Tax Preparer Penalties
The field of tax preparation has limited barriers keeping people with little to no experience from becoming tax preparers. For instance, a Certified Public Accountant who has been an auditor his entire career and has never touched a tax return, can start preparing taxes and the public would have no idea of his lack of credentials. A person with no licensing at all can buy a computer, software and a desk and be open for business in days with little to no education or experience. In an attempt to protect the public, the Internal Revenue Service imposes penalties on tax preparers for inappropriate acts ranging from inaccuracy to fraud.
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What is a Tax Preparer?
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According to the IRS, a tax preparer is "any person who prepares for compensation, or employs one or more persons to prepare for compensation" the tax returns of someone else. This definition would include any business or individual that prepares tax returns for money.
Preparer Penalties
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The tax code is vague in many areas. The Internal Revenue Service understands this, and it realizes there may be several interpretations of it. Because of the possible interpretation difference, the IRS allows some latitude before imposing penalties. If a prudent person would believe there is not a 50 percent or greater chance that a claim for a deduction or tax position on a tax return will be allowable by the Internal Revenue Service, then the claim should not be on the tax return.
It is the preparer's responsibility to inform the taxpayer if she deems a tax position or claim will result in the declining of the return. A position found unreasonable by the Internal Revenue Service, which the tax preparer did not support with a rule or regulation, could result in a fine of $1,000 or 50 percent of the income earned from the preparation services, whichever is greater.
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Accuracy Penalties
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Penalties can be extreme when they include any reckless behavior on the part of the tax preparer. If the preparer intentionally disregard any rules, he can be fined the greater of $5,000 or 50 percent of the income earned from the preparation of the return. This is for any case where the Internal Revenue Service determines there is no reasonable basis for the claim on the return and the result of the claim was a decrease in tax liability for the taxpayer.
Preparer Responsibility
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The preparer can rely on information the taxpayer provides him, as long as it appears reasonable. The tax preparer should ask questions about the data he receives from the taxpayer, however he does not have to verify this information. For instance, if a taxpayer provides a statement of expenses for her business, which list expenses that seem unreasonable based on the preparers experience, it is the preparer's responsibility to determine the reasonableness of the data. The Internal Revenue Service will ask, what would a prudent person believe in a similar situation?
Preparer Defense
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As a tax preparer, you should be able to defend any tax position you have entered on the taxpayer's tax return. As long as you do not ignore any rules or regulations and there is a reasonable basis for the tax position, you will be able to defend yourself against these penalties. Keep all supporting documents for each return you file to justify the information on the tax returns.
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