The Journal of Accountancy published an article yesterday outlining the updates that the IRS released recently regarding how taxpayers should handle questions about audits, collections, tax season filings, Tax Court petitions, and Taxpayer Advocate Service cases that were affected by the shutdown.

The IRS explained on its website that IRS employees returned to work on Jan. 28 and are going through mail and voicemail messages, but that it will take several days for them to catch up. The guidance makes it clear that the IRS is not extending any deadlines due to the shutdown.

The IRS issued FAQs for audits, collections, and Tax Court petitions. If you are a taxpayer involved in any of these areas, or are a tax practitioner, please take a moment to look at them — they answer many obvious questions and will likely prevent an unnecessary call to the IRS.

Speaking of which, I was finally able to reach both individual and business IRS representatives at the Practitioner Priority Line yesterday — no more recorded message saying they’re not able to answer the high volume of calls! I made sure to thank each of them for the amazing work they’ve been doing in the face of so many challenges, and recommend you do the same if you need to give them a call.

Source: IRS issues updates on post-shutdown activities – Journal of Accountancy

CPA Practice Advisor just published a short article highlighting the IRS accomplishments of opening tax season “on time” and debuting their new Form 1040. Now I’m going to take a moment to tear it apart.

I’ll be the first to congratulate the IRS on doing the best-possible job given their unenviable situation. They have suffered extreme budget cuts while being saddled with additional responsibilities (both at the hands of Congress); they’ve been handed the worst-written tax law in history and been told to implement it in a ridiculously short timeframe; and then they suffered a government shutdown immediately before tax season. And somehow they managed to redesign the forms, issue final regulations on the Section 199A mess, and open tax season a day earlier than last year. Go, IRS! (I’m not being sarcastic. It’s amazing that they pulled this all off.)

However — I want to caution readers about the optimism expressed by the IRS Commissioner and in this article and dampen expectations, because here is the reality:

1. Many forms are not finalized yet. Tax season is only “open” for the simplest of tax returns. Many states awaiting IRS guidance have also not been able to finalize their forms.
2. Among my professional forums, none of us is seeing any tax software package that has been able to keep up with the frenetic pace of programming and staying on top of frequently-released (and often conflicting) IRS guidance. Most systems are not calculating the Section 199A QBI deduction correctly (and some, not at all), and the recommendations have been, a) to calculate them by hand and compare to the software, issuing manual overrides; and, b) wait until the end of the first week of February to file any returns, in hopes that the software companies issue patches to correct some of these problems.
3. The IRS expects EITC/ACTC-related refunds to be available starting on Feb 27th at the earliest.
4. There is no 1040 “postcard”. This is a ruse. There is now a “building-block” approach to the Form 1040 that involves a front-page (with smaller font to get it to fit on half-a-piece of paper) and six — count them, six — additional schedules. This is substantially longer than the old Form 1040.
5. I have tried calling the IRS Practitioner Priority Line twice since they reopened for business on January 28th, only to receive a recorded message that due to high call volume, they are not able to answer.

So — honestly, pat the IRS employees on the back for doing the best they can in an impossible situation… but please also recognize that some of these claims are a bit of an exaggeration; and be patient with the IRS, with your tax software company, and with your tax professional.

Source: IRS Opens Tax Season: Debuts New Form 1040 | CPA Practice Advisor

I recently sent out the email to clients that I’ve been dreading for months, explaining that I have no choice but to raise rates because of the new tax law. As fate would have it, I have the most amazing client base in history, and all of the responses I’ve received have been overwhelmingly supportive, ranging from, “good for you” to “it’s about time”.

The three main reasons I cited for the increase in fees were:

1. I have spent over a full month of non-billable time learning the ins-and-outs of the legislation, researching issues, running calculations and scenarios, and attending tax update seminars.
2. Due to the complexity of certain areas of the new regulations that concern small businesses — and because I service mostly small business clients — I anticipate that on average, the amount of time it will take me to prepare each return (as well as examine potential alternatives or changes for 2019) will double.
3. The due diligence requirements for tax preparers have been increasing my liability every year, and I’ve been ignoring these risks and costs — the additional requirements for 2018 tax returns are even more far-reaching.

It’s this third point I’d like to discuss today, for the benefit of my colleagues who prepare tax returns, but also for my clients and colleagues who do not prepare returns, so they understand what demands are being placed on us as tax practitioners.

The Journal of Accountancy recently shared an article summarizing the new requirements and related penalties. These “due diligence” rules, as they’re called, are a way to force tax preparers into delving deeper into the questions about whether or not their clients truly qualify for some of the tax benefits they are claiming. In effect, it’s shifting the burden of proof from the individual and the IRS onto the paid preparer.

It used to be that a client could give a tax practitioner their information and we were allowed to take it “as is” — unless there were egregious claims that failed the “sniff test” and would cause your average tax professional to ask follow-up questions about their accuracy.

However, over the past many years, the IRS has instituted an ever-growing list of “due diligence” questions that practitioners are required to ask, regardless of any evidence that the client is not being entirely honest and accurate in their claims.

As explained in the article:

Form 8867 consists of a series of questions verifying the paid preparer’s due diligence in requesting information from clients regarding a series of credits and deductions that have been subject to substantial tax fraud. This form transfers the burden of responsibility from the taxpayer to the paid preparer.

The new question for head-of-household status is, “Have you determined that the taxpayer was unmarried or considered unmarried on the last day of the tax year and provided more than half of the cost of keeping up a home for the year for a qualifying person?”

The other dependent credit is new for 2018. It provides a credit of up to $500 for dependents who are not qualifying children for purposes of the child tax credit. The due-diligence questions for the other tax credit are the same as for the child tax credit or the American opportunity tax credit.

And the penalties for any tax preparer who does not comply are increasing as well:

The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, expands the penalties for failure to prepare the due-diligence checklist. Under prior law the penalty was imposed on each failure and could expose a practitioner to a potential $1,560 penalty on each return (see Rev. Proc. 2017-58). Under the TCJA, the penalty is increased to a maximum of $2,080 on a single tax return for returns and refund claims filed in 2018 ($2,120 for 2019).

The article lists the preparer requirements for interviewing the taxpayer, filling out the form, and retaining records.

So in case you’re wondering why fees are on the rise, take a look at those penalties and risks and ask yourself how you would handle taking a fall for a dishonest or unorganized client… and before you complain that your tax preparer is requiring you to submit documents of a personal nature, like birth certificates and proof of your child’s residency with you — when you know darned well that she’s met them in-person more than once — please remember that we’re all under a lot of pressure to protect your butts, ours, and that of the US Treasury.

Source: Paid preparer’s checklist expands to include head-of-household, other tax credit questions – Journal of Accountancy

From the IRS, November 27th 2018:

The IRS and Security Summit partners recently warned the public of a problematic scam affecting businesses. A surge of fraudulent emails impersonating the IRS and using tax transcripts as bait to entice users to open documents containing malware are on the rise. If a business’s employees open the malware, it can spread throughout the network and potentially take months to successfully remove.

This well-known malicious code, known as Emotet, generally poses as specific banks and financial institutions in its effort to trick people into opening infected documents. However, in the past few weeks, the scam masqueraded as the IRS, pretending to be from “IRS Online.” The scam email carries an attachment labeled “Tax Account Transcript” or something similar, and the subject line uses some variation of the phrase “tax transcript.”

Businesses should instruct employees to not open the email or the attachment, and to instead delete or forward the scam email to phishing@irs.gov.

Source: Tax Scams/Consumer Alerts | Internal Revenue Service

When looking for a tax professional, you want to make sure they’re in good standing with the IRS. However, until recently, the public could only learn that a practitioner was sanctioned by reviewing each of the announcements of discipline published in the Internal Revenue Bulletin (IRB) on irs.gov, or by using a commercial subscription service that reports instances of “Circular 230” discipline (Circular 230 is the document that describes who is covered by the standards we must follow, and what those are).

The Office of Professional Responsibility’s (OPR, the organization responsible for making sure tax professionals follow the standards of their practice) solution was to compile the information into a searchable Excel document file; their disciplinary look-up contains searchable information regarding censures of practitioners for Circular 230 misconduct and suspensions and disbarments of individuals from practice before the IRS.

The list contains basic information on over 3,000 OPR censures, suspensions, disbarments, and miscellaneous restrictions on practice, such as permanent injunctions and denials of limited practice to unenrolled tax return preparers due to misconduct; it covers the last 25 years. The spreadsheet is searchable using the “Sort & Filter” and “Find & Select” features, and will be updated to add new entries when a disciplinary announcement is published in the IRB.

Hopefully this new tool will make folks more inclined to report unprofessional behavior to the OPR, knowing that it will be made public and others could be prevented from similar experiences. To report issues, concerns or any problems, contact the OPR at Internal Revenue Service, Office of Professional Responsibility, SE:OPR, Room 7238/IR, 1111 Constitution Avenue NW., Washington, DC 20224 or fax to (202) 317-6338.

Source: Search for Disciplined Tax Professionals | Internal Revenue Service