As a paid tax preparer, there are lots of rules you have to comply with in order to participate in the IRS e-file program. Many of those rules concern due diligence requirements for electronic return originators (EROs) to prevent or report fraudulent or abusive returns.
At Brown, PC, our tax attorneys can explain what your obligations are and help you troubleshot any compliance issues with the IRS. We encourage you to give us a call today to discuss your specific situation. Based in Dallas-Forth, our lawyers help clients across the country.
Is there a difference between an ERO and a paid preparer?
Many paid tax preparers are EROs. But an ERO may also electronically file returns that were collected from a taxpayer. An ERO can also arrange with another authorized IRS e-file provider to transmit the return.
What obligations do EROs have to verify the identities of taxpayers participating in the e-file program?
To prevent potential fraud in the file program, the IRS says EROs are supposed to ask taxpayers whom they don’t know for two forms of identification with the person’s name and current address. These should preferably be picture IDs.
EROs are also required to confirm the identities and tax information numbers (TINs) not only of taxpayers, but also of spouses and dependents listed on returns.
Why does the IRS scrutinize the Earned Income Tax Credit (EITC) so closely?
Research has shown that the error rate on EITC claims in 2014 was 27 percent, costing the government approximately $18 billion.
Seen in that context, it is not surprising that a specific section of the Internal Revenue Code Section 6695(g) lists requirements that preparers show due diligence in seeking to verify the accuracy of EITC claims.
These requirements include asking follow-up questions regarding filing status, dependents and income. Tax preparers must also maintain proper documentation that such questions were asked.
What types of penalties can you be hit with as an ERO if you aren’t in compliance with all the requirements?
If the ERO was also a paid tax preparer, the possible penalties are the same as for paid preparers. These range from civil fines to, in cases of alleged willful fraud, criminal prosecution.
In certain cases, an ERO who did not prepare the return can also be subject to the same penalties as tax preparers. This can happen when the ERO discovers substantive errors that require changes in the return.
What else should EROs watch out for?
The overall trend in recent years has been for more and more IRS regulation. The IRS Criminal Investigation Division has had a program since 1996 aimed at detecting and penalizing preparers who file false or fraudulent tax returns. In 2010, the IRS added a regulatory program for paid preparers that included PTIN (Preparer Tax Identification Number) requirements.
The IRS also has a lot riding on e-filing. More than nine in 10 taxpayers now file that way. This means that EROs should continue to keep tabs on new regulations that affect e-filling.