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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Current IRS Enforcement Priority: Return Preparers Crackdown

Posted on in IRS

preparing taxes, Chicago IL tax attorney"Four federal judges sitting on two different courts have all agreed that Congress never gave the IRS the power to license tax preparers, and an agency cannot just give itself such licensing authority." - Dan Alban, Institute for Justice attorney.

The IRS tried as hard as it could. From 2010 through 2014, they did everything in their power to grant themselves the right to certify tax preparers. This following the discovery in 2006 that upwards of 60 percent of all tax fraud was traceable to the preparers of tax documents rather than their clients. But in May of 2014, after a U.S. Court of Appeals backed up the judgment above (from Loving vs. IRS), the IRS chose not to appeal the case to the Supreme Court.

So It's Safe to Be a Return Preparer Now?

In short…not particularly. While the person for whom the tax return was prepared still generally ends up paying significant penalties and interest when the malformed or fraudulent return is discovered, that doesn't mean the preparer is off the hook. In particular, there are several categories of penalties that specifically apply to the preparer of a return-whether that person is the taxpayer or not. Among them are civil penalties for:

  • Understatement of liability due to unreasonable positions or willful/reckless misconduct.
  • Aiding or abetting the understatement of a tax liability on behalf of a taxpayer.
  • Failure to give the taxpayer a copy of their return, or to retain a copy.
  • Failure to sign, provide a proper TIN on or file a return.
  • Endorsing or negotiating a check made out to a taxpayer.
  • Failure to exercise due diligence determining ETIC eligibility.
  • Promoting abusive tax shelters.
  • Disclosing or misusing information provided to you by a client for preparation purposes.

And criminal penalties for:

  • Deliberately committing fraud or making false statements on a return. (A felony!)
  • Submitting a fraudulent return, statement, or other document.
  • Disclosing or misusing information provided to you by a client for preparation purposes.

The IRS Database of Endorsed Tax Preparers

While the IRS certification program was shut down by the Court of Appeals last year, that didn't stop the IRS from starting a voluntary program of testing and listing tax preparers on an official IRS database of tax preparers. It remains to be seen how this tool will affect return preparer's business-the next tax season will give us a better idea.

Though the IRS cannot officially license tax preparers, they are still cracking down on negligent and fraudulent return preparation activities. If you are a tax preparer and are under investigation from the IRS, it is important to seek experienced legal guidance immediately. At the Chicago-Kent Tax Clinic, we offer low-cost representation for tax preparers from attorneys with in-depth experience working both for the IRS and in private practice. For a free consultation an experienced Chicago tax law attorney, call us today at 312-906-5041.

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