Tax Return Preparer Penalty Procedures Announced by Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) has issued a memorandum outlining its procedures for investigating tax preparers who show patterns of abuse, and thus may be subject to tax preparer penalties. The memo sets forth some interesting information. At least in cases initiated through LMSB (Large and Midsize Business) Division the approval of the IRS Director of Field Operations is necessary. Once an investigation has been approved the IRS may select up to 30 tax returns prepared by the preparer, and a tax audit of those returns will be opened. Of course this means that the tax return preparer’s clients will be contacted, and once the preparer’s client’s realize that they are being subjected to a tax audit solely because of who prepared their tax return it is likely they will find a new tax preparer in short order. They may also tell their friends, who are also clients, about their tax audit. In short a preparer investigation can quickly devastate a thriving practice even if the tax preparer is ultimately determined to have acted properly. For this reason it is critical that any hint of an IRS investigation must be responded to quickly, with the hope of rapidly putting it to an end.

If you are a tax preparer, and believe you may have been targeted by the IRS for a tax preparer penalty investigation contact California State Bar Certified Tax Specialist Dennis Brager.