IRS Takes Action to Ensure Accurate Tax Preparation by Preparers
The IRS has been sending out letters to income tax preparers for the past few years reminding them of their obligation to prepare accurate tax returns on behalf of their clients. During the month of November, the IRS started sending out letters to more than 21,000 tax preparers across the country. The reason for these letters is because the returns Tax preparation prepared during the past tax season have shown a high percentage of inaccuracies and misinterpretations of the tax law. The agency will be focusing on preparers who prepared a large number of individual returns with Schedules A (Itemized Deductions), C (Profit or Loss from a Business), and E (Supplemental Income or Loss) during the past filing season.
The letter contains an enclosed documents related to Schedules A, C and E. The documents address some tax issues that the IRS review considers to have been misunderstood or misinterpreted.
Tax return preparers are expected to be knowledgeable in tax law. They are expected to take the necessary steps to file an accurate return on behalf of their clients. These steps include reviewing the applicable tax law, and establishing the relevancy and reasonableness of income, credits, expenses and deductions to be reported on the return.
In general, preparers may rely on good faith client-provided information. However, they can not ignore reasonable inquires if the information furnished by their client appears to be incorrect, inconsistent with an important fact or another factual assumption, or is incomplete. Tax preparers must make appropriate inquiries to determine the existence of facts and circumstances required as a condition of claiming a deduction or a credit.
Both the tax preparer and their clients may be adversely affected by incorrect returns. These consequences may include any and all of the following:
- If their client’s returns are examined and found to be incorrect, they (the client) may be liable for additional tax, interest and penalties.
- Preparers who preparer a client’s return for which any part of an underestimate of tax liability is due to an unreasonable position can be assessed a penalty of at least $1,000 per tax return.