The IRS Is Coming for Sloppy Preparers: Is Your Paper Trail Ready?

An inspector general just told the IRS it isn’t policing return preparers well enough, and the IRS agreed to fix that. If you run a small tax practice, the fix will land on you.

On October 21, the Treasury Inspector General for Tax Administration (TIGTA) released a report with a blunt title: The IRS Must Do More to Address Noncompliance and Potential Misconduct With Return Preparers. The numbers should get any practitioner’s attention. More than 38,000 preparers used noncompliant PTINs, such as expired ones, to prepare over 2.2 million returns in processing year 2025. Nearly 12,000 of them filed about 95,000 individual returns that together claimed almost $600 million in refunds.

If you do honest work, your first instinct is probably that this isn’t about you. Mostly, it isn’t. But when a regulator gets embarrassed by an inspector general, the response is rarely surgical. It is usually more data matching, more outreach, and more scrutiny of everyone who touches a return. The firms that come through that well are the ones that can produce clean paperwork on request.

What TIGTA Actually Found

TIGTA’s findings point at three kinds of problems, and it helps to know which one is which.

• PTIN problems. The 38,000-plus preparers with noncompliant PTINs filed more than 2.2 million returns. TIGTA is careful to note that a PTIN issue alone doesn’t make a return invalid or fraudulent. It is a risk flag, not a verdict.

• Overstated withholding schemes. Across tax years 2023 and 2024, about 2,044 preparers were potentially involved in schemes that inflate withholding to generate refunds. They prepared 78,530 returns seeking over $740 million, and about 84% of those preparers were uncredentialed.

• Ghost preparers. These are paid preparers who don’t sign returns or supply a valid PTIN. TIGTA tied about $179 million in refunds to them across the same two years: 47 potential ghost preparers and 6,352 returns in 2023, then 65 and 6,444 in 2024.

• ☐ Every preparer’s PTIN is renewed. PTINs expire each December 31. An expired PTIN is exactly what TIGTA counted as noncompliant. Check seasonal hires and reviewers too, not just the people on your masthead.

• ☐ Every paid preparer signs and shows a PTIN on every return they prepare. No exceptions for drafts that “just need a quick look.” Unsigned work is how ghost preparing starts.

• ☐ Your EFIN is current and your e-file contacts are up to date. Mail and email the IRS sends about suitability or compliance go to those contacts.

• ☐ Credential status is documented for each preparer. Know who is a CPA, EA, or attorney, who holds an AFSP record of completion, and who has none of those. TIGTA noted that most of the overstated withholding preparers it flagged were uncredentialed.

• ☐ Form 8867 due diligence is built into the workflow for EITC, child tax credit, additional child tax credit, credit for other dependents, American opportunity credit, and head of household returns. Keep the records for three years.

• ☐ A withholding sanity check exists. Any return where reported withholding looks out of line with the W-2, 1099, or pay stub triggers a second look before filing. Make Form 4852 substitutes a mandatory owner-review item.

• ☐ Refund-only clients get a flag. TIGTA singled out preparers who only prepare refund returns. If a client’s whole relationship with you is a refund, document why the refund is supportable.

• ☐ Fees don’t depend on the size of the refund, and nobody in the firm touches a client’s refund check. Circular 230 restricts contingent fees on original returns and bars endorsing or negotiating client refund checks.

• ☐ New hires are verified before their first return. Confirm PTIN status, credentials, and any prior preparer discipline, and make sure no one on staff prepares returns on the side.

• Expect slower resolution. If a notice arrives, the fix may take months. Set that expectation in your engagement letter and your January client email.

• Make your signature mean something. Tell clients that every return you prepare is signed with your PTIN, and that a preparer who won’t sign is a red flag. That one sentence is free marketing against ghost preparers.

• Warn clients about refund-driven shortcuts. Some of them will have used or been pitched by someone running an inflated-withholding scheme. Ask the question at intake, and document the answer.

The report also found that the IRS had no process to stop its own employees from getting PTINs, and it identified 691 employees with active PTINs, more than 90 of whom may have prepared returns for pay. The IRS also issued or renewed 73 PTINs for ineligible people, including deceased individuals and prisoners. The agency called that 0.0032% of the 2.28 million issued from 2010 to 2025, and pointed to its new digital identity verification at application.

TIGTA’s one recommendation is that the IRS finalize and implement a data-driven return preparer strategy covering outreach, penalty considerations, employee PTIN policies, scheme promoters, and ghost preparers. The IRS agreed. Drafting began in June 2026.

The Pre-Season Preparer Compliance Checklist

Run this before the first return goes out in January. It takes an afternoon, and every item is something an examiner, a client, or a malpractice carrier could ask about.

Build a Paper Trail That Holds Up

If the IRS or a client ever questions a return, the question comes down to one thing: can you show what you knew, when you knew it, and what you did about it? Four documents carry most of that weight.

1. The engagement letter. It should say who is responsible for what: the client for the accuracy and completeness of the information, the firm for preparing the return from it. Spell out what you will and won’t verify, and what happens when the client can’t or won’t supply support.

2. The due diligence file. For credits that require it, Form 8867 is the start, not the finish. Add the questions you asked, the answers you got, and the documents you reviewed, dated and initialed.

3. The client document record. Keep what the client gave you, not just what you keyed. If a pay stub shows $0 withholding and the return claims $8,000, the file should show you caught it and what the client said.

4. The reviewer’s sign-off. A dated, initialed review step with a short checklist, kept in the file. This also happens to be the first building block of a delegation system, which is a story for another article.

None of this is glamorous. All of it is cheaper than a single penalty letter, and it sends a quiet message to clients that your firm does not cut corners to chase a bigger refund.

What a Stretched IRS Means for Your Clients

Days after the preparer report, TIGTA published its annual list of the seven biggest challenges facing the IRS, and the two stories belong together. The IRS cut staff by about 30% and its budget by about 20% last year. TIGTA’s concerns on taxpayer service include the knowledge of phone representatives and the limits of the agency’s chatbots, and it says identity theft victims face long waits for an assistor. It also notes that audit rates are dropping and that many audits end in no change.

An agency with fewer people and a political mandate to show it is policing preparers will lean on data matching: PTIN records, signature fields, refund patterns, and credential status. That favors firms with clean records and punishes the ones that look like the outliers.

It also changes what you tell clients going into the season.

Do This Week

Pull your PTIN list and check every expiration date. Make sure every preparer, including seasonal staff, is on it. Then pick the three highest-risk return types in your practice, probably EITC, head of household, and anything refund-only, and spot-check last year’s files against the checklist above. What you find tells you where your paper trail has holes while there is still time to fix them.

The IRS says it is building a data-driven preparer strategy. Be the firm whose data looks boring.