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With the passage of the tax reform legislation known as the Tax Cuts and Jobs Act and as the 2018 filing season approaches, we thought it would be a good time to review where we stand on several issues related to the preparation of tax returns.
TAS Successfully Advocates for Removal of Preparer Tax Identification Number (PTIN) Holder Email Addresses from Electronic Reading Room
In an effort to comply with the Freedom of Information Act (FOIA), the IRS posts PTIN application and renewal information in downloadable format online in its Electronic Reading Room (ERR). Before December 1, 2017, the public PTIN information included the email addresses of PTIN holders. Unfortunately, cyber thieves have been using the downloadable list of email addresses to send “spear phishing” emails to tax return preparers en masse. The spear phishing email is drafted to appear as if it was sent by a friend, customer, or company. If the email recipient clicks on a link embedded in the spear phishing email, the cyber thieves are able to remotely take over the preparer’s computer system through the use of viruses and malware and gain access to confidential tax return information of the preparer’s clients. In response to this issue, the IRS has repeatedly issued press releases warning tax professionals about the spear phishing scheme and recommending a series of computer security measures preparers should take to avoid becoming a victim. It has also announced that enrolled agents and Annual Filing Season Program (AFSP) participants can now earn continuing education (CE) credit for programs covering data security and identity theft topics.
TAS was instrumental in curbing this serious problem for preparers and their clients. Several practitioners contacted our office to voice their concerns over the risk the IRS was creating by posting email addresses online in a downloadable format. We advocated internally for the IRS to remove the email addresses from the ERR by meeting with the IRS Office of Chief Counsel and the Return Preparer Office to determine whether FOIA does, in fact, require the IRS to release the preparers’ email addresses. After Chief Counsel determined that FOIA does not require such disclosure, on December 1, 2017, the IRS removed the email addresses from the ERR. However, the problem is not immediately solved. Cyber thieves who already downloaded the information prior to December 1, 2017 may continue to send spear phishing emails. In the meantime, preparers should take precautions recommended by the IRS to avoid becoming a victim of these schemes.
TAS Toolkit Provides Useful Information to Taxpayers on Choosing a Preparer
Through our toolkit, TAS continues to provide useful information and tips to taxpayers about choosing a tax return preparer. For example, we provide a link to the IRS public database of preparers. The preparer database includes attorneys, Certified Public Accountants (CPAs), enrolled agents, enrolled retirement plan agents, and enrolled actuaries with valid PTINs, as well as AFSP participants with valid records of completion. The toolkit also provides a link to locate free tax return preparation services through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.
The TAS toolkit also provides links to the following:
Demand for Refund Anticipation Loans (RALs) is Once Again on the Rise
The demand for refund anticipation loans is once again on the rise after the implementation of §201 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). This provision requires the IRS to hold all refunds that include Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until February 15th. Some lenders are now offering “no-fee” RALs. The loans are limited in amount and generally do not cover the entire anticipated refund. With no-fee RALs, the taxpayer does not directly pay a fee or incur any interest charges for the loan. The preparer pays the loan fee to the financial institution. The no-fee RAL differs from those offered in the past as they are now non-recourse loans, meaning that the taxpayer is not liable if the IRS does not release the entire anticipated refund in a timely manner. On its face, it appears that the financial institution takes the greatest risk with this new refund product. However, the taxpayer does not necessarily walk away from the deal without any consequences if the IRS fails to release part or all of the refund, because the taxpayer may be subject to taxation on cancellation of debt income.
We are continuing to scrutinize these products because we are concerned about the possibility of hidden fees passed onto taxpayers as well as the increased tax noncompliance associated with these products. In the meantime, we believe taxpayers should be very cautious about entering into a RAL. If immediate access to the anticipated refund is essential, we encourage the taxpayer to carefully read the loan documents and to ask detailed questions about all fees as well as the consequences if the IRS fails to release the entire refund in a timely manner.
The IRS is Developing an Online Account for Tax Professionals and Must Make Policy Decisions on Restricting Access
The IRS is in the process of developing a prototype for the online account application for third parties such as preparers (tentatively referred to as “Tax Pro”). The IRS conducted focus groups on Tax Pro during the 2017 IRS Nationwide Tax Forums, during which tax professionals, not just limited to practitioners subject to Circular 230 oversight, tested the account and provided suggestions on how to make more navigable, easy to understand, and recommended future capabilities. While we are generally supportive of the IRS development of Tax Pro, we also believe the IRS must make some critical policy decisions about third party access to the system before it progresses too much further designing features for online applications.
I strongly urge the IRS to restrict third party access to online account applications to only those practitioners subject to IRS oversight under Circular 230. These practitioners include attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents. I will expand my recommendation to also include preparers who have obtained the voluntary AFSP Record of Completion once the IRS strengthens the testing requirements in the AFSP. Although the vast majority of tax return preparers are conscientious and ethical, there is a subset of tax return preparers who are negligent or commit refund fraud. Without instituting safeguards on third party access early in the development of the online applications, the IRS could inadvertently perpetuate and facilitate preparer misconduct.
Professionals Must Re-Register for e-Services Application
e-Services is an online application for professionals that includes such tools as e-file Application, Transcript Delivery System, and Taxpayer Identification Number Matching. As many of you may already be aware, beginning on December 10, 2017, the IRS is requiring all e-Services users to re-register and pass Secure Access e-authentication requirements before gaining access to their accounts. The IRS has provided useful tips on how to navigate the e-authentication process as well as how to request exception processing.
2017 Annual Report to Congress Scheduled to Release in Early January 2018
Finally, I want to take this opportunity to remind you that I will release my 2017 Annual Report to Congress in early January 2018. We are all very busy putting the final touches on the Report, so this will be the last blog for 2017. We’ll meet back up on January 10th, with the release of the Annual Report!
I wish everyone a happy and peaceful holiday season!
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.
