IRS tries to crack down on noncompliant tax preparers

• Key insight: Uncover how uncredentialed tax preparers are exploiting gaps in IRS regulatory oversight.
• What’s at stake: Taxpayers and the federal treasury face financial exposure from uncredentialed preparer schemes.
• What’s coming: The IRS’s planned implementation of a data-driven return preparer strategy.

The Internal Revenue Service’s limited ability to regulate uncredentialed tax preparers is leading to misconduct and tax fraud, according to a new report.

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The report, released Friday by the Treasury Inspector General for Tax Administration, noted that over half of individual taxpayers used a paid tax return preparer, according to recent IRS data. Last year, over 38,000 tax return preparers used noncompliant Preparer Tax Identification Numbers (such as expired PTINs) to prepare more than 2 million tax returns. Of these preparers, nearly 12,000 filed around 95,000 individual tax returns claiming nearly $600 million in refunds. These 12,000 tax preparers only prepared tax returns requesting refunds, which TIGTA believes presents a risk. 

“Return preparers are critical to tax administration and provide a unique opportunity to impact taxpayer behavior and compliance with tax laws,” said the report. “It is imperative that the IRS effectively regulate return preparers.”

Additionally, the IRS lacked a process to prevent current employees from obtaining PTINs, despite regulations and IRS guidance prohibiting employees from preparing tax returns for compensation, gifts or favors. TIGTA identified 691 IRS employees with active PTINs, more than 90 of whom may have prepared returns for compensation.

The IRS’s limited authority to regulate uncredentialed preparers poses compliance risks. Despite IRS efforts to educate taxpayers about tax schemes, some preparers continued to promote schemes involving overstated withholding, potentially contributing to hundreds of millions of dollars in lost revenue.

For tax years 2023 and 2024, preparers filed returns containing characteristics of an overstated withholding scheme that claimed approximately $740 million in refunds. Approximately 84% of these preparers were uncredentialed. 

TIGTA also identified ghost preparers (return preparers who don’t put their PTIN on the tax returns they prepare) who prepared tax returns with the same potentially fraudulent characteristics and claimed refunds of approximately $179 million.

A recent report from the Government Accountability Office urged the IRS to crack down on ghost preparers.

TIGTA also found that between 2010 and 2025, the IRS issued or renewed PTINs for ineligible tax return preparers. For example, 73 PTINs were issued or renewed for deceased individuals and prisoners. 

TIGTA recommended that the IRS finalize and implement its data-driven return preparer strategy. The report said the strategy should address preparer outreach and penalty considerations, employee PTIN policies, scheme promoters and ghost preparers. The IRS agreed with TIGTA’s recommendation.

“While the IRS acknowledges the finding that some PTINS were issued to deceased individuals and prisoners between 2010 and 2025, it is important to note that more than 2.28 million PTINs were issued during that period, with the 73 PTINs identified by TIGTA representing approximately 0.0032% of all issuances,” wrote Christopher Pleffner, director of the Tax Professional Management Office at the IRS, in response to the report. “While any improper issuance is important to address, this context reflects the overall effectiveness of the program. The implementation of SADI [Secure Access Digital Identity] further improves accuracy by strengthening identity verification at the point of application.”

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