Wednesday, December 19, 2012

The Tax Man Cometh

The Tax Man Cometh: What to Expect in an IRS Visit

November 27th 2012 by Intuit Staff

For the third year in a row during the 2012 tax return season, the IRS sent letters and scheduled visits with thousands of tax return preparers nationwide. These annual letters and visits are part of the IRS’ ongoing compliance initiative to improve the accuracy and qualify of filed tax returns and to heighten awareness of preparer responsibility. And, while the focus of the letters and visits may change, tax practitioners can anticipate another round of letters and visits during the 2013 filing season.

During both the 2011 and 2012 tax return seasons, the IRS focused on tax return preparers who prepared a large number of individual returns with Schedules A (Itemized Deductions), C (Profit or Loss from Business) or E (Supplemental Income and Loss) in the prior year. In November 2010, the IRS sent more than 10,000 letters to selected preparers and scheduled visits with about 2,500 preparers between December 2010 and the end of April 2011. In November 2011, approximately 25,000 preparers nationwide received missives from the IRS, with about 2,100 visits scheduled through April 15, 2012.

You’ve Got Mail

According to the IRS, the purpose of the preparer letters is to heighten awareness of preparer’s responsibilities, the consequences of filing incorrect returns and tax return preparer requirements. The letters include enclosures that outline common issues preparer’s should be aware of on the targeted schedules.

Preparers are not required to respond to the IRS letters—but may want to prepare for the possibility of an in-office visit.

You’ve Got Company

Based on past experience, upwards of 2,000 preparers who receive letters can expect a visit from the IRS. An IRS agent will call selected tax return preparers in advance to schedule the date and time of the visit. The agent will then send a letter confirming the visit.

According to the IRS, the purpose of the preparer visits is to:

  • confirm that tax return preparers are complying with current preparer requirements, including the maintenance of records and signing and furnishing of PTINs on returns; and
  • provide information on return preparer requirements.

The IRS says that no advanced preparation is required for an IRS visit, but the IRS will request that you have available tax forms for you prepared for clients in the prior year and e-file transmission documents for returns that were filed electronically.

Nonetheless, an advance review of your office procedures may be in order. The IRS says that during an office visit, IRS revenue agents will be determining whether a tax return preparer:

  • provided the client with a copy of the tax return,
  • signed the return as required by regulations,
  • furnished an identification number as required by regulations,
  • retained a copy or list of returns and claims as required by regulations,
  • filed correct information returns,
  • properly refused to endorse or negotiate taxpayer refund checks, and
  • properly safeguarded taxpayer information.

If violations are found, the revenue agent may, with managerial approval, determine that it is appropriate to impose penalties on the preparer.

On the other hand, the IRS emphasizes that the focus of visits is on return preparer activity, not on taxpayer reporting compliance. Inspection of clients’ returns is to ensure the tax return preparer’s compliance with the preparer requirements. Contacts with clients resulting from these visits will be to confirm potential violations by the return preparer that may result in penalties against the preparer.

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