GAO recommends IRS conduct paid tax return preparer visits by videoconference

What is it? 

Under a program called the Refundable Credits Return Preparer Strategy (Strategy), the IRS identifies paid tax preparers who may not accurately comply with tax credit rules. Most often, this consists of improper claims made on tax returns for refundable credits, which include the Earned Income Tax Credit, Additional Child Tax Credit, and American Opportunity Tax Credit, and other tax benefits. The IRS estimates that 23% of the payments it issued to taxpayers in FY 2021 for refundable tax credits were made in error—costing the government roughly $26 billion in revenue.

Under this Strategy program, the IRS visits these preparers in person to educate them about compliance or request evidence of their compliance. These “knock and talk” and due diligence visits were suspended due to the pandemic and staffing shortages during FYs 2021-2022, hampering the IRS’ ability to limit the revenue lost as a result of the improper claims of refundable credits and other tax benefits.

GAO findings and recommendations

The U.S. Government Accountability Office (GAO) recently conducted a study and just released a report on its findings and recommendations. In short, it found that recent declines in the number of “knock and talk” visits and due diligence visits conducted through the Strategy program “have limited the amount of revenue IRS can protect from improper claims of refundable credits and other tax benefits.” IRS officials acknowledge that while due diligence visits and “knock and talk visits are costly, they help IRS protect millions of dollars in potentially improper claims. From FYs 2017 to 2020, the IRS estimates these visits “protected” roughly $118 million of tax revenue per year at an average cost of $3.3 million per year.

The GAO stated that both the “knock and talk’ visits and due diligence visits could resume soon by the use of videoconferencing.  “Videoconference visits could help IRS mitigate in-person restrictions in the near term and provide additional benefits over the long term such as increased flexibility, modernization of IRS compliance activities, and operational cost savings. Without plans to test videoconferencing visits with preparers, IRS will remain limited in its efforts to address preparer noncompliance. It may also miss opportunities to innovate its compliance actions and align with agency-wide efforts to expand digital services to taxpayers and professionals.”

Next steps

In summary, the GAO is made two recommendations to the IRS:

1. They should pilot test and evaluate the costs, benefits, and challenges of using videoconferencing technology for its education and compliance visits with paid preparers; and 
2. if the benefits outweigh the costs, further implement the use of videoconferencing. The IRS agreed with both recommendations.

The full report can be found here.

The GAO indicated that it will follow up with a more detailed report in the future.