In addition to updating tax forms and instructions and getting its computer systems ready for the Jan. 20 start of the 2015 tax filing season, the Internal Revenue Service has been touching base with tax preparers who've had some recurring problems with some returns.
Rather than penalizing the tax pros who have filed questionable claims for clients, the IRS is, for now, opting for pre-season tax filing reminders encouraging more diligence and a little bit of homework.
In November 2014, around 2,500 preparers (according to Kiplinger Tax Letter) received letters recommending the recipients, in the IRS' words, "consider taking continuing education programs related to business income and expenses, as well as pay special attention to Schedule C accuracy in 2015."
A few courses on self-employment earnings and write-offs, notes the letter, may help the targeted preparers accurately complete Schedule C returns, filed with Form 1040 to report income and expenses of sole proprietors.
Responsibilities, consequences: In addition, the letter signed by Carol A. Campbell, director with the IRS' Return Preparer Office, recommends that the tax preparers pay special attention this filing season to Schedule C work because "both you and your clients may be adversely affected by incorrect returns."
The potential adverse effects include tax client liability for additional tax, penalties and interest, as well as tax preparer fines of up to $5,000 for the "reckless or intentional disregard of rules or regulations."
Another $1,000 fine could be assessed tax preparers who submit a client return with a due tax amount arrived at via "an unreasonable position."
Campbell also reminded the selected preparers of their professional responsibilities:
"A paid tax return preparer is expected to take multiple steps to prepare accurate tax returns on behalf of clients. These 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, you may rely in good faith without verification of information furnished by the client. However, you may not ignore the implications of information furnished to, or actually known by you. You must make reasonable inquiries if the information appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."
Campbell also acknowledged that tax preparers can "rely in good faith without verification" on information from clients when it comes to completing tax returns.
However, she noted that a tax preparer "can't ignore the implication of the information you have. You must make reasonable inquiries if the information appears to be incorrect, inconsistent or incomplete."
A similar Schedule C letter went out this month to another batch of tax preparers, advising them, too, to review all Schedule C and preparer due diligence rules.
Child related tax credit issues: Another perennial tax-filing problem area, the Additional Child Tax Credit (ACTC), also prompted IRS letters this month to more tax preparers.
Letter 5271 was sent to about 5,000 preparers (according to the National Association of Tax Professionals), recommending that the recipients review all ACTC and preparer due diligence rules. It also suggested they pay special attention to ACTC accuracy this filing season.
The child tax credit letter emphasizes Schedule 8812, which guides filers and their tax professionals through this claim process.
Preparers who got the letter also were reminded that they are responsible for ensuring that clients' returns comply with IRS requirements.
The IRS obviously is hoping that these written reminders, which serve the dual purpose of letting recipients know that the tax agency is paying attention to their filing practices, will rectify the problems with Schedule C and additional child tax credit claims.
If the written reminders don't, you can be sure the IRS will have no problem enforcing the fines it spelled out to the problematic preparers.
You also might find these items of interest: