IRS HOT Audit Issues
Substantiation Is Key to Sustain Tax Credits
As a tax professional, it is relatively easy to identify some key issues that the IRS is focusing its attention. In recent years, in addition to auditing taxpayers, the IRS has begun to audit tax preparers. If the IRS identifies a tax preparer during an audit of an individual taxpayer who allowed the claiming of unsubstantiated tax credits, the IRS may decide to audit the tax preparer. By auditing the tax preparer, the IRS is attempting to determine if the unsubstantiated credit was an isolated case or if the tax preparer systematically prepared tax returns without asking for substantiation. If the latter, the IRS can quickly and easily identify taxpayers to audit which will result in revenue collections.
To be clear, tax preparers are usually not required to substantiate credits and deductions claimed by a taxpayer. However, the IRS does require that tax preparers conduct due diligence in five specific circumstances. The required IRS due diligence consists of certain questions that be asked of the taxpayer and documented by the tax preparer.
What are the issues that require due diligence by a tax preparer?
The claiming of . . .
the earned income tax credit;
the child tax credit;
the additional child tax credit;
the American opportunity education tax credit; and
the recently proposed due diligence requirement for head of household filing status.
So when your tax preparer inquires if the dependents you are claiming are really your own, how many months of the current tax year did the child live with you, your child’s date of birth, proof of residence for your child, if you ever allowed another person to claim your child as a dependent, is another person eligible to claim your child as a dependent, have you had the IRS deny tax credits in prior years, the tax preparer is not being nosy. Rather, the tax preparer is satisfying the IRS requirement to better know the client and be able to complete IRS questionnaires and checklists. The proper completion of these checklists will hopefully lessen the liklihood of an IRS audit.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.