Posts Tagged tax return preparer
Earned Income Tax Credit Requires Tax Preparer Ethics
Posted on July 25, 2011 | Tax Studies.
The incidents of IRS audits are increasing and about 40 percent of audited tax returns last year involved the Earned Income Tax Credit (EITC). Examination of a tax return by the IRS is time-consuming and frustrating. Although there is no sure way to avoid an audit, choosing a high quality tax preparer is especially valuable.
A report by the National Taxpayer Advocate states that 60 percent of individuals use paid tax preparers. If the IRS suspects that a particular tax return preparer is consistently engaged in erroneous acts, all the work of that preparer is at risk for examination. Consequently, taxpayers benefit by careful selection of a professional who has completed an IRS registered tax return preparer program.
The EITC is a refundable credit. Therefore, if it exceeds tax liability, it increases a tax refund. Although many who qualify for the EITC fail to apply for it, there are also ineligible taxpayers claiming the credit. The IRS has implemented tight standards of tax preparer ethics for addressing EITC situations.
One of the common errors the IRS has identified involves claiming a child for the EITC that is not eligible. Although a child is not required for the credit, taxpayers with qualifying children are entitled to the EITC at lower income levels than a childless taxpayer.
A qualifying child for the EITC must have lived in the US with the taxpayer for half the year. The child’s relationship with the taxpayer must be son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. Finally, an EITC qualifying child must be under age 19, a full-time student under 24 or totally disabled. A child who files a joint tax return is ineligible unless filing only to claim a full refund of withholding.
Registered Tax Return Preparer training provides all the conditions taxpayers must meet for the EITC. Although earned income is required, the adjusted gross income of the taxpayer must not exceed income limits based upon filing status and family size. Individuals who are married filing separately cannot claim the EITC. An important part of RTRP guidelines is avoiding incorrect claims of Head of Household status in order to obtain the EITC.
Taxpayers claiming the EITC must be US citizens at least 25 years old and under age 65. They are also required to have lived for more than half the year in the US and cannot be claimed as dependents of someone else.
The highest EITC is available to taxpayers with three qualifying children. This is an expansion of the previous threshold allowing two children as the maximum.
Tax Preparer Jobs Require Attention to Detail
Posted on June 5, 2011 | Tax Studies.
In addition to the technical skills you acquire to become a tax preparer, you also need to develop an ability to make judgments about income and deductions. This talent goes deeper than your knowledge about using the correct tax forms for accurately reporting diverse types of items.
Your income tax course covers all the basics about income reporting and tax calculation. Beyond that lies the ethical territory of avoiding understatements of taxable income. Part of this area of tax work involves deriving information from a taxpayer. In addition, ethical responsibilities of a Registered Tax Return Preparer include having adequate disclosure of details on completed tax returns.
This is particularly important when reporting business expenses. Taxpayers using Schedule C to report business revenue and expenses have commonly engaged in abusive understatements of income. A RTRP is required to enter only verifiable amounts on tax forms such as Schedule C.
Taxpayers should disclose information in a specific manner. Tax return preparers must have assurance that the figures on tax forms are reliable. Inquiries are necessary regarding any items that don’t necessarily appear obviously deductible. For example, tax returns should not have a category called “Other Expense” without explanation of the expense descriptions.
Your ethics tax class helps you understand that taxpayers must provide clear descriptions for the amounts you place on their tax forms. IRS guidelines require that you disclose descriptions that are verifiable in the event of audit. If insufficient space exists on the tax forms, descriptions must continue on attachments to tax returns.
Section 6694(a) of the tax code imposes a penalty on tax return preparers who provide a return reflecting understatement of tax liability due to an “unreasonable position” if the preparer knew – or reasonably should have known – that the taxpayer’s income reporting is inaccurate. To avoid having an unreasonable position, you must report items on a taxpayer’s return only when there is substantial authority for the position or it is properly disclosed.
Therefore, obtaining substantial details about tax return items helps assure that your position is reasonable for including them on a taxpayer’s return. Some of the cases where this can apply are itemized deductions for medical expenses, charitable donations, and casualty losses. Taxpayers usually require your guidance about these categories, such as assurance that over-the-counter medications are not treated as medical expense and the value of goods received for charitable donations is applied to reduce the tax deduction.