Treasury Will Not Have to Tell PTIN Holders That They Are Under Investigation

The Treasury Department issued a final rule on Monday that exempts it from having to reveal to holders of preparer tax identification numbers (PTINs) the names of agencies or individuals that have asked for their files (RIN 1505-AC37). The rule is designed to prevent return preparers who are under investigation from avoiding detection and destroying evidence.

The new rule comes on the heels of reports that various forms of fraudulent activity are on the rise among tax return preparers, including a warning issued on Friday by the IRS that “unscrupulous return preparers are targeting taxpayers with limited English proficiency” to get the taxpayers to pay their Sec. 5000A individual shared-responsibility penalties directly to the return preparer instead of to the IRS.

Under 5 U.S.C. Section 552a(j)(2), the head of any government agency can exempt any system of records within that agency from certain provisions of the Privacy Act if the agency’s function involves the enforcement of criminal laws. Pursuant to that authority, Treasury is adding PTIN records to the list of records that are exempt from Privacy Act requirements.

Specifically, it is exempting itself from the provisions of 5 U.S.C. Sections 552a(e)(4)(G) and (f)(1) that allow individuals to inquire whether a system of records contains records pertaining to them.

The rationale given for this exemption in the regulations is that “[a]pplication of these provisions to the systems of records would give individuals an opportunity to learn whether they have been identified as suspects or subjects of investigation” (31 C.F.R. §1.36(d)). That, in turn, would allow them to “(i) Take steps to avoid detection; (ii) Inform associates that an investigation is in progress; (iii) Learn the nature of the investigation; (iv) Learn whether they are only suspects or identified as law violators; (v) Begin, continue, or resume illegal conduct upon learning that they are not identified in the system of records; or (vi) Destroy evidence needed to prove the violation” (id.).

The rule finalizes a rule that was proposed in 2011 and for which Treasury received no comments. The rule will be effective on March 17, 2015, the date it is scheduled to be published in the Federal Register.