10–12, Request for Verification of Professional Standing.
7. If the preparer does not respond with documentation of professional status within the 30 days, a letter should be sent by the RPC to the taxpayer stating that IRS does not accept their Form 2848. See Exhibit 4.1.10–13, Taxpayer Notification of Ineligible Representative.
8. The RPC will then make a referral to the Area TIGTA for possible criminal prosecution for false representation dealing with tax administration.
9. When the TIGTA investigation is complete, the RPC will receive a copy of the findings.
10. Often the TIGTA report will show that the misrepresentation was confirmed, but the US Attorney declined prosecution.
11. When the misrepresentation is confirmed, action pursuant to Rev. Proc. 81-38 should be considered.
If the Form 2848, Power of Attorney and Declaration of Representative, is not valid, and the employee had already sent it to the CAF Unit, the RPC must notify the CAF Unit to correct the information on record there.
A CFINK should be secured to verify the invalid Form 2848 is on record with the CAF.
The RPC must complete CAF Record Change Request and fax to the CAF Unit to the attention of R. Taylor at (801) 620-3908. See Exhibit 4.1.10-14, CAF Record Change Request Form.
If an unenrolled preparer who is ineligible to practice before the IRS has submitted a Form 2848, you should maintain a record of this action so that you can properly monitor and track any subsequent improper Forms 2848. If the unenrolled preparer continues to file improper Forms 2848, you should consider additional actions (e.g. PAC, Rev. Proc. 81–38 procedures).
The Area RPC, OPR or the Headquarters Analyst may request designation level changes specific to a recorded authorization. The request will be received by a centralized point of contact in the Ogden CAF Unit. Procedures should be followed as discussed in IRM 4.1.10.11, Misrepresentation by Preparers on Powers of Attorney Form 2848.
1. Requests from the Area RPC will be accepted at face value and may be routed, faxed or sent through secured E-mail.
2. The change in authorization level is not a revocation withdrawal or deletion. CAF Teams do not provide notice of authorization level changes.

4.1.10.12 (02-05-2008)
Program Reporting

Monthly Briefing for section manager – This is an informal report between RPC and the first line manager. The local manager will dictate the format and content of the report.
1. ERCS can be used to get tracking information on preparer penalties. There is a specific report available under Territory reports that pulls all open preparer penalties.
2. ACIS can be used to track open and closed PAC cases; the PACS reports can be pulled based on source code, project code, and tracking code.
Quarterly Report on Return Preparer Penalties for Program Analyst - This report is due to the Return Preparer Program Analyst the 10th day of the month following the end of the quarter. See Exhibit 4.1.10–15 , Return Preparer Program Report.
1. The RPC will need to set up a record keeping system to gather the appropriate information needed to complete this report. The detail required is not available on database.
Other reporting to the Program Analysts – Periodic reports will be requested from the various PSP related program analysts.
1. The Return Preparer Program Analyst will periodically forward preparer conduct referrals from OPR and other sources. The RPC will have to report back on the resolution of the referral.

4.1.10.13 (02-05-2008)
Other Miscellaneous Program Information

Listed below are various sources of information for the RPC and general program pointers.
The RPC should be ready to advise and/or educate employees on a variety of issues.
1. The RPC should be thoroughly familiar with all return preparer penalties and procedures, including the following resources: IRM 20.1.6, Preparer, Promoter, and Tax Shelter Registration Penalties, Circular 230, Form 2848, and the rules governing representation of taxpayers and referrals to OPR in IRM 4.11.55.
2. The RPC should have a training package prepared containing information and forms needed to apply return preparer penalties.
3. The RPC should make themselves available for group meeting presentations and training opportunities concerning Return Preparer Penalties, Preparer Responsibilities, and other RPP program issues.

4.1.10.13.1 (02-05-2008)
Websites

Useful websites not listed elsewhere in this document include:
1. The PSP website is located at http://sbse.web.irs.gov/EPD/PSP/Preparer.htm
  
  Note:
  
  The website has a Return Preparer section containing many of the common forms, manual cites, and contacts for the RPC.
2. IDRS Command Codes website http://serp.enterprise.irs.gov/databases/irm-sup.dr/job_aid.dr/command-code.dr/idrs_command_codes_job_aid.htm
3. . Common IDRS command codes used by the RPC include:
- RPVUE
- RPPRT
- RTVUE, BRTVUE
- TRDBV
- IMFOL (Definers: I, T, R, E), BMFOL
- IRPTR
- AMDIS
- AMFRZ (Definers S, R)
- INOLE
- NAMES, NAMEE
- SUMRY
- TXMOD
- PTINQ
- CFINK
Useful ERCS information can be found on the ERCS website http://sbse.web.irs.gov/EPD/MIS/ERCS/ERCS.htm.

4.1.10.13.2 (02-05-2008)
Working Relationships

To facilitate the development of the return preparer program, the RPC should develop a good working relationship with the following individuals:
1. Area CI Questionable Return Program and Return Preparer Program Coordinators - Referrals to and from CI will be facilitated.
2. Lead Development Center (LDC).
3. Area PSP E-file Coordinator - A referral source for PACs.
4. Area TIGTA personnel who handle misrepresentations by powers of attorney.
5. Area Fed/State coordinator - Some states have Fed/State agreements that include sharing information about questionable/problem return preparers.
6. Requests for old year return preparer client lists i.e. those no longer available online, should be directed to Supervisor Info Technology Specialist, at Martinsburg Computing Center. See LEM 4.1.10.14.2(1)(e) .
7. CI’s Fraud Detection Center is located at each campus. They can sometimes help with preparer research when the RPC is having trouble identifying a return preparer, for example, a preparer who is not signing returns or putting their SSN/EIN/PTIN on the returns.
8. TEGE Exempt Organization Examinations Technical Coordinator and the EO Financial Investigations Unit.