As a tax return preparer, nothing is more upsetting to your clients than receiving a notice from the IRS or state/local tax authority weeks, months, or even years after the fact indicating there was a problem with a tax return, that additional money is owed, or no return was filed. In addition, identity theft continues to be a major area of concern for both the IRS and those handling sensitive client information and data electronically. Lastly, the disruptions to IRS operations and return processing may mean that you need to account for returns, payments, and carryovers that may not yet be reflected on your client’s account.
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Some best practices for tax season are listed below to help you and your clients avoid future problems and filing delays. These best practices are in no way an exhaustive list but are helpful to ensure a successful 2021 filing season. Looking out for the best interests of your client is critical, while at the same time, ensuring that your standard of conduct does not put you at risk for preparer penalties. The tax laws are complex and ever changing, and it is your responsibility to stay knowledgeable and current as to each area that affects your clients. As a tax preparer, you have an important job helping the taxpayer submit a true, accurate and complete tax return each year.
Review Firm Cybersecurity
Review IRS Pub. 4557, Safeguarding Taxpayer Data, a Guide for Your Business, to determine your firm’s data privacy and security needs and implement any safeguards needed to protect your systems and client information. Practitioners renewing Practitioner Tax Identification Numbers (PTINs) must certify that they maintain a written data security plan, a failure of which may be a violation of Circular 230. [620 TM] (subscriber only resource)
Review EFIN Usage
As an additional safeguard, during the filing season, you can check on your Electronic Filing Identification Number (EFIN) status to ensure that it is not used by others. Your e-Services account will give you the number of returns the IRS received, which you can match to your records. The statistics are updated weekly. You can contact the IRS e-help Desk at 866-255-0654 if you think your EFIN has been compromised. [620 TM] (subscriber only resource)
Systematize Data Collection
Use some type of electronic or physical tax organizer, client questionnaire, or checklist as well as prior year returns to gather taxpayer data (especially full birthdates, SSNs and EINs, direct deposit information) and to ensure that data from the prior year is accounted for when preparing the return. [620 TM Worksheet 7] (subscriber only resource)
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Preparer Due Diligence
As a paid tax preparer, you must exercise due diligence when preparing a client’s return or refund claim. As part of exercising due diligence, you must interview the client, ask adequate questions, and obtain appropriate and sufficient information to determine the correct reporting of income, claiming of tax benefits (such as deductions and credits), and compliance with the tax laws. You must also meet the specific due diligence requirements set forth in Treasury regulations when you prepare returns and claims for refund involving the Earned Income Credit, the Child Tax Credit, the Additional Child Tax Credit, the Credit for Other Dependents, the American Opportunity Tax Credit and/or Head of Household Filing Status. Form 8867, Paid Preparer’s Due Diligence Checklist for the Earned Income Credit, American Opportunity Tax Credit, Child Tax Credit (including the Additional Child Tax Credit and Credit for Other Dependents), and/or Head of Household Filing Status, must be prepared for each of the credits/status claimed on the return. The penalty for each failure to be diligent is $545 for returns or claims for refund filed in 2022. [634 TM] (subscriber only resource)
Review Client Transmissions
When e-filing, allow a few days before April 18 to review all of your client e-file statuses, transmissions, and IRS or state/local tax agency acceptance confirmations in the event corrective action is needed to validate an e-filing transmission for acceptance. If necessary, file an extension until the issue is resolved. Note that if there is a balance due, payment can be made using a variety of methods that are separate from providing direct debit information on the electronic return.