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Inspector General: Gaps in IRS Tax Preparer Liability Strategy

According to a recent report by the U.S. Treasury Inspector General for Tax Administration, the IRS lacks a uniform strategy to hold accountable unregulated tax preparers who commit misconduct. The report was released on July 25, 2018, and it calls on the IRS to better use its resources to identify and respond to tax preparers who engage in unlawful practices.

IRS tax preparer liability

Under IRS rules, a tax preparer can be held liable for intentional or unintentional misconduct including:

  • Understating taxpayer liability
  • Promoting illegal tax shelters
  • Failing to furnish a tax preparer identification number

However, in 2017, the IRS lost a class action lawsuit filed by tax preparers; the ruling stated that the IRS could not charge tax preparers an annual fee to renew their preparer tax identification numbers because the IRS does not have the authority to regulate tax preparers.

The Treasury Inspector General addresses this ruling and asserts that IRS has other, non-utilized, means to hold tax preparers accountable such as the ability to identify those with suspicious records (i.e. those for whom 100% of taxpayer clients claim a refund).

It is important to keep in mind that the IRS can regulate tax fraud so tax preparers can still face substantial fines and penalties for false statements.

What IRS misconduct procedures means in Maryland

Maryland is one of only four states (along with California, New York, and Oregon) that does regulate tax preparers. Unlike the IRS, the state licensing board can enforce tax preparer liability sanctions.

Consumers need to be diligent in reviewing their state and federal tax filings because they can be held responsible, despite the laws holding preparers liable. Tax forms include a signature affirmation that the included information is true; including false information could constitute perjury. Taxpayers who notice accidental mistakes should notify their tax preparer for correction. If the mistake appears to not be accidental, the taxpayer should report it to the Maryland Department of Labor, Licensing & Regulation.

In addition to fines and substantial penalties imposed by the IRS, tax preparers could face crippling punishment by the state. Maryland can suspend the license of a sloppy or unscrupulous tax preparer, causing them to lose clients, and in recent years it has taken to publishing those whom it has found to engage in misconduct.

Speak with a Baltimore tax attorney about your tax returns

If you suspect your tax preparer has not acted properly or you are facing an audit, speak with a Maryland tax attorney at Rosenberg Martin Greenberg. Tax improprieties can lead to long-term consequences; prepare yourself by consulting with one of our expert tax lawyers today.

Additional resources on Maryland tax preparer liability:

  1. irs.gov, Summary of Preparer Penalties under Title 26, https://www.irs.gov/tax-professionals/summary-of-preparer-penalties-under-title-26
  2. Maryland Department of Labor, Licensing & Regulation, Maryland Board suspends, fines unqualified tax preparers – Individual Tax Preparers, https://www.dllr.state.md.us/license/taxprep/taxprepnewsalert.shtml
  3. gov, Treasury Inspector General For Tax Administration: The Internal Revenue Service Lacks a Coordinated Strategy to Address Unregulated Return Preparer Misconduct, https://www.treasury.gov/tigta/auditreports/2018reports/201830042fr.pdf

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Rosenberg Martin Greenberg

705 Melvin Avenue Annapolis, MD 21401
Phone: 410-727-6600
Map & Directions