Reference Number: 2009-40-032

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

The Process Taxpayers Must Use to Report
Complaints Against Tax Return Preparers Is
Ineffective and Causes Unnecessary
Taxpayer Burden

February 24, 2009
Reference Number: 2009-40-032

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process
and information determined to be restricted from public release has been redacted from this document.

Phone Number | 202-622-6500
Email Address | [email protected]
Web Site
| http://www.tigta.gov

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION

February 24, 2009

MEMORANDUM FOR DEPUTY COMMISSIONER FOR SERVICES AND
ENFORCEMENT
FROM:

Michael R. Phillips
Deputy Inspector General for Audit

SUBJECT:

Final Audit Report – The Process Taxpayers Must Use to Report
Complaints Against Tax Return Preparers Is Ineffective and Causes
Unnecessary Taxpayer Burden (Audit # 200840015)

This report presents the results of our review to determine whether the process for taxpayers to
report complaints against tax return preparers to the Internal Revenue Service (IRS) is effective.
This audit was part of our Fiscal Year 2008 Annual Audit Plan.

Impact on the Taxpayer
In Calendar Year 2007, the IRS processed approximately 83 million individual Federal income
tax returns prepared by paid tax return preparers. With its current processes, the IRS cannot
determine how many complaints against tax return preparers it receives, how many complaints
are worked, and the total number of multiple complaints against a specific firm or preparer.
Taxpayer complaints about tax return preparers can provide valuable information about
understanding the root causes of taxpayer problems, identify areas of noncompliance, and help
the IRS address core processes that need improvement.

Synopsis
Paid tax return preparers are a critical component and stakeholder in tax administration and
represent an important intermediary between taxpayers and the IRS. The tax return preparer
community provides a unique opportunity to affect taxpayer behavior and compliance with the
tax laws. Taxpayers can file complaints against preparers by calling the IRS, visiting one of the
IRS’ 401 local offices, sending a letter or fax, or contacting the Treasury Inspector General for
Tax Administration.

The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Guidelines provided to taxpayers and employees about filing a tax return preparer complaint are
confusing and inconsistent. Taxpayers must first be able to determine whether the preparer is an
unenrolled agent or a practitioner1 and then determine if the complaint involves fraud and/or a
violation of the tax code. Many taxpayers do not know their tax return preparer’s designation to
ensure that their complaints are sent to the correct IRS office and do not know what constitutes
fraud or a violation of the tax code. Finally, the form used to submit complaints against
unenrolled preparers is not designed to provide adequate information with which complaints can
be worked.
We selected a judgmental sample of 50 complaints to determine the types of complaints
submitted and whether sufficient details were present to allow the IRS to identify the tax return
preparer and the issue and to determine its merits. Of the 50 complaints reviewed,
35 (70 percent) identified a preparer and provided allegations about a violation of tax law or a
fraud issue. The other 15 (30 percent) complaints either did not provide enough information to
identify the tax return preparer, did not contain information related to a tax return preparer, or
involved allegations about tax avoidance schemes being used by individuals or investment
companies.
The IRS’ current process for handling taxpayer complaints against preparers does not identify
potential problem preparers so that the IRS can
determine the extent of noncompliance, if any, or
The current complaint process does
not identify potential problem
how the noncompliance should be addressed.
preparers so that the IRS can
Complaints are generally not controlled and
determine
the extent of the problem, if
tracked. Therefore, neither the volume of
any, or how the problem should be
complaints received from taxpayers and worked
addressed.
nor their resolutions are known. Moreover,
complaints are reviewed multiple times and
mailed to multiple offices before most are ultimately destroyed.
Several offices, including the Criminal Investigation, Small Business/Self-Employed and Wage
and Investment Divisions, the Office of Professional Responsibility, and the Treasury Inspector
General for Tax Administration, are involved in the process of resolving taxpayer complaints.
Complaints are not centrally recorded to identify duplicates, and many complaints are redirected
to another function. Because of this, the IRS spends unnecessary time sorting and redirecting
complaints. In addition, the IRS does not acknowledge all taxpayer complaints. An ineffective
complaint system erodes public trust as taxpayers become frustrated with the IRS’ apparent
non-response.

1

The IRS refers to tax return preparers who are attorneys, certified public accountants, and enrolled agents as
practitioners. Enrolled agents are preparers who have passed an IRS examination or presented evidence of
qualifying experience as a former IRS employee and have been issued an enrollment card.

2

The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Recommendations
We recommended that the Deputy Commissioner for Services and Enforcement 1) clarify
guidance to taxpayers on the public IRS web site (IRS.gov) regarding the preparer complaint
process, and 2) develop a form, both web-based and paper, specifically for tax return preparer
complaints that routes to the correct function based on type of tax return preparer and includes
the items necessary for the IRS to appropriately evaluate the legitimacy of the complaint. Once a
form is developed to ensure that sufficient information is captured about the complaint, a
database(s) or tracking system should be developed to efficiently control the complaints.

Response
The Deputy Commissioner for Services and Enforcement agreed to update guidance on IRS.gov
and create a cross-functional team to develop recommended action items to identify
opportunities for improvement that may include changes to forms and creation of an automated
tracking system. Management’s complete response to the draft report is included as
Appendix V.
Copies of this report are also being sent to the IRS managers affected by the report
recommendations. Please contact me at (202) 622-6510 if you have questions or
Michael E. McKenney, Assistant Inspector General for Audit (Returns Processing and Account
Services), at (202) 622-5916.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Table of Contents
Background ..........................................................................................................Page 1
Results of Review ...............................................................................................Page 4
Guidance Provided to Taxpayers to Report Complaints
Against Tax Return Preparers Creates Taxpayer Burden .............................Page 4
Recommendation 1:........................................................Page 8

The Process Used to Control and Track Complaints Against
Tax Return Preparers Is Not Efficient or Effective ......................................Page 8
Recommendation 2:........................................................Page 14

Appendices
Appendix I – Detailed Objective, Scope, and Methodology ........................Page 16
Appendix II – Major Contributors to This Report ........................................Page 18
Appendix III – Report Distribution List .......................................................Page 19
Appendix IV – How Do You Report Suspected Tax Fraud Activity? ........Page 20
Appendix V – Management’s Response to the Draft Report ......................Page 21

The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Abbreviations
IRS

Internal Revenue Service

TAC

Taxpayer Assistance Center

The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Background
Paid tax return preparers are a critical component and stakeholder in tax administration and
represent an important intermediary between taxpayers and the Internal Revenue Service (IRS).
The tax return preparer community provides a unique opportunity to affect taxpayer behavior
and compliance with the tax laws. In
Calendar Year 2007, the IRS processed
Paid preparers can be self-employed or work
approximately 83 million individual Federal
for accounting firms, large tax preparation
income tax returns prepared by paid tax
services, or law firms and include the following:
return preparers.
x Licensed professionals, such as attorneys
and certified public accountants. These
licensed professionals are regulated by the
State licensing authority and the related
associations such as the American Bar
Association and the American Institute of
Certified Public Accountants.
x

x

Enrolled agents. These professionals pass
an IRS examination or present evidence of
qualifying experience as a former IRS
employee and have been issued an
enrollment card. Enrolled agents are the
only taxpayer representatives who receive
their right to practice from the Federal
Government.
Unenrolled or unlicensed preparers.
These individuals range from those who
might receive extensive training to those
with little or no training. Currently, only
three States, California, Maryland, and
Oregon, have requirements for unenrolled
paid preparers. In these States, unenrolled
paid preparers must register with State
agencies and meet continuing education
requirements.

Currently, there are no national standards that
a tax return preparer is required to satisfy
before selling tax preparation services to the
public. Anyone—regardless of training,
experience, skill, or knowledge—is allowed
to prepare Federal income tax returns for
others for a fee.
All paid tax return preparers are subject to
Internal Revenue Code penalties—both civil
and criminal. For example, civil penalties
apply if paid tax return preparers do not sign
the tax returns they prepare, do not provide
the taxpayers with copies of the tax returns,
or deliberately understate a taxpayer’s tax
liability. Criminal penalties apply when a
paid tax return preparer willfully prepares or
makes a false statement regarding a false or
fraudulent tax return or knowingly provides
fraudulent tax returns to the IRS.

However, application of other regulations
depends on whether the tax return preparer is
an attorney, a certified public accountant, an enrolled agent (referred to by the IRS as a
practitioner), or an unenrolled preparer. For example:

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

x

Attorneys, certified public accountants, enrolled agents, and enrolled actuaries are governed
by the Internal Revenue Code, Treasury Department Circular 230,1 and the individual States
in which they practice. These authorities have established requirements, penalties, and
disciplinary actions for noncompliance and/or issue licenses and require continuing education
to maintain them.

x

Unenrolled preparers are governed by the Internal Revenue Code. However, neither the
Circular 230 nor individual State requirements, with the exception of the States of California,
Maryland, and Oregon,2 apply to them.

The IRS Office of Professional Responsibility regulates attorneys, certified public accountants,
and enrolled agents who practice before the IRS. Practice is defined broadly in Treasury
Department Circular 230 as comprehending all matters connected with a presentation to the IRS
relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by
the IRS.
The IRS has additional regulations for any paid tax return preparers who are authorized to file
tax returns electronically. Applicants to the Electronic Filing Program must pass certain IRS
checks, including background and credit history checks. Participants are also monitored.
Taxpayers can file complaints against preparers using the following methods:
x

Calling the IRS toll-free telephone number (1-800-829-1040). An assistor should advise the
caller/taxpayer to complete an Information Referral (Form 3949 A) or to submit information
via a letter and mail it to the IRS, Fresno, California, 93888. Form 3949 A can be obtained
from the public IRS web site (IRS.gov) or can be mailed to the taxpayer.

x

Calling the Tax Fraud Referral Line (1-800-829-0433). This is an automated line that
provides instructions for filing a complaint.

x

Visiting 1 of the IRS’ 401 local walk-in offices called Taxpayer Assistance Centers (TAC).3
An assistor should provide the taxpayer with Form 3949 A and either take the completed
Form from the taxpayer or advise him or her to mail it to Fresno, California.

1

Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled
Actuaries, Enrolled Retirement Plan Agents, and Appraisers before the Internal Revenue Service (Treasury
Department Circular No. 230 (revised 4-2008)).
2
California requires that paid preparers pass a 60-hour approved course and obtain a tax preparer bond to become
registered. California also requires 20 hours of continuing education annually. Oregon requires that tax preparers
be at least 18 years old, have a high school degree or equivalent, complete 80 hours of income tax law education,
and pass a tax preparer examination. Oregon also requires 30 hours of continuing education annually. While
Oregon requires enrolled agents to register, enrolled agents must meet far fewer registration requirements than
unenrolled preparers. In May 2008, Maryland also enacted paid preparer legislation that will require tax preparers to
pass an examination, pay a registration fee, and subsequently comply with continuing education requirements.
3
An IRS office with employees who answer questions, provide assistance, and resolve account-related issues for
taxpayers face to face.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

x

Sending a letter or fax directly to an IRS office.

x

Accessing the public Treasury Inspector General for Tax Administration web site
(TIGTA.gov) and completing an online form, emailing the complaint, or calling the toll-free
Hotline (1-800-366-4484).

This review was performed in the Wage and Investment Division Accounts Management
function in Fresno, California; the Office of Professional Responsibility in Washington, D.C.; the
Small Business/Self-Employed Division Exam Planning and Delivery function in Austin, Texas;
and the Gulf States Area Planning and Special Programs function in Austin and Houston, Texas,
and Atlanta, Georgia, during the period May through October 2008. Discussions were also held
with personnel in the Criminal Investigation Division and South Atlantic Area Planning and
Special Programs function. We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objective. Detailed
information on our audit objective, scope, and methodology is presented in Appendix I. Major
contributors to the report are listed in Appendix II.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Results of Review
Guidance Provided to Taxpayers to Report Complaints Against Tax
Return Preparers Creates Taxpayer Burden
Tax preparer complaint reporting guidelines provided to taxpayers and employees are confusing
and inconsistent. Taxpayers must first be able to determine whether the tax return preparer is an
unenrolled agent or a practitioner and then determine if the complaint involves fraud and/or a
violation of the tax code. Many taxpayers do not know their tax return preparer’s designation, to
ensure that their complaints are sent to the correct IRS office, and do not know what constitutes
fraud or a violation of the tax code. Finally, the IRS Form used to submit complaints against
unenrolled preparers is generic and does not instruct taxpayers to include adequate information
with which complaints can be worked.
Guidelines for taxpayers to use to report complaints against tax return preparers
are confusing and inconsistent
Taxpayers obtain information about filing a complaint from a variety of IRS sources:
1) IRS.gov; 2) the toll-free telephone service; and 3) the TACs. Only IRS.gov provides written
instructions to taxpayers on how to file, what form to use, and where to submit a complaint.
1) If a taxpayer visits IRS.gov, he or she will not find a direct link on the main page to file a
complaint. The taxpayer must search to obtain information on how to file a complaint. The
taxpayer can click on “Contact IRS,” then click on:4
How Do You Report Suspected Tax Fraud Activity?
If you have information about an individual or company you suspect is not complying with the tax law,
report this activity.

At the top of the resulting webpage, the IRS advises the taxpayer to complete Form 3949 A
or to draft a letter and mail either to the IRS Fresno office.
At the bottom of the webpage, the IRS explains that if the preparer is an attorney, certified
public accountant, or an enrolled agent, the taxpayer should instead report the suspicious
actions to the email address of the IRS Office of Professional Responsibility.
Alternatively, if a taxpayer searches on “taxpayer complaints” or “preparer complaints,” one
of the results includes How to File a Complaint Against a Tax Professional. Clicking on this
link directs the taxpayer to a webpage that explains how to submit complaints against
4

See Appendix IV for a replica of the webpage, How Do You Report Suspected Tax Fraud Activity?

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

attorneys, certified public accountants, enrolled agents, and enrolled actuaries. The webpage
explains:
A complaint should be written in a letter format. The letter should include the tax practitioner's
name, address, telephone number, designation (i.e., attorney, certified public accountant,
enrolled agent, enrolled actuary, etc.), a detailed description of the allegations, and any
documents that support those allegations. Please direct all questions and referrals to:
Internal Revenue Service
Office of Professional Responsibility
SE:OPR, Room 7238/IR
1111 Constitution Avenue NW
Washington, DC 20224

However, the definition of an enrolled agent is not provided. The taxpayer must complete a
search for the term “enrolled agent” to understand how this might affect where to send a
complaint. Once the taxpayer finds the definition of an enrolled agent, there is no database
or list of enrolled agents on the webpage to let the taxpayer identify whether his or her tax
return preparer is an enrolled agent.
2) If the taxpayer calls the IRS, a toll-free telephone service assistor should advise the taxpayer
to mail a complaint via Form 3949 A or a letter to the IRS in Fresno, California. The assistor
will not take the complaint information from the taxpayer but should offer to help the
taxpayer obtain the Form by directing the taxpayer to IRS.gov or by having the Form mailed
to the taxpayer.
3) If the taxpayer visits a TAC, an assistor should advise the taxpayer to correspond directly
with the Office of Professional Responsibility and to refer to the written guidelines located
on IRS.gov by searching the keyword “complaint” for complaints concerning practitioners
(i.e., attorneys, certified public accountants, enrolled agents). A taxpayer with a complaint
against an unenrolled agent is provided a copy of Form 3949 A. The assistor will not
complete the Form for the taxpayer but will forward the completed Form to
Fresno, California, if the taxpayer requests.
We placed 10 calls to the IRS main toll-free telephone number (1-800-829-1040). For:
x

6 (60 percent) calls, assistors attempted to determine the type of practitioner or if the
complaint was related to fraud. In the other 4 calls, the assistors did not make this attempt
which could later hinder the processing and evaluation of the complaints.

x

7 (70 percent) calls, assistors provided instructions on how to obtain Form 3949 A or what
should be included if the caller opted to submit the complaint via letter. For the remaining
3 calls (30 percent), the assistors provided information related to sending a letter to the Office
of Professional Responsibility: 2 provided an incorrect name, address, or fax number;
1 provided correct information.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

We visited five TACs to determine what assistance is given to a taxpayer with a complaint
against a tax return preparer. Figure 1 presents the results of the TAC visits.
Figure 1: Results of Visits to TACs
Information Provided by
Assistor

Assistor Asked if Tax
Return Preparer Was
Enrolled

3

Form 3949 A

No

1

List of IRS telephone
numbers

No

Address for the Director of
Practice*

No

Number of TACs

1

* = The Director of Practice was renamed the Office of Professional Responsibility
in Fiscal Year 2003.
Source: Our analysis of visits to five TACs.

None of the five TAC assistors provided a complete response, and one of the assistors referred us
to another function in the IRS. Because the assistors did not ask whether the preparers in
question were enrolled and whether the complaints were related to fraud for 11 (73 percent) of
our 15 in-person and telephone contacts, these potential complaints might have been misrouted
to the incorrect office. This creates additional processing for the IRS and delays actions, if any,
on the taxpayer complaints.
The IRS Form taxpayers use to submit complaints against tax return preparers is
not designed to provide adequate information with which to process the
complaints
The IRS states that Form 3949 A is used to report alleged violations of tax law by individuals
and businesses to the IRS. However, it is a general information referral form used by multiple
IRS functions and is very generic—the word “preparer” is not referenced anywhere on the Form.
Form 3949 A also does not provide sufficient room for the taxpayer to report the complaint
because it includes only eight lines on which the taxpayer is to provide a description of an
“alleged violation.” Users of the Form are instructed to attach another sheet, if needed.
Figure 2 presents an excerpt of the top of Form 3949 A.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Figure 2: Excerpt of Form 3949 A

Source: IRS.gov.

In addition, the Form does not ask for specific information so that the IRS can adequately
understand and/or consider the claim(s). We selected a judgmental sample of 50 complaints to
determine the types of complaints submitted and whether sufficient details were present to allow
the IRS to identify the tax return preparer and the issue and to determine its merits.
Of the 50 complaints reviewed, 35 (70 percent) identified a preparer and provided allegations
about a violation of tax law or a fraud issue. The other 15 (30 percent) did not provide enough
information with which to identify the tax return preparer, did not contain information related to
a tax return preparer, or involved allegations about tax avoidance schemes being used by
individuals or investment companies. Of the 35 complaints:
x

15 (30 percent) involved allegations of falsifying exemptions, credits, or deductions.

x

11 (22 percent) involved allegations of fraudulent activities or refund theft.

x

5 (10 percent) involved allegations of tax return preparers failing to file tax returns or to
return records to the taxpayers.

x

2 (4 percent) involved allegations of tax return preparers representing taxpayers while
disbarred or engaging in misconduct.

x

2 (4 percent) involved allegations of tax return preparers disclosing information to
unauthorized individuals.
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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

Many of the complaints received could have been avoided if the IRS better
educated taxpayers and clarified instructions
Many of the complaints reviewed did not meet any criteria under which the IRS could or would
be able to take action(s). In addition, because of the lack of specificity on Form 3949 A,
taxpayers are not providing the IRS with information from which it could take action. IRS
employees who evaluate the Forms for leads confirmed that the complaints received often do not
provide enough information to identify the tax return preparer or the issue. Therefore, the
complaints evaluated are generally not considered valuable enough to pursue additional actions.
The Government Accountability Office Standards for Internal Control in the Federal
Government5 requires that the agency assess the risks it faces from both external and internal
sources. The agency must establish clear, consistent objectives and should consider all
significant interactions between the entity and other parties to identify risks. Once risks have
been identified, they should be analyzed for their possible effect.

Recommendation
Recommendation 1: The Deputy Commissioner for Services and Enforcement should clarify
guidance on IRS.gov when the taxpayer searches for “preparer complaint” so that taxpayers can
understand the differences in the types of tax return preparers, the jurisdiction the IRS has over
enrolled and unenrolled tax return preparers, and to which function taxpayer complaints about
tax return preparers should be sent and by what method.
Management’s Response: The Deputy Commissioner for Services and Enforcement
concurs with the recommendation and will ensure that the guidance on IRS.gov is
updated to assist taxpayers in understanding the process to file complaints against tax
return preparers.

The Process Used to Control and Track Complaints Against Tax
Return Preparers Is Not Efficient or Effective
The IRS’ current process for handling taxpayer
complaints against preparers does not identify
potential problem preparers so that the IRS can
determine the extent of the problem, if any, or how
the problem should be addressed. Complaints are
generally not controlled and tracked. Therefore,
neither the volume of complaints received from
taxpayers and worked nor their resolutions are

5

Multiple offices handle taxpayer
complaints against preparers, including:
ƒ Criminal Investigation Division.
ƒ Small Business/Self-Employed Division.
ƒ Wage and Investment Division.
ƒ Office of Professional Responsibility.
ƒ Treasury Inspector General for Tax
Administration.

Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, dated November 1999).

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

known. Moreover, complaints are reviewed multiple times and mailed to multiple offices, before
most are ultimately destroyed.
Several offices, including the Criminal Investigation, Small Business/Self-Employed and Wage
and Investment Divisions, the Office of Professional Responsibility, and the Treasury Inspector
General for Tax Administration, are involved in the process of resolving taxpayer complaints.
Complaints are not centrally recorded to identify duplicates, and many complaints are redirected
to another function. Because of this, the IRS spends unnecessary time sorting and redirecting
complaints. In addition, the IRS does not acknowledge all taxpayer complaints. For an agency
to run and control its operations, it must have relevant, reliable, and timely communications
relating to internal as well as external events. Program managers need both operational and
financial data to determine whether they are meeting their agencies’ strategic and annual
performance plans and meeting their goals of accountability for effective and efficient use of
resources. An ineffective complaint system erodes public trust as taxpayers become frustrated
with the IRS’ apparent non-response.
Process for complaints against unenrolled preparers
Tax return preparer complaints are received in the Accounts Management function in
Fresno, California. However, they are not worked or investigated from that office; the Accounts
Management function is merely a conduit for the complaints. The Accounts Management
function staff sort Forms 3949 A that refer to a tax return preparer and forward them to another
IRS office. Accounts Management function staff do not determine whether the tax return
preparer is enrolled (i.e., is a practitioner).
x

All complaints are mailed to the Small Business/Self-Employed Division Examination and
Return Selection function in Austin, Texas. An analyst in Austin, Texas, reviews the
Forms 3949 A and forwards them to the Planning and Special Programs function.
o Complaints about an attorney, a certified public accountant, or an enrolled preparer are
not forwarded to the Office of Professional Responsibility.

x

Once shipped to the Planning and Special Programs function, the complaints are forwarded
to the Return Preparer Coordinators (16 in total) located in 1 of the 7 Area Offices6
throughout the IRS. The Return Preparer Coordinators review the Forms 3949 A to
determine whether they meet the criteria for evaluation in the field (i.e., the preparer prepares
a number of tax returns above a specific threshold, and there is evidence of a recurring theme
that is harmful to taxpayers).

6

An Area Office is a geographic organizational level used by IRS business units and offices to help their specific
types of taxpayers understand and comply with tax laws and issues.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
Taxpayer Burden

x

Incoming and outgoing inventory to these locations are not maintained except through use of
the number of total documents received and forwarded on a Document Transmittal
(Form 3210).

Figure 3 presents a flowchart of how Forms 3949 A are processed for tax return preparer
complaints.
Figure 3: Form 3949 A Processing

Source: Our analysis of Form 3949 A processing. SB/SE = Small Business/Self-Employed Division.

Until January 2006, taxpayers could submit complaints against tax return preparers to the IRS
over the telephone. An IRS assistor would question the caller to gather information about the
complaint. The assistor would record the information on an internal form and submit it to the
responsible function for the appropriate action. The Criminal Investigation Division did not
generally view these complaints as valuable because they generated few investigative cases. In
an effort to cut costs, the IRS discontinued the process for submitting complaints via the
telephone in Fiscal Year 2006. The IRS reported $3.5 million in cost savings with this change.
This savings does not include cost projections for increased correspondence and for processing
that correspondence. The IRS now accepts taxpayer complaints against tax return preparers
through the mail and by fax.

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The Process Taxpayers Must Use to Report Complaints Against
Tax Return Preparers Is Ineffective and Causes Unnecessary
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Return Preparer Coordinators advised us that Forms 3949 A typically do not provide enough
information to enable them to further investigate the complaint by using resources in the field to
conduct an audit of returns prepared by the tax return preparer. Our tests of 50 complaints
confirmed that taxpayer complaints against preparers either did not always contain enough
information to identify the preparer and alleged tax law violations or did not involve preparer
issues. For example, the IRS does not have any authority over the return preparation activities of
unpaid preparers such as relatives who incorrectly prepare tax returns or investment groups that
advertise tax savings for real estate agents.
Because there is no single database of all taxpayer complaints, we could not determine how
many complaints the IRS receives against unenrolled preparers or how many yield productive
cases. Our tests also identified the following:
x

The Accounts Management function does not log in complaints, cannot determine how many
complaints the IRS receives, and does not track the complaints to determine their outcome or
identify problem preparers. Only the volume of complaints being forwarded to other offices
is documented on the Forms 3210.

x

The Accounts Management function does not forward complaints about practitioners
(i.e., attorneys, certified public accountants, and enrolled agents) to the Office of Professional
Responsibility because research is not performed to identify preparer designation. It
forwards all tax return preparer complaints to a Small Business/Self-Employed Division
analyst in the Examination and Return Selection function.

x

The Examination and Return Selection function does not forward complaints about
practitioners to the Office of Professional Responsibility because research is not performed to
identify preparer designation. However, this function does receive complaints against
unenrolled preparers forwarded from the Office of Professional Responsibility.

x

Complaints are sorted and filed at each function to which they are sent. However, most of
the functions file the complaints by receipt date, so it is not possible for employees to retrieve
specific complaints without significant effort. Filed complaints are then destroyed based on
the amount of time elapsed from the receipt date. Handling complaints in this manner does
not afford the IRS the opportunity to gauge the magnitude of tax return preparer issues
because complaints are not analyzed and cannot be retrieved. In addition, shipping
complaints to functions where they will ultimately be destroyed wastes IRS resources.

x

Taxpayers are not sent acknowledgments that the IRS has received their complaints.

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The Process Taxpayers Must Use to Report Complaints Against
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However, from March 29 to August 9, 2008, the IRS expended 2.2 Full-Time Equivalents7 in the
Accounts Management function alone, costing approximately $66,250 in salary without
overhead, to sort the complaints sent to an analyst for further sorting and forwarding. Moreover,
the Accounts Management function has used overtime hours to sort the Forms 3949 A.
Additional costs are incurred in the Examination function when the analyst sorts the complaints
by preparer location and forwards them to the appropriate Area Office. Return Preparer
Coordinators in the Area Offices receive the complaints and review them to determine whether
they meet the Examination function criteria for application of resources.
Process for complaints against practitioners
Taxpayers may also submit complaints against preparers to the Office of Professional
Responsibility. Current procedures require taxpayers to submit complaints against practitioners
via a letter, which should include the following elements: tax practitioner’s name, address,
telephone number, and designation (attorney, certified public accountant, enrolled agent, enrolled
actuary, etc.); a detailed description of the allegations; and any documents that support those
allegations. These letters can be mailed, faxed, or emailed directly to the Office of Professional
Responsibility. The Office of Professional Responsibility also receives complaints from
taxpayers via Forms 3949 A.
Complaints received in the mail are entered into a database upon receipt, regardless of
practitioner designation, and then evaluated for Circular 230 designation and Office of
Professional Responsibility jurisdiction. Complaints submitted via email and fax are first
evaluated for Circular 230 designation and jurisdiction. Emails and faxes subject to Office of
Professional Responsibility jurisdiction are then entered into the database. The types of
allegations that warrant entry to the database include, but are not limited to, the following:
x

A practitioner who did not exercise due diligence in the preparation of, approving, and filing
of tax returns, documents, affidavits, and other papers relating to IRS matters.

x

A practitioner who unreasonably delayed the prompt disposition of any matter before the
IRS.

x

A practitioner who charged an unconscionable fee in connection with any matter before the
IRS.

x

A practitioner who did not, at the request of a client, promptly return any and all records of
the client that are necessary for the client to comply with Federal tax obligations.

7

A measure of labor hours in which 1 Full-Time Equivalent is equal to 8 hours multiplied by the number of
compensable days in a particular fiscal year. For Fiscal Year 2008, 1 Full-Time Equivalent was equal to 2,096 staff
hours.

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Office of Professional Responsibility employees indicated they believe that taxpayers are
submitting complaints to both their office and the Accounts Management function. One
complaint in our sample of 50 complaints was sent to both the Accounts Management function
and the Office of Professional Responsibility. However, because there is no database of all
complaints received by the Office of Professional Responsibility or the Accounts Management
function, neither we nor the IRS can determine how many duplicate complaints are received.
The Office of Professional Responsibility can determine whether it has received more than one
complaint against a practitioner for only those complaints subject to Circular 230 designation
and jurisdiction.
Figure 4 presents a flowchart of how the Office of Professional Responsibility processes the
receipt of taxpayer complaints against practitioners.
Figure 4: Office of Professional Responsibility Processing of Taxpayer
Complaints Against Preparers

Source: Our analysis of the processing of complaint receipts in the Office of Professional Responsibility.
OPR = Office of Professional Responsibility.

If the tax return preparer is a practitioner and the issue is under the Office of Professional
Responsibility’s jurisdiction (i.e., subject to Circular 230), an acknowledgement is sent to the
taxpayer that the complaint was received. Evidence is gathered to determine whether the
complaint can be supported; actions taken by the Office of Professional Responsibility resulting
from supported complaints range from reprimands to disbarments. Case files for completed
cases are retained by the Office of Professional Responsibility for at least 7 years before they are
sent to a Federal Records Center.8 Suspended and disbarred practitioners may continue to
8

The National Archives and Records Administration Federal Records Center system is a national network of
17 regional facilities that store and provide access to over 25 million cubic feet of records.

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prepare returns but may not represent taxpayers before the IRS. If a complaint is not under its
jurisdiction, the Office of Professional Responsibility forwards it to another office within the
IRS, such as the Criminal Investigation or Small Business/Self-Employed Divisions, or to the
Treasury Inspector General for Tax Administration.
The Office of Professional Responsibility receives complaints from a variety of sources, both
internal and external to the IRS. Discussions with Office of Professional Responsibility staff
indicated that many of the complaints are warranted and result in productive cases. However, a
review of the Office of Professional Responsibility’s database of complaints showed that most
complaints submitted from taxpayers do not result in actions being taken against practitioners.
Of the 621 cases closed from January 1 to September 3, 2008, that were coded with taxpayer as
the original source, 467 (75 percent) were closed because the Office of Professional
Responsibility lacked jurisdiction, 111 (18 percent) were closed with no sanctions, 27 (4 percent)
were opened in error, and 10 (2 percent) were closed with various other codes. Only
6 (1 percent) resulted in action being taken against the practitioner. Of the 467 cases closed
because of a lack of jurisdiction, 457 were for unenrolled preparers, while 10 were closed
because the complaint was against a practitioner but was an issue that was not covered under
Circular 230. The large number of complaints about unenrolled preparers indicates complaints
from taxpayers are being routed to the incorrect function within the IRS.
Overall, the IRS cannot determine how many complaints against tax return preparers (unenrolled
and practitioners) it receives, how many are productive, and the total number of multiple
complaints against a specific firm, practitioner, or preparer. Although the Office of Professional
Responsibility controls and tracks complaints received by mail against practitioners or
unenrolled tax return preparers not subject to Circular 230, it does not do so for all complaints
received by fax or email. In addition, the Accounts Management and the Examination and
Return Selection functions control and track complaints by volume rather than by practitioners or
unenrolled tax return preparers.
Taxpayer complaints against tax return preparers can provide valuable information about
recurring problems. They can provide valuable information to understanding the root causes of
taxpayer problems and identify noncompliance, as well as help the IRS address core processes
that need improvement. The IRS needs to ensure that it has sufficient data with which to identify
potential problem preparers. Developing a form to capture all the information necessary to
analyze the situation and determine the best course of action to take, if any, is essential. Once a
form is developed, the IRS needs to create a means to capture, monitor, and track the complaints.

Recommendation
Recommendation 2: The Deputy Commissioner for Services and Enforcement should
develop a form, both web-based and paper, specifically for tax return preparer complaints that
routes to the correct function based on type of tax return preparer and includes the items
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necessary for the IRS to appropriately evaluate the complaint. Once a form is developed to
ensure that sufficient information is captured about the complaint, a database(s) or tracking
system should be developed to efficiently control the complaints.
Management’s Response: The Director, Examination, Small Business/
Self-Employment Division, will ensure that the tax return preparer complaint process is
reviewed by a cross-functional team to identify opportunities for improvement. The
cross-functional team will develop recommended action items to modify the system to
produce an appropriate level of efficiency, effectiveness, and accountability that may
include changes to forms and creation of an automated tracking system.

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Appendix I

Detailed Objective, Scope, and Methodology
Our overall objective was to determine whether the process for taxpayers to report complaints
against tax return preparers to the IRS is effective. To accomplish our objective, we:
I.

Determined whether the method taxpayers use to file complaints against tax return
preparers with the IRS is effective and reduces taxpayer burden.
A. Determined whether guidance for taxpayers lodging a complaint and for IRS
employees handling a complaint against a tax return preparer is clear.
B. Determined whether IRS employees provide consistent responses when guiding a
taxpayer on reporting a complaint against a tax return preparer. We placed 10 calls to
the IRS main toll-free telephone number (1-800-829-1040) between September 19
and September 23, 2008. We also visited five judgmentally selected TACs1 in
Atlanta, Georgia; Austin, Texas; Houston, Texas; San Diego, California; and
Washington, D.C., between June 12 and September 4, 2008. To conserve audit
resources, we selected TACs in cities where we were conducting other audit work.
C. Determined whether the decision to discontinue “live” services was effective.

II.

Determined whether the process the IRS uses to handle, track, and control complaints is
effective in stopping problematic tax return preparers from preparing tax returns.
A. Determined responsibilities of staff in the Wage and Investment Division, Small
Business/Self-Employed Division, Criminal Investigation Division, and Office of
Professional Responsibility for processing complaints.
B. Determined procedures used to process complaints received, retained, forwarded, and
destroyed and actions to be taken to document the volumes.
C. Determined procedures used to evaluate complaints to determine next action (retain,
forward, destroy).
D. Determined whether a numbering or tracking system exists for each complaint
received to identify duplicate and multiple complaints received for processing and
historical data.
E. Determined whether the IRS provides an acknowledgement to taxpayers who submit
complaints.

1

An IRS office with employees who answer questions, provide assistance, and resolve account-related issues for
taxpayers face to face.

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F. Reviewed documentation maintained to determine the format of (Form or letter) and
reasons for complaints. Because the IRS could not identify the total population of
complaints, we could not select a statistical sample. We selected a judgmental
sample of paper tax return preparer complaints currently in inventory in the following
sites between August 18 and September 3, 2008 (total sample = 50 complaints):
1. Fresno, California – Wage and Investment Division; sample size = 16.
2. Austin, Texas – Small Business/Self-Employed Division, Examination and Return
Selection function; sample size = 16.
3. Houston, Texas, and Atlanta, Georgia – Small Business/Self-Employed Division,
Examination Gulf States Area Planning and Special Programs function/Return
Preparer Program Coordinator; sample size = 7.
4. Washington, D.C. – Office of Professional Responsibility; sample size = 11.
G. Determined whether the IRS could identify the disposition of tax return preparer
complaints received from January 1 through December 31, 2007. The IRS could not
provide us information on complaints received during this time period. However, we
obtained an extract of the database used by the Office of Professional Responsibility
to track cases under its jurisdiction. The extract included information for cases closed
between January 1 and September 3, 2008, that were based on taxpayer complaints.
We did not assess the reliability of the extract because we were only determining
whether the closed cases resulted in actions being taken against practitioners.

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Appendix II

Major Contributors to This Report
Michael E. McKenney, Assistant Inspector General for Audit (Returns Processing and Account
Services)
Augusta R. Cook, Director
Paula W. Johnson, Audit Manager
Lynn Faulkner, Lead Auditor
Robert Howes, Senior Auditor
Jerome Antoine, Auditor

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Appendix III

Report Distribution List
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Assistant Deputy Commissioner for Services and Enforcement SE
Commissioner, Small Business/Self-Employed Division SE:S
Commissioner, Wage and Investment Division SE:W
Director, Office of Research, Analysis and Statistics RAS
Chief, Criminal Investigation Division SE:CI
Director, Office of Professional Responsibility SE:OPR
Director, Office of Program Evaluation and Risk Analysis RAS:O
Director, Communications and Liaison, Wage and Investment Division SE:W:C
Director, Communications, Liaison, and Disclosure, Small Business/Self-Employed Division
SE:S:CLD
Director, Customer Account Services, Wage and Investment Division SE:W:CAS
Director, Customer Assistance, Relationships, and Education, Wage and Investment Division
SE:W:CAR
Director, Examination, Small Business/Self-Employed Division SE:S:E
Director, Refund Crimes, Criminal Investigation Division SE:CI:RC
Director, Strategy and Finance, Wage and Investment Division SE:W:S
Chief, Performance Improvement, Wage and Investment Division SE:W:S:PI
Director, Accounts Management, Wage and Investment Division SE:W:CAS:AM
Director, Exam Planning and Delivery, Small Business/Self-Employed Division SE:S:E:EPD
Director, Exam Policy, Small Business/Self-Employed Division SE:S:E:EP
Director, Field Assistance, Wage and Investment Division SE:W:CAR:FA
Field Director, Accounts Management (Fresno), Wage and Investment Division
SE:W:CAS:AM:F
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaisons:
Deputy Commissioner for Services and Enforcement SE
Commissioner, Small Business/Self-Employed Division SE:S
Commissioner, Wage and Investment Division SE:W
Chief, Criminal Investigation Division SE:CI
Director, Office of Professional Responsibility SE:OPR
Senior Operations Advisor, Wage and Investment Division SE:W:S
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Appendix IV

How Do You Report Suspected
Tax Fraud Activity?

Source: IRS public Internet site, IRS.gov.

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Appendix V

Management’s Response to the Draft Report

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