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3 FAQs about the Abusive Return Preparer initiative

The Internal Revenue Service (IRS) is cracking down on fraudulent tax preparer services. The federal agency initiated 252 investigations in 2016 alone, searching out any individual or business that it believes was conducting fraudulent practices while preparing taxes. 72.8 percent of these investigations resulted in incarceration.

Although these efforts are designed to protect the public and the interests of the IRS, they can lead to false allegations of unscrupulous practices. As a result, it is wise for businesses and individuals that are in the tax preparation sector to have a basic understanding of the program.

What is an abusive return preparer? First, it is helpful to know what the IRS views as an "abusive return preparer." The IRS defines a return preparer as anyone that prepares for compensation the substantial portion of a tax return. A preparer is deemed to be abusive under the following circumstances:

  • Expenses reported are inflated
  • Takes false deductions
  • Attempts to take unallowable credits or excessive exemptions

It is important to note that the IRS watches specifically for false claims of the Earned Income Tax Credit.

What is the Criminal Investigation Return Preparer Program? This program began in 1996 and focuses specifically on "identifying, investigating and prosecuting abusive return preparers."

An additional oversight program was launched in 2010, which was designed to regulated paid tax return preparers. Essentially, this program requires those who prepare taxes for a fee to have a preparer tax identification number and register with the IRS.

What happens if my business is accused of abusive return practices? Those who face these allegations will likely undergo an investigation. In this situation, it is wise to seek legal counsel to help better ensure your business interests and legal rights are protected.

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