IRS Letter 4809

What type things were mentioned as the "certain procedures"?

FYI... see the paragraph starting with "Beginning soon" on the third page of the IR. They are IRS Commissioner Doug Shulman's comments to the AICPA a week ago.

messagenews: snipped-for-privacy@u9g2000vbx.googlegroups.com...

"These steps include reviewing the applicable tax law, and establishing the relevancy and reasonableness of income, credits, expenses, and deductions to be reported on the return. In general, the preparer may rely in good faith without verification upon information furnished by the client. You may not, however, ignore the implications of information furnished to, or actually known by you, and you must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. Additionally, a tax return preparer must make appropriate inquiries to determine the existence of facts and circumstances required as a condition for claiming a deduction or credit. "A review of the tax year 2010 individual income tax returns you prepared reveals that these returns contain a high percentage of attributes of returns typically found to have significant errors on Schedule C,...."

Essentially Mr. Williams, the Director of the Return Preparer Office (whose signature is on the letter), appears to have convicted me of failing my tax preparer responsibilities before sending the "visitor" to see how I conduct my office.

Now, I know that many of the returns I prepare are for people with unusual businesses (i.e., they don't fit the mold), but I also know that my approach has always been to ask a lot of questions of my clients, to elicit the most accurate information with which to prepare returns. so, unless the "visitor" comes in with the attitude that I must be an evil preparer who must be put into his proper place, I'll probably come out OK. But there is clearly an undertone of adversarial relationship to the preparer community.

I've seen my share of returns prepared by the type of preparer the IRS should be looking for (I can usually spot the problems in 30 seconds or so). For example, this past summer I came across a person holding himself out as a CPA, even though the State Board suspended him a dozen years ago. A year ago I saw a couple of returns for new clients (children of a long-time client) prepared by "Fran's Tax Service." Just after I told them what needed to be done with their returns, they got a letter from the state department of revenue advising them that Fran was being investigated, and to send in correct returns or advise the state that Fran prepared their return correctly.

On Tue, 15 Nov 2011 22:05:21 EST, Tom Healy CPA wrote Re Re: IRS Letter 4809:

Looks like the IRS is, in effect, co-opting preparers as auditors.

I observed what I consider the beginning of this trend about 8 years ago when I was doing VITA/TCE and the IRS trainer told us we could be held responsible for not "adequately" verifying the identity of the person submitting the previous year tax return along with 1099s, w2s, etc.

I told the trainer that I didn't work for the IRS and didn't want to do their enforcement. He said I had to do it or I couldn't be a part of the program. I agreed and quit the program on the spot and walked out of the class.

"Vic Dura" wrote

I get ID's, usually drivers licenses and SSN cards, from new clients. After that, I suspect they're the same person when they come back in. My reasons for getting the ID's are to be sure I spell their name correctly. I'm in the South you see, where Bubba, Hot, Skeeter, Red, and Junior are given names on birth certificates.

I think he's wrong. In the AARP Tax Aide program, volunteers help the individuals prepare and file their returns. They are supposed to verify clients identities and all SSNs or ITINs; but as long as they operate within the scope of their training and testing, and do not knowingly enter false information, they are not liable. I'm not sure what "held responsible" means, but it sounds like bureaucratic BS.

messagenews: snipped-for-privacy@u9g2000vbx.googlegroups.com...

NOT based on what you said in your original post. You originally said that the IRS letter stated that you MIGHT be selected for a visit. This is a standard form letter that is going to tax pros who handle a lot of Schedule C, E, F and 4835s and/or who have a lot of Schedule Cs with a an UNKNOWN SIC code. The IRS has been sending these letters out for at least 2 years now, they started with preparers they THOUGHT might be problematic. Now they've widened the loop. I believe it is their intention to send such letters to ALL preparers eventually, though I do not know how long they think will take.

Just an FYI FWIW - I attended the IRS Nationwide Tax Forum at National Harbor (near DC) this fall. I almost choked when the IRS speaker (YES, the IRS employee who put on this part of the presentation) said the following - paraphrased because I didn't have my recorder with me -

START PARAPHRASE

The IRS has determined that going after taxpayers one at a time is a hit or miss operation at best. So now they've decided when they audit a taxpayer, be it 1040, 1041, 1065, 1120, 1120S, or whatever form the return is filed on, AND they find questionable items that they THINK the preparer should have caught, they will AUTOMATICALLY expand the audit to the Tax Pro who prepared the return.

The IRS speaker said that the IRS intends to use PREPARER PENALTIES to help close the tax gap.

START PARAPHRASE

Imagine, if you will, that one of your Schedule Cs gets audited and its determined that you made a mistake. If the IRS can assert that you failed to exercise due diligence, even it was an honest mistake, the PREPARER can be fined UP TO $1,000 PLUS all the fees charged for the engagement.

Let's assume that the average Tax Pro does 300 returns, 100 of which are Schedule C, E, F or Form 4835. Also assume that your average fee any of these returns is $1,000 - I know some will be more and some less, but we need to start somewhere. Now the IRS catches a mistake on one return and pulls the remaining 99 Schedule Cs and finds a similar error on HALF of the returns - keep in mind that the error could be a simple misclassification of the fixed asset category for depreciation (say you set an asset up as 5 year property when it should have been 7 year property).

Now you have 50 returns that are wrong. The IRS assesses a $1,000 penalty for each return - 50 returns is $50,000. AND they also take all your fees for those returns - earlier we assumed that the average fee for one of these was $1,000 - so you have an additional 50 times $1,000 for another $50,000 in confiscated fees. Now, because of an honest mistake - which could have been nothing more than a key punch error by an assistant that seemed so inconsequential at the time that you decided to let it go - you're on the hook to the for $100,000 AND your license could be suspended, leaving you not only unemployed but unemployed in your chosen profession.

STINKS, but that's how they want it to work.

The IRS agent that did this presentation on preparer penalties shared what she said was a "real live case" with the names changed to protect the guilty. Here's how she laid it out:

A - 2 brothers decide to go into business together so they form an LLC; B - Brother A uses his accountant (called Tax Pro A) to prepare the 1065 and K-1s along with his personal 1040; C - Tax Pro A prepares the 1065 which passes a $185,000 Ordinary Business Loss through to each of the brothers; D - Brother B uses his own accountant (called Tax Pro B) to prepare his personal 1040; E - when Tax Pro B does Brother B's return he sees the K-1 and asks for verification of basis before deduction the loss; F - Brother B produces canceled checks made out to the LLC for MORE than the loss passing to him; G - Tax Pro B is satisfied and deducts the $185,000 loss on Brother B's return.

FAST FORWARD -

H - IRS audits the 1065 and determines that what the brothers bought was a tax scam with no substance. All the expenses claimed on the 1065 turn out to be personal living expenses of the brothers.

I - IRS fines Tax Pro A for preparing a false return - and RIGHTLY SO in my opinion;

Watch close, here's where it gets ugly -

J - IRS also fines Tax Pro B for NOT exercising due diligence by AT LEAST NOT getting a complete copy of the 1065 and at a minimum giving it a cursory look see. The IRS "determined" that by not looking at the full 1065, Tax Pro B failed to exercise due diligence and fined him $1,000 PLUS his fee for the preparation of the 1040.

K - Tax Pro B lost in administrative appeals and is trying to determine what legal action may be available to him. Its unclear whether this preparer penalty can be adjudicated in the Tax Court or if it has to go to District Court.

So keep your ears open and your eyes peeled - the IRS has once again that no action is too low or reprehensible for them to take to get the government the money it needs wherever they can find it.

BTW - expect your state to jump all over this. You may need to amend the state return as well since the IRS will report the change related to MORE income and MORE tax, but they don't usually report reduced income and reduced tax resulting from adjustments to the various states.

Good luck, Gene E. Utterback, EA, RFC, ABA

Tom,

I assume that is the Fran in Belgrade/Bozeman. If you're talking about another Fran, you should consider providing more specific identification info so innocent Frans don't take undeserved heat.

Regards, Bill