By Ken Berry
The Internal Revenue Service (IRS) recently mailed out a letter to more than 21,000 tax return preparers reminding them of their obligations to prepare accurate tax returns on behalf of clients. The letter was targeted to professionals who filed returns in 2011 that had a high percentage of attributes typically associated with inaccuracies and misinterpretations of tax law.
The IRS states in the letter that tax return preparers are expected to be knowledgeable about tax law and to prepare accurate returns while exercising due diligence. Although return preparers may rely in good faith on information provided by clients, they can't ignore the implications of information known to be – or reasonably suspected to be – untrue, incomplete, inconsistent, or inaccurate.
The letter goes on to say that incorrect returns may trigger the following consequences:
- If a client's return is examined and determined to be incorrect, the client may be liable for additional tax, interest, additions to tax, and penalties.
- A tax return preparer who prepares a return resulting in an understatement of tax liability due to an unreasonable position may be assessed a penalty of at least $1,000 per return.
- A tax return preparer who prepares a return resulting in an understatement of tax liability due to his or her reckless or intentional disregard of the rules or regulations may be assessed a penalty of at least $5,000 per return.
In November, the IRS began a series of approximately 2,100 door-to-door meetings with tax return preparers to confirm that preparers are meeting the obligations stated in the IRS letter. This go-round of visits will conclude on April 15, 2012. If you're tagged for such a visit, an IRS representative will contact you to schedule an appointment and to provide you with additional information.
Tax preparers should protect themselves against penalties
To avoid adverse consequences, tax return preparers must demonstrate that they have met their legal obligations. If any violations are uncovered, IRS agents have the discretion to impose, with managerial approval, the appropriate penalties. In particular, preparers should ensure that they have:
- Provided the client with a copy of the tax return,
- Signed the tax return as required by regulations,
- Furnished identifying numbers as required by regulations,
- Retained a copy or list of returns and claims for refund as required by regulations,
- Filed correct information returns,
- Properly refused to endorse or negotiate a refund check that was issued to a taxpayer, and
- Properly safeguarded taxpayer information.
It's important to understand the underlying substantive law affecting tax return items of income or deduction. Professional tax return preparers must exercise due diligence in preparing or assisting in the preparation, approval, and filing of returns, documents, affidavits, or any other papers relating to IRS matters.