The successful effort that the American Institute of CPAs (AICPA) initiated in 2010 to have the Internal Revenue Service (IRS) modify its tax preparer compliance program so that visits to practitioners do not take place during busy season continues to pay dividends. Based on recent conversations with IRS officials, the letters are expected to have a narrow focus and it is expected that follow-up visits by IRS officials to tax practitioners’ offices will proceed smoothly with minimal impact on our members in practice. The IRS will start mailing the preparer compliance letters to selected tax return preparers at the end of October or the beginning of November.
Originally known as the 10,000 letter program, the IRS targeted tax practitioners who prepared a large number of Form 1040 returns with Schedules A, C or E, as part of its effort to enhance its oversight and educate tax preparers. In 2011, the letters requested practitioners to provide “all relevant documents, including but not limited to, worksheets, interview notes, [and] correspondence” prepared with respect to the client’s engagement. Furthermore, visits were conducted anytime during January to April 15th.
Upon learning about the program, the AICPA immediately requested clarification about the scope of the visits and urged the IRS to conduct its visits after the April deadline. As a result of the AICPA’s advocacy efforts, the IRS narrowed the scope of the letters and visits so that they are a “soft touch” educational meeting, as opposed to a notice to penalize practitioners. The visits are now conducted around busy season instead of during busy season.
For the 2014 filing season, the IRS has told the AICPA that the letters will be similar to what they have sent in the past. The IRS does not want to change the program since it wants to be able to track the results of the “soft touch” notices and visits. In 2013, the IRS sent approximately 3,750 letters, conducted 1,250 visits on Schedule C issues and sent 750 letters regarding PTIN compliance. For 2014, the IRS plans to send slightly more letters than it did in 2013, specifically for Schedule C issues. The Service also expects to again send 750 PTIN compliance letters. IRS officials have made it clear to AICPA staff that repeat offenders will start to be penalized.
The IRS believes that the preparer compliance program has been very successful so far. The IRS has calculated a success rate of 12 percent improvement on returns prepared by those who have been visited.
The current feedback from AICPA members is that the preparer compliance visits have been about an hour long and within the scope of the letters. AICPA members report that the visits have gone smoothly. The AICPA will continue to closely monitor this program and has asked members to contact us if they have been visited by the IRS under this program.