Unscrupulous return preparers may alter taxpayer tax data without the taxpayer’s knowledge or consent (for example, by falsifying dependent information, expenses, deductions, credits, income, refund amount, etc.) and/or misdirect a portion or all of the refund for their personal benefit. Taxpayers may become aware of misconduct through taxpayer initiated contact (Toll-Free, Field Assistance (FA), Taxpayer Advocate Service (TAS), etc.) or through IRS enforcement investigative processes (Revenue Agent (RA) or Tax Compliance Officer (TCO) contact, Automated Underreporter (AUR) correspondence, campus examination correspondence, Revenue Officer (RO) contact, Criminal Investigation (CI) inquiries, etc.).

The policy statement relating to return preparer misconduct can be found in IRM 1.2.1.16.1, Policy Statement 25-2, Return Preparer Misconduct.

Per the Taxpayer Bill of Rights (IRC §7803(a)(3)), taxpayers have the right to expect a fair and just tax system which provides taxpayers with the opportunity to have their facts and circumstances considered when it might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from TAS if they are experiencing financial hardship or if the IRS has not resolved their tax issues properly and timely through normal channels. IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and effectively communicate those rights. Refer to https://www.irs.gov/Taxpayer-Bill-of-Rights, for additional information.

The Director, Headquarters Collection, is the executive responsible for providing policy and guidance for field employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers’ rights. See IRM 1.1.16.2.3, Headquarters Collection, for additional information.

The Director of Headquarters Collection, reports to the Director, Collection, and is responsible for the delivery of policy and guidance that impacts the collection process. See IRM 1.1.16.2.3.1, Collection Policy, for additional information.

The Return Preparer Coordinators plan and coordinate compliance activities related to return preparers with other functions, areas, and campuses.

Periodic program and manager reviews are conducted to:

The following table lists commonly used terms, acronyms and their definitions.

The following table contains related IRM sections referenced in this IRM:

The following table provides definitions of return preparer types.

These return preparer definitions are relevant only for purposes of RPM guidance.

There are four basic fact patterns to return preparer misconduct.

Review all documentation in the RPM complaint to determine the correct category. The category determines the action to be taken and the relief that can be provided and may change as research is completed.

If the taxpayer alleges a preparer altered tax data on a return or misdirected all or a portion of a refund, then the taxpayer must submit sufficient documentation to support the allegation.

Documentation for complaint consideration includes the following:

In a case involving a "ghost" or non-signing preparer, in addition to the documentation in (2) above, at least one additional piece of corroborating evidence that the preparer was in the business or held him/herself out as being in the business of preparing tax returns is required.

Examples of evidence the preparer held him/herself out as being in the business of preparing tax returns include the following (this list is not all inclusive):

In addition, one piece of corroborating evidence that the person named on the Form 14157, Return Preparer Complaint, interacted with the taxpayer and submitted the return filed is required.

Additional relevant documentation may include the following:

In addition to the required documentation to support the RPM complaint, a refund trace may be required on ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ cases. Tracing the refund will validate the taxpayer’s statement about whether a refund was issued or deposited into an account in the taxpayer’s name.

Use the table below to determine if a refund trace is required.

Research refund information via CC IMFOLI, TXMOD, TRDBV, and MeF Return Request Display (RRD) through EUP.

Complete Form 4844, Request for Terminal Action, and forward to the Designated Identity Theft Adjustment (DITA) team to request a refund trace. See Exhibit 25.24.4-1, for an example of a completed form. Upon completion of the refund trace, DITA will return the results.

Depending on the RPM category, the refund trace information will be used in conjunction with other requirements to determine the correct adjustment amount. Review all available refund trace information for all cases, if applicable, regardless of category for information on the amount of the refund, if any, received by the taxpayer.

Refund trace information will reflect a negotiated check or completed FMS Form 150.1 or Form 150.2, which provide information as to the individual’s name and where the refund was deposited.

Verification of the preparer is required on all complaints alleging RPM. Research the account to determine whether the original return was signed by a preparer or there was a "ghost" preparer.

The two levels of verification required are the following:

Verify the identity of the preparer from the following IRS records:

Use this table for verifying the preparer.

An official report from a law enforcement agency (e.g., police department, State Attorney General (AG), CI, TIGTA) is required in RPM Category 3 and 4 cases for the taxpayer to be eligible for an additional refund.

The official law enforcement agency report must be signed by a law enforcement agency officer or equivalent, depending on the report received (or otherwise demonstrably accepted by the law enforcement agency) and contain the following:

If signing preparer information is present, the individual named on the law enforcement agency report must match the name of the preparer named in the complaint and on the original return. If it is a non-signing preparer situation, then the preparer name on the law enforcement agency report must match the preparer named in the complaint.

If the preparer name does not match, then the taxpayer is not entitled to an additional refund. The taxpayer may still be eligible for an account adjustment and removal of the preparer portion of the refund depending on the refund verification results.

Category 1 is defined as a taxpayer who was in contact with a preparer and ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ did not sign a return or authorize the filing of a return, but a return was filed with his/her name and TIN.

The IRS will resolve these cases using RPM procedures and result in the taxpayer receiving a refund.

Category 1 complaints will result in treating the original return filed as a nullity. The complaint will be treated with procedures similar to those for identity theft. Do not input identity theft indicators for the first year RPM is verified. Any subsequent years in which the preparer filed a return without the taxpayer’s knowledge will be considered identity theft and the account will be adjusted to match the taxpayer’s return and a subsequent refund may be issued barring no other issues.

Category 2 complaints involve a taxpayer who was in contact with a preparer and authorized a return be filed, but states tax data, e.g., exemptions, income, expenses, deductions, credits, etc., on the return was altered before the return was filed or the return otherwise includes items that they did not authorize.

The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. If the refund trace shows the taxpayer received more than they were entitled to then the taxpayer may be liable for the erroneous refund amount. See IRM 25.24.4.7, Erroneous Refund, below.

Category 2 complaints will result in treating the original return filed as a nullity.

Category 3 is defined as a taxpayer who was in contact with a preparer and authorized a return filing, but alleges tax data (exemptions, income, expenses, deductions, credits, etc.) on his/her return was altered after they signed it or the return otherwise includes items that they did not authorize and the taxpayer states either they did not receive a refund or received only a portion of the refund expected.

The IRS will administratively adjust the taxpayer’s account to reflect the correct information and remove the portion of the refund attributable to preparer misconduct. The taxpayer may receive a refund plus interest for the amount not received.

Allowed Category 3 complaints result in the original return filed being treated as a nullity.

Category 4 is defined as a taxpayer who was in contact with a preparer and authorized a return be filed, but states only the direct deposit information or address was altered, diverting the refund to the preparer and no refund or only a portion of the refund was received.

The IRS may administratively remove the portion of the refund attributable to preparer misconduct and the taxpayer may receive a refund if the required documentation is provided.

Category 4 complaints will not result in treating the original tax return as a nullity.

When the taxpayer responds to a request for missing information, reevaluate the complaint and determine if the additional information is sufficient to provide relief.

Follow the If/And/Then table below as appropriate.

Disallow complaints in full in any category if:

If the taxpayer’s actual return is included in the documentation and the complaint is disallowed, a refund trace is required.

If the RPM claim is disallowed and taxpayer’s actual return is present, see the table below when disallowing the complaint:

Partial disallowance procedures can apply in RPM Categories 1, 3, and 4 and may apply if there are Refund Statute Expiration Date implications.

Depending on the facts and circumstances including the refund trace results, the taxpayer may have received more than they stated in the RPM complaint and the complaint is partially disallowed.

Prepare Form 3870 , Request for Adjustment, to request DITA adjust the account and issue a Letter 106C, Claim Disallowance, paragraph "Q" .

Prepare Form 3870, Request for Adjustment, to correct the account. The Form 3870 instructions must include the following:

Attach to Form 3870:

Forward Form 3870, Request for Adjustment, to the appropriate function based on the type of assessment:

In RPM cases the filing of an altered return by a preparer may not meet the definition of a valid return. When a complaint is accepted, the posted return is considered a nullity. The statute of limitations does not start until a signed return is received from the taxpayer regardless of whether the taxpayer authorized the filing or the initial return. The return filed in a Category 4 case is not considered a nullity and the ASED stands.

If a complaint is received after the ASED, evaluate the complaint to determine if the posted return is a valid return.

For returns submitted with accepted Category 1-3 complaints, request on Form 3870, Request for Adjustment, that DITA update the ASED based on the received date of the signed, intended to be filed return.

If an unsigned return is submitted with the complaint and a signed return is not secured, disallow the claim and do not update the ASED.

The RSED is generally the later of three years from the date the return is filed or two years from the date the tax was paid.

Generally prepaid credits must be claimed within three years of the due date of the return including extensions to file. If a return is received more than three years from the return due date with extensions, a refund of prepaid credits will not be made.

If the RSED is expired, credits will be moved to excess collection and a claim disallowance letter issued.

The RPM ERSED is two years from the date of the erroneous refund or direct deposit.

Identify these civil penalties during the initial analysis by reviewing IDRS TXMODA, BMFOLT, and IMFOLT for the penalty reference numbers and for the respective Master File Tax codes associated with each penalty.

These civil penalty modules are identified by MFT 13 for Business Master File (BMF) or MFT 55 for Individual Master File (IMF), with the following penalty reference numbers:

Return Preparer Coordinators (RPC) can be a valuable resource. RPC are responsible for most return preparer penalties. You may contact the RPC to:

To locate the RPC for your area use the following link http://mysbse.web.irs.gov/examination/tip/rp/contacts/12293.aspx