Will the Fiscal Cliff Lead to Fiscal Theft?

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IMGCAP(1)]The Internal Revenue Service stated on Tuesday that they will begin processing individual tax returns on Jan. 30, 2013, marking the official beginning of “tax season” for tax professionals.

However, some returns, including those containing “residential energy credits, depreciation or general business credits” will not be ready for processing until late February or early March (see IRS Delays Tax Season until End of January). In fact, there are at least 30 forms affected by this particular delay, according to the IRS Web site.

This could result in making tax return identity theft an epidemic problem. Accounting Today has covered tax return identity theft extensively, and this practitioner has, as recently as Wednesday morning, been on television advising viewers that the best defense is a strong offense (i.e., file as early as possible!). Practitioners and taxpayers are subject to accuracy related rules (in addition to signing under the pains and penalties of perjury) and are thus forced to wait for forms to be ready for IRS processing before actually filing. That is a tremendous disadvantage that doesn’t exist for tax return identity thieves.

Tax return identity thieves just need to file. No waiting for Form 4562 or any of the other 30 or so forms causing this delay. The concept of the “accurate tax return” isn’t on the mind of an identity thief. And this issue clearly wasn’t on the minds of Washington lawmakers when the fiscal cliff negotiations were in process. In addition to delaying the IRS, the effects of the Washington delay may also put more taxpayers at risk of tax return identity theft.

As practitioners, many of us have been at the forefront of communicating the concerns of tax return identity theft to the public. Although this practitioner hasn’t personally experienced a client being subject to identity theft, we’ve nonetheless been advocates for filing early for the 2012 tax return filing season. In fact, it’s our responsibility to not only warn our clients of the potential for tax return identity theft, but to also advise them as to what measures we have taken, as custodians of their very private information, to ensure that such information is secure, at least within our control.

Taxpayers are advised to become more and more diligent in the selection of a paid preparer, and it’s important for practitioners to know what the public is being told:

• Avoid practitioners who charge a fee, but refuse to sign a tax return.

• Avoid practitioners who charge a fee that is based upon a percentage of the refund. Practitioners may be asked from time to time, in the context of an IRS examination, to furnish copies of invoices for services provided, and one of the primary reasons is for the IRS to review the billing structure.

• Make sure the practitioner is either a CPA or attorney, or otherwise registered with the IRS and holding a valid Preparer Tax Identification Number, or PTIN.

• Finally, taxpayers are advised to ask what steps their tax practitioner has taken, or is taking, to combat identity theft. A practitioner must be able to show a client how their private information, and that of their family, is protected. Further, all of us, frankly, should be asking anyone we do business with who may have our information, exactly what their safeguards are. It is disconcerting to think what could be happening out there, with respect to Mr. and Mrs. Public who couldn’t get financing on the purchase of a used car, for example, and not knowing or even asking what happens with their personal information afterwards.

Avoiding the pitfalls in any of the above categories certainly goes a long way toward giving the public some confidence. And this practitioner believes anyone reading Accounting Today is already “in the choir.” But the truth is, the tax return identity theft epidemic is still with us, and perhaps Washington, in its infinite wisdom, perpetuated the problem through inaction. We will just have to wait and see if dealing with the “fiscal cliff” resulted in Congress dealing the U.S. Treasury a blow with respect to more fiscal theft.

Paul Mancinone is a CPA and attorney at law, and represents businesses and individuals before the IRS. His office is located in Springfield, Mass.

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