As a tax resolution attorney, I understand the significance of due diligence, especially for tax preparers. Recently, I had the opportunity to listen to an insightful IRS webinar titled “The ABCs of Due Diligence.” This session, moderated by Evette Davis, a senior tax analyst, highlighted various facets of due diligence for tax preparers, including requirements, potential penalties for non-compliance, and available resources to assist tax professionals.
Christine Bass and Kyle Hatherley, both seasoned senior program analysts at the IRS, delved into the due diligence requirements when completing tax returns for clients claiming credits such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and others. They emphasized that understanding these requirements is crucial not only to ensure clients receive the credits they’re entitled to but also to avoid significant penalties.
Understanding Due Diligence Requirements
According to Treasury Regulation Section 1.6695-2, there are four key due diligence requirements that paid tax return preparers must meet when preparing returns:
1. Knowledge Requirement: Preparers need to verify the accuracy of the information provided by clients. This involves asking relevant questions to ensure that the information is correct and consistent.
2. Worksheet Requirement: Preparers must use appropriate worksheets or similar documents to calculate applicable credits based on the client’s information.
3. Completion of Form 8867: Known as the Paid Preparer’s Due Diligence Checklist, this form must be completed and submitted to the IRS with the return.
4. Record Retention: Preparers must keep copies of forms, worksheets, and any documentation used to determine eligibility for credits for a minimum of three years.
The penalties for failing to comply with these requirements are substantial. For each failure, the IRS may assess a penalty of $635. If all four requirements are unmet, that can total up to $2,540 per return—a significant amount that highlights the importance of adhering to due diligence protocols.
Consequences of Non-Compliance
The IRS is vigilant in ensuring compliance through various methods, including educational letters, phone calls, and even examinations. While not all notifications from the IRS imply a penalty, ignoring them can lead to more severe actions such as audits or penalties. Educational letters serve as reminders to review and enhance office procedures and stay updated with any changes in tax laws.
For instance, if Form 8867 is missing from an electronically filed return, the IRS sends notifications. Though this doesn’t affect processing, it serves as a compliance reminder.
Educational Opportunities and Resources
The IRS provides a plethora of resources to assist tax professionals. These include webinars, video libraries, and a dedicated Tax Preparer Toolkit on the IRS website. Free online courses offer continuing education credits and are designed to equip tax preparers with necessary skills and knowledge.
Moreover, the IRS conducts webinars throughout the year on various topics crucial for tax preparers. These not only offer educational content but also count towards continuing education credits, which are essential for maintaining one’s credentials.
Key Takeaways
The webinar underscored that due diligence is more than a checklist. It’s about ensuring the accuracy and integrity of the tax returns prepared. By asking the right questions and documenting responses, preparers can ensure compliance and avoid costly penalties.
Moreover, the IRS’s proactive approach in offering educational resources and reminders serves as a testament to its commitment to fostering a knowledgeable and compliant tax professional community.
For any tax preparer, staying informed and adhering to due diligence requirements is not just about avoiding penalties—it’s about providing the best service to clients and upholding the standards of the profession. As tax resolution attorneys, we can play a pivotal role in guiding and supporting tax professionals through this intricate landscape, ensuring they remain compliant and informed.
By
