IRS 2011 Preparer Letters and Visitation Program
On Nov. 22, 2010, the Internal Revenue Service sent out more than 10,000 letters to tax return preparers nationwide to remind them of their obligation to prepare accurate tax returns on behalf of their clients. The letters were sent to a pool of paid preparers who complete large volumes of tax returns with Schedules A, C or E.
During the 2011 filing season, IRS representatives will visit approximately 2,500 tax return preparers who received these letters to further discuss their responsibilities as a return preparer and to verify their compliance with existing return preparer requirements. This is the agency’s second year of a hands-on effort to improve the accuracy and quality of filed tax returns and to heighten awareness of preparer responsibilities.
IRS Letters and Visits to Return Preparers - FAQs Filing Season 2011
AICPA Response
The American Institute of Certified Public Accountants told the Internal Revenue Service that tax preparers who will be visited under the IRS’s 2011 compliance program need clarification about how client confidentiality will be protected, what client records may be requested, what files are required to be shared, whether the visit might result in an examination of the preparer and whether penalties might be imposed on tax preparers. The IRS plans to visit 2,500 tax preparers in 2011 under its Preparer Letters and Visitation Program. The 2,500 tax preparers will be chosen from among 10,000 preparers to whom the IRS sent letters in late November.
The AICPA identified client confidentiality as a critical concern. The letter said, “We believe that requesting to review client files is inappropriate unless an examination of the preparer is opened.” Many CPAs have confidentiality policies that require them to notify clients in order to get their consent before allowing IRS to review clients’ documents, the AICPA said, and the IRS’s “proposed in-office review of client documents would be an end-run around this practice….”
Furthermore, the AICPA said its members believe that requiring tax preparers to have all their 2009 files available for review is “unduly burdensome” and that if the IRS “insists upon review of the actual client files, these files should be identified and agreed upon prior to the office visit.” For CPA firms that are completely or partially paperless, the AICPA said it is difficult to make electronic client files available without giving the IRS access to the firm’s computer systems. The AICPA said the IRS visits will be more productive and efficient if the preparer has advance notice of the likely topics of focus so that tax preparers can be ready to answer questions about a specific return.
The IRS should identify the method used to select the preparers, as the IRS does for its compliance checks of taxpayers. For example, whether they are selected at random or through the use of other parameters, the AICPA said.
AICPA Formal Response letter to IRS regarding 2011 Visitation Program
NAPLIA FAQ's
NAPLIA discussed the IRS Tax Preparers Visitation Program with Attorney Ralph Picardi to address specific concerns of our accounting clients.
Q: Does an accounting firm need to notify their professional liability insurance carrier after receiving a letter from the IRS Tax Preparers Visitation Program?
A: No. Receipt of the letter is not an indication of any wrong doing on the part of the accountant, nor reflection of a potential claim. However, if a NAPLIA client has concerns about the IRS visit, they may contact my office to discuss any potential issues1. If during the course of the visit or in correspondence with the IRS agent, you feel it is going beyond the scope of a simple review, you may be prudent to have an attorney present, and insurance carrier notification might be warranted.
Q: Should I seek a summons or subpoena prior to allowing the IRS agent access to client files?
A: Generally a summons or subpoena would be preferable to just handing over client files. Voluntarily providing client files may violate your client's rights and create a liability. A subpoena or summons would protect your exposure as you would be required to comply.
If the IRS agent asks for specific client files or access to client files and will not produce a subpoena or summons, ask specifically under what IRS code or regulation the IRS agent is allowed to have unrestricted access. When possible this should be done in writing.
Q: Does IRC 7216 prevent the IRS from this type of access?
A: No the IRC 7216 has several exceptions including disclosure to an officer or employee of the IRS. However, it has been widely believed to this point that this exception was intended for scenarios where the IRS is seeking tax returns for named individuals.
I understand some tax preparers are preparing a letter in advance of the IRS agent’s visit that states their willingness to provide details on how they prepare tax returns, the collection of information and other internal questions about their practice. The second part of the letter then states their desire to keep client tax returns confidential and they would like any requests for specific client returns to be under subpoena or summons.
1 Service limited to active clients of North American Professional Liability Insurance Agency, LLC
This information is intended solely for general educational purposes. It is not intended for the purpose of providing specific legal, accounting, or other professional advice to any particular recipient or with respect to any particular jurisdiction. The author, publisher, and distributor of this document (1) make no representations, warranties, or guarantees as to its technical accuracy or compliance with any law ( federal, state, or local) or professional standard; and, (2) assume no responsibility to any recipient of this document to correct or update its contents for any reason, including changes in any law or professional standard. Before using any engagement letter in your practice, you should formally retain the counsel of an attorney knowledgeable as to the accounting industry, your practice, and the laws of any jurisdiction(s) within which you conduct your practice to ensure the document’s maximum usefulness and compliance with applicable laws and professional standards.
