New Due Diligence Requirements for tax accountants



This video goes over the due diligence requirements the IRS is imposing on both the taxpayer and tax professionals.

Today’s episode is on the enhanced due diligence requirements for the tax professionals and how they affect both the client and the firm.

The IRS has increased due diligence requirements on the following tax credits. At least one of these credits is typically claimed on a taxpayer’s tax return. When a taxpayer improperly claims one of these credits, they may be required to pay additional taxes, interest, and penalties. Also, claiming a credit that you were ineligible to take may result in the taxpayer not being able to claim the credit in future years. These new requirements not only affect the taxpayer, but also the tax professionals.

The IRS has not only increased the number of credits subject to due diligence requirements, they have also increased the penalties for not collecting the appropriate due diligence documents. The fine is per credit claimed on the tax return, and it is assessed against the tax professional, and the firm needs to match the penalty amount. The worst part is the tax professional and firm is assessed the penalty even if the tax return is prepared properly. The new IRS commissioner has set his goals for increased compliance and accountability for the taxpayers and tax professionals.

The tax professional needs to confirm the accuracy of the social security number and work status of the individuals listed on the tax return. There are three types of social security cards that are issued. Unrestricted cards are issued to U.S. citizens and people lawfully admitted to the U.S. on a permanent basis. The individuals with this type of card are free to work in the United States. Restricted cards are issued to individuals who are allowed to work in the United States on a temporary basis with the permission of the Department of Homeland Security. Non-work cards are issued to individuals if there is a valid non-work reason for needing a social security number or needing a social security number because a federal law requires the number to get a benefit or service. The tax professional will need the social security card one time, and the firm will need to securely store this document in the client’s file.

The tax professional needs to confirm the birth dates of all individuals listed on the tax return. Acceptable documents to confirm an individual’s date of birth include driver’s license, passport, or birth certificate. To be issued a driver’s license or passport, the agency issuing the document must confirm the individual’s date of birth. The tax professional will need one of the documents mentioned one time, and the firm will need to securely store this document in the client’s file.

The tax professional needs to confirm the residence of all dependents being claimed on the tax return. The following documents are acceptable forms to confirm a dependent’s residence: Healthcare statement (Form 1095), School ID, school records, daycare records, or a medical prescription. The tax professional will need one of the following documents mentioned for each dependent being claimed on the tax return each year you want to claim them. The firm will need to securely store this information in the client’s file.

The tax professional is required to ask additional questions in order to meet their knowledge requirement. For taxpayers who are separated parents and/or claiming the earned income tax credit, expect to fill out additional questionnaires.

The IRS is allowed to visit a tax professional’s office at any time to conduct a due diligence audit. Tax professionals are required to store and file all necessary documents they relied on to meet the due diligence standards for three years. If any documents are missing, the tax professional and firm will be assessed penalties.

Our firm does not discriminate against any of our clients and will require all of our clients to provide all required documents. Our firm will always securely store all documents provided by any of our clients. We feel our policy will ensure all clients know what documents to provide each year and prevent follow up questions. Also, if a taxpayer is ever audited, the IRS will immediately be requesting these documents. Our firm will have this information readily available for all of our clients.

If you’re starting to feel that you need a professional to prepare your tax return, be sure to check out Marion & Associates, LLC. We are a family run practice located in Exton, Pennsylvania that specializes in personal and business income tax return preparation as well as tax strategies to minimize your future tax obligations. Our firm wants to form a long-lasting relationship with you and your family, not just be another tax preparer. We hope you found this video helpful and thanks for tuning in.

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