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? [Read more…] about IRS HOT Audit Issues