Taxing Definitions

Definition — Penalizing the preparer

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According to the Return Preparer Office of the IRS, as of March 1, 2018, 728,049 individuals had current preparer tax identification numbers. These preparers are generally subject to various penalties under the internal revenue code. How familiar are you with tax preparer penalties?

1.

A preparer is required to furnish a completed copy of the return or claim for refund to the taxpayer before (or at the same time) the return or claim for refund is presented to the taxpayer for signature. However, the copy does not need to contain the identification number of the paid tax return preparer.

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2.

Preparers can be penalized for failing to sign a taxpayer’s return or claim for refund. The preparer’s signature must be done manually.

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3.

Tax return preparers must retain a completed copy of all returns prepared or a list containing the names, taxpayer identification numbers, tax years, and types of all returns prepared, and make the records available for inspection upon request by the IRS for three years.

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4.

Paid tax preparers aren’t permitted to endorse or otherwise negotiate a refund check issued to a taxpayer. This is true even if the taxpayer requests that the refund be directed into the preparer’s bank account or name.

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The IRS website has a summary of tax preparer penalties.

 

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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Right answer!

See internal revenue code section 6695(a), Failure to Furnish Copy to Taxpayer.

Sorry, wrong answer :(
Sorry, wrong answer :(
Right answer!

See internal revenue code section 6695(b), Failure to Sign Return or Claim for Refund.

This section no longer requires a manual signature. Tax return preparers can sign original returns and amended returns by rubber stamp, mechanical device, or computer software program.

These alternative methods of signing must include either a facsimile of the individual preparer’s signature or the individual preparer’s printed name. Tax return preparers utilizing one of these alternative means are personally responsible for affixing their signatures to returns. See Notice 2004–54.

The signature requirement may also be satisfied if the preparer signs the completed return, makes a photocopy of the return, and the taxpayer signs and files the photocopy. See Revenue Ruling 78–370.

Right answer!

See internal revenue code section 6695(d), Failure to Retain Copy or List.

For each failure to comply, preparers could be subject to a penalty of $50 with a maximum penalty of $25,500 per year.

Sorry, wrong answer :(
Right answer!

See internal revenue code section 6695(f), Negotiation of Check.

Failure to comply could result in a penalty of $510 for each tax return with no maximum penalty amount and no reasonable cause exceptions.

Sorry, wrong answer :(
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