The IRS requires that as part of a professionally prepared tax return that the taxpayer review his/her return before it is e-filed. This review process is important because the taxpayer is signing under penalties of perjury that the return and accompanying schedules and statements were examined by the taxpayer and to the best of the taxpayer’s knowledge and belief, that the return is true, correct and accurately lists all amounts and sources of income received during the tax year. It also states that the preparer is preparing the return based on the information received from the taxpayer.
In the tax court case of John J. Sweeney and Donna L. Sweeney v. Commissioner, TC Summary Opinion 2016-32, the taxpayers conceded that they failed to include all of their (unreported) income on Schedule C of their return, but contested the imposition of the IRS 20% accuracy-related penalty.
The IRS audit exam resulted because third-party insurance company payers reported more income on Form-MISC than the taxpayer reported on Sch. C as insurance commission income.
The IRS and the court found the taxpayer’s numerous arguments frivolous and without merit. The taxpayer acknowledged that he had received the unreported income and could offer no explanation as to how he arrived at the amount of income shown on his Sch. C. In fact, the taxpayer acknowledged that the reported gross receipts “couldn’t possibly be right.”
The taxpayers argued [Read more…] about Penalty for Failure to Review Your Form 1040