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Tax Return Preparation

What You Should Know About Tax Return Preparers

IRS Criminal Investigation Return Preparer Program ( RPP ) was implemented in 1996, and established procedures to foster compliance by identifying, investigating and prosecuting abusive return preparers. The program was developed to enhance compliance in the return-preparer community by engaging in enforcement actions and/or asserting appropriate civil penalties against unscrupulous or incompetent return preparers. This is a significant problem for both the IRS and our taxpayers. Abusive return preparers frequently prepare bad returns for large numbers of taxpayers who, at best, are stuck with paying additional taxes and interest and at worse, depending on culpability, are subject to penalties and maybe even criminal prosecution.

A Return Preparer is defined as any person (including a partnership or corporation) who prepares for compensation all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.

Return Preparer Fraud generally involves the orchestrated preparation and filing of false income tax returns (in either paper or electronic form) by unscrupulous preparers who may claim, for example: inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions, and fraudulent tax credits, such as the Earned Income Tax Credit. The preparers' clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. Dishonest return preparers use a variety of methods to formulate fraudulent and illegal deductions reducing taxable income. These include, but are not limited to, the following: preparing fraudulent Schedule C, Profit or Loss from Business, claiming deductions for expenses that have not been paid by the taxpayer to offset Form 1099, Miscellaneous Income, or income earned from outside employment; including false and inflated itemized deductions on Schedule A, Itemized Deductions, for: charitable contributions and medical and dental expenses; claiming false Schedule E, Supplemental Income and Loss, losses and claiming false dependents.

Warning! Anyone who knowingly uses a the services of a Tax Return Preparer who is filing false tax returns is subject to being charged with civil and criminal fraud. Tax Evasion is a crime, a felony, punishable up to 5 years imprisonment and a $100,000 fine.

Taxpayers are responsible for the accuracy of all entries made on their tax returns, which include related schedules, forms and supporting documentation. This remains true whether the return is prepared by the taxpayer or by a return preparer. Be careful in selecting the tax professional who will prepare your return. Some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional are:

No matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return. You can completely protect yourself from a charge of tax fraud if you voluntarily file your un-filed tax returns and make a good faith effort to file a complete return with data you can verify.

You can still be in “good faith” if you do not have accurate records, if you need to estimate some numbers reasonably and in good faith, if you are taking an unusual position on a complex factual or legal issue provided you make full disclosure of those items with your tax return. Tax fraud includes the element of “willfulness” (i.e., the willful intent to evade tax). If you make a full disclosure of those items with your tax return, you are acting in “good faith.” “Good faith” and full disclosure is the opposite of any element of “willfulness.” The IRS has the burden of proving criminal tax fraud “beyond a reasonable doubt.” Good faith disclosures make it impossible for the IRS to meet its burden of proof.

The IRS permits the filing of amended tax returns. If, for any reason, you do not have complete data, tax returns should still be filed at the earliest possible time. The filed tax returns can subsequently be amended when the unknown data becomes known or complete. It is to your advantage to file all un-filed tax returns at the earliest possible time.