It’s that time of year again for updates acknowledging what to expect in your tax situation for 2018. The IRS has some new and reiterated information from Tax Cuts and Jobs Act (TCJA) that is important for tax preparer’s due diligence and taxpayer’s tax situations along with some basic steps to prepare this tax season. The IRS is putting a “firm” handle on taxpayers and preparers this go around by issuing huge penalties to taxpayers not properly claiming the credits they are ELIGIBLE for and tax preparers for not properly executing the due diligence necessary to ensure that their clients properly qualify for these tax credits.
Because certain credits such as CTC, AOTC, EITC, Credit for Other Dependents or ODC (new from TCJA), incorrect filing status (i.e. filing as Single instead of HoH), Marketplace and employer sponsored health insurance coverage, and claiming unqualified dependents that don’t meet the “test” criteria, are just a few areas that have been the disproportionate reason so many tax returns were being held for extensive review periods. Not to mention the hike in the number of tax fraud cases based on the many IRS audits performed over the last few years. So many returns came back with mismatched information due to differing amounts reported by tax payers, incorrect data input or missing information (on both the tax payer and preparer), and tax preparers improperly documenting the necessary validation questions or not asking the right questions or tax payer giving vague or elusive answers during due diligence process.
This tax season the IRS strongly encourages both tax payers and paid preparers to be aware of these areas of danger to prevent any future IRS tax penalties to be incurred.
The best way to ensure to have everything needed at the tax interview are:
- Complete an intake form before OR at the time of tax appointment so that session time is minimized and creates a basic checklist of what documents to have readily available. (Intake forms can be sent electronically by email or text so ask the tax professional to send it ASAP)
- Make sure to have ALL the needed documents such as ID’s and Social Security cards of taxpayer and dependents, W2/W2G’s, Schedules A, B, and C (pertaining to itemization, other income, and expenses), direct deposit information, and ALL supporting documents for self and dependents for verification.
- Be sure to claim the proper filing status on return. (e.g. filing Single instead of Qualified Widow; updated tax software is now capable of checking claim of filing options)
- Ensure that all the required forms have a handwritten signature. (e.g. Form 8275 (Authorization/Disclosure forms)
- Make sure to write down all questions and concerns pertaining to current and future tax situations to stay abreast about the available benefits and credits to qualify for, new updates under TCJA, and general knowledge tax information.
- Ask preparer for IRS contact information to follow up on refund status, further clarification about specific IRS codes, or find out more about the Treasury Offset Program and other tax topics.
- Continue educating self about various tax scenarios that will affect many tax situations on the IRS website.
Tax preparers must take these necessary steps in their due diligence of returns by:
- Ensuring that new and existing tax clients fill out a COMPLETE tax intake form during each tax interview.
- Making sure clients have all the necessary documents at the time of tax appointment. (A reminder email or text with a list of what to bring is a proactive step)
- Making sure to ask all the necessary due diligence questions required for qualifying of tax credits, filing status, and health coverage along with other qualifying questions. (document all questions and answers)
- Making sure that all necessary forms such as Form 7216 (Use of Information) and Form 8879 (eFile Signature Authorization) have handwritten signatures (using signature pad or smartphone)
- Ensuring that all rejected returns are diligently rectified either by tax preparer and resubmitting or contacting clients with IRS rejection code and explanation within 24 hours (provide tax clients with the IRS toll free tax hotline number for further assistance)
- Continue educating self with each hands-on experience and practice tax return scenario as well as research the IRS website to be familiarized with preparer due diligence rules.
Using and applying these simple tasks can help both tax payers and preparers minimize and, hopefully, eliminate the number of anticipated tax return rejections and possible delays due to extended reviews. Let’s ensure a smoother process in 2019 by preventing erroneous mistakes made from lack of attention to detail and cognizance of ethics.