IRS cleared potentially ineligible providers for e-file program

The IRS approved providers for its electronic filing program that should have been flagged for tax compliance issues, criminal histories and unverified citizenship status, a new watchdog report found.

In reviewing a sample of the 116,000 e-file provider applications submitted to the IRS from January 2022 to March 2025, the Treasury Inspector General for Tax Administration discovered “programming errors, procedural updates, and unaddressed suitability issues” that led to the approval of applicants that may have been ineligible for the program.

Authorized e-file providers are third parties that offer clients certain services that are required to file federal tax returns electronically. The agency’s e-file program allows those providers to submit non-paper return data for individual customers and businesses.

Once approved for the e-file program, those providers — referred to in the report as Responsible Officials — are given a unique Electronic Filing Identification Number. 

An EFIN is required to electronically file tax returns, and can only be given to individuals who are at least 18, are U.S. citizens or lawful permanent residents, and have met state and local requirements for tax preparers. They must also be fingerprinted to ensure “no criminal activity exists that would render them ineligible to participate” in the program.

But in TIGTA’s review of a statistically significant sample of 138 Responsible Officials, it found 14 cases where “suitability issues” were either not addressed by an IRS employee or not caught by agency systems. 

The IRS’s External Services Authorization Management (ESAM) system is used to process all e-file applications and identify potential eligibility problems. If suitability issues with an e-file applicant are raised, the agency’s Automated Suitability Analysis Program (ASAP) reviews the information and determines whether they meet compliance standards. If cleared by ASAP, the applicant receives an EFIN number and can electronically file returns.

Of the 14 providers advanced through the IRS’s system, eight were found by the watchdog to have tax compliance issues — they either owed balances or had a delinquency status due to not filing all required returns. Another three had fingerprints that came up in a criminal history report, while two more didn’t have fingerprint data on file, so no criminal history check could be made. And one applicant’s citizenship was not verified. 

“According to the IRS, these issues should have been identified during continuous suitability,” the report said. “However, the systems did not always create a case where the Responsible Official was noncompliant. Additionally, when the system did create a case, tax compliance issues went unaddressed by an IRS employee.”

All told, TIGTA found roughly 6,300 Responsible Officials whose citizenship status was unknown, but the watchdog noted that that was likely attributable to incomplete Social Security Administration data provided to the IRS. Additionally, the Treasury IG found that 67 IRS staffers were listed as Responsible Officials on e-file applications — even though agency employees are barred from doing non-IRS tax preparation work for profit.

The watchdog delivered five recommendations to the IRS aimed at improving suitability reviews for e-filers. The tax agency agreed with four and partially agreed with one involving citizenship verification. That recommendation, the IRS said, “would not effectively address the issue due to known limitations in the accuracy and timeliness of citizenship data.”