November 12,2003

Grassley and Baucus Call for Increased Scrutiny of Paid Income Tax Preparers

GAO Study Exposes Lack of IRS Enforcement, Loss of Millions in Uncollected Penalties

(WASHINGTON, D.C.) U.S. Senate Finance Committee Chairman Chuck Grassley andRanking Member Max Baucus today released a report citing serious problems encountered byU.S. taxpayers as a result of using paid income tax preparers and lack of enforcement by theInternal Revenue Service (IRS) in resolving these problems.

Last year, Grassley and Baucus requested the General Accounting Office (GAO) conducta study into the views of taxpayers who used paid preparers. The GAO study focused on the jobperformance of those who professionally prepare income tax returns, including any problemscaused by the preparers and the subsequent actions taken by the IRS to prevent, detect, and takeaction against them. In addition, the study addressed the management challenges facing IRSoffices that interact with paid preparers, especially the Office of Professional Responsibility, andefforts taken to address those management challenges.

The findings of the GAO study include:

The GAO found that the IRS fails to collect about 88 percent of the paid preparerpenalties that it assesses, which means that of the $2.4 million in penalties assessed for 2001 and2002, the IRS only collected $291,000 or 12 percent. These figures do not account for theunknown numbers of paid preparers who should have been assessed penalties, but were notidentified.

Additionally, the GAO study included findings gathered from an outside managementconsulting firm hired by the IRS to make recommendations concerning the Office ofProfessional Responsibility. The report stated that the OPR, "…is not strategicallyfocused,…communication internally and externally is limited,…organization lacksstructure,…and management practices are underdeveloped."

Comment of Chairman Grassley:

“Clearly people benefit from paid preparers, but there are some bad apples in the bunch.The IRS and Congress need to do more to make sure the bad apples are tossed out of the basket.The IRS should be more aggressive, and Congress should give the IRS the right tools to go afterthe problem. While a lot of paid preparers take you by the hand and guide you through the taxcode, others take you to the cleaners. That’s unacceptable.”

Comment of Ranking Member Baucus:

"I hope this GAO report serves as a wake- up call for the IRS. It's time that we not onlytalk the talk, but walk the walk when it comes to tax compliance -- especially at a time when taxpractitioner ethics ha ve been called into question because of the accounting profession's role in

corporate collapses such as Enron's and the selling of abusive tax shelters. It's time for the IRSto put some teeth into the Office of Professional Responsibility and make enforcement of paidpreparer's actions a high priority."

To weed out those paid preparers who fail to follow the law, Chairman Grassley andSenator Baucus plan to include provisions to address the concerns raised in the GAO report aspart of the Tax Administration Good Government Act, which the Committee expects to markupin the near future.