NCSTP Recommended Links

      North Carolina Department of Revenue                                http://www.dornc.com

  Internal Revenue Service                                                          http://www.irs.gov

South Carolina Department Of Revenue                                                               http://www.sctax.org

 North Carolina Unemployment Commission                                                            http://www.ncesc.com

  North Carolina Department Of Labor                                                              http://www.nclabor.com

What Are Paid Return Preparers Required To Do?

As a paid return preparer, you must take all necessary steps to file accurate Federal individual income tax returns on behalf of your clients. These steps include reviewing the applicable tax law to ensure that all income has been
reported on the return, and that only credits, expenses and deductions allowed under the Internal Revenue Code are taken. We describe below common errors we are finding on Form 1040 returns (Schedule C, Schedule A, the Earned Income Tax Credit and the First-Time Homebuyers Credit).

Common Schedule C Errors: Return preparers must ask sufficient questions and review sufficient taxpayer records to determine that income and expenses reported are correct and complete. For more information, consult IRS Publication 334, Tax Guide for Small Business.

Earned Income Tax Credit (EITC) Common Errors: Return preparers should ask sufficient questions and accurately complete appropriate worksheets or forms to ensure that the taxpayer is entitled to the credit. EITC return preparers are subject to additional due diligence requirements, including completion of certain documents, record-keeping requirements, and reasonable inquiry of taxpayers. For more information about these due diligence requirements, see the IRS’s Due Diligence Continuing Professional Education module atwww.eitc.irs.gov/rptoolkit/main/ddmodule. More detailed information on EITC eligibility criteria and EITC errors can be found at www.eitc.irs.gov or in Publication 596

First-Time Homebuyers Credit (FTHBC) Common Errors: Return preparers must ask sufficient questions and review sufficient taxpayer records to determine eligibility for any of the three versions of this credit and the accuracy of the amount of credit claimed. For more information on eligibility for the credit, go to www.irs.gov and select Tax Topics 611 and 612 and IR-2009-108. 

Your Responsibilities as a Paid Tax Return Preparer

Return preparers are required to exercise due diligence in preparing tax returns. As a general rule of thumb, that means knowing the underlying substantive law affecting an item of income or deduction. Publication 470, Limited Practice Without Enrollment, and Treasury Department Circular 230 (if you are also a practitioner) outline your due diligence responsibilities.

·                         A return preparer must exercise due diligence in preparing or assisting in the preparation, approving, and filing of returns, documents, affidavits, or other papers relating to Internal Revenue Service matters.

·                         The return preparer must also exercise due diligence in determining (1) the correctness of oral and written representations made by the return preparer to the IRS, and (2) the correctness of representations made by the return preparer to the client with reference to any matter administered by the IRS.

Consequences of Filing Incorrect Returns

Return preparers are expected to be knowledgeable in tax law and to prepare accurate returns. The consequences of preparing inaccurate returns can be severe and can extend to both you and your client. These consequences may
include any or all of the following:

·                         If your clients’ returns are examined and found to be incorrect, your clients may be subject to accuracy or fraud penalties plus accrued interest on any underpayment.

·                         Return preparers who prepare a client return for which any part of an understatement of tax liability is due to an unreasonable position taken on the return based on the preparer’s advice, can be assessed a minimum penalty of $1,000 (IRC section 6694(a)).

·                         Return preparers who prepare a client return for which any part of an understatement of tax liability is due to the return preparer’s reckless or intentional disregard of rules or regulations by the tax preparer, can be assessed a minimum penalty of $5,000 (IRC section 6694(b)).

The assessment of return-related penalties against a return preparer may result in:

·                         Suspension or expulsion of the return preparer’s firm from participation in IRS e-file;

·                         Injunctions barring the return preparer from preparing tax returns;

·                         Referral for criminal investigation; or 

·                         Disciplinary action by the IRS Office of Professional Responsibility if the return preparer is also a practitioner.