Tax return preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients are a major concern for the Internal Revenue Service during the upcoming filing season, according to a spokesman for the service.

"Although the taxpayer may not be aware of the mistake, it is the taxpayer, not the return preparer, who must pay additional taxes and interest and possible penalties," he pointed out.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution. The IRS can also assert appropriate civil penalties against unscrupulous tax return preparers.

The service expects that, "Reputable preparers will ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify."

Criminal and civil actions on tax fraud committed by return preparers have resulted in numerous permanent injunctions against abusive return preparers. The incarceration rate for those who are sentenced has been more than 80 percent over the past three years.

As part of this concern, IRS agent and criminal investigator on-site visits are encouraging higher-quality Earned Income Tax Credit claims on 2009 returns to avoid compliance action.

They are using a risk-based scoring system that analyzes certain factors and filing patterns to identify preparers who may have had questionable EITC claims in the past. The visits are educational, with the objective of ensuring that preparers understand the types of errors appearing on their returns and how to improve accuracy. During the outreach and education visits, agents will discuss the errors and trends identified on client returns they filed, offer advice and solutions to improve accuracy, answer questions, and explain the potential consequences of non-compliance.

Although no penalties are assessed, the IRS will monitor returns filed by these preparers to determine whether accuracy improves. Preparers whose returns do not show a significant improvement may be subject to due diligence audits or possible injunctions, depending on the severity and extent of errors.

Paid preparers must meet four due diligence requirements on returns with EITC claims or face penalties. New, expanded regulations clarify these requirements and set a performance standard for the "knowledge" requirement - what a reasonable and well-informed tax return preparer, knowledgeable in the law, would do.

Under the requirements, paid preparers must evaluate information received from clients; apply a consistency and reasonableness standard to the information; ask additional questions if the information appears incorrect, inconsistent or incomplete; and document and retain the record of inquiries made and client responses.

ADVICE FOR THE SERVICE

Meanwhile, there is no shortage of advice for the IRS as it prepares for the upcoming filing season. The Government Accountability Office, the Treasury Inspector General for Tax Administration and the National Taxpayer Advocate have all weighed in on the subject.

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