Due Diligence – Preparer Ethics

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Understanding the Role of the Tax Preparer

The IRS’ rules on tax preparer ethics under Circular 230 are rather complex. As tax preparers, it’s our responsibility to provide the most accurate results possible within the regulations of federal tax law. In this course, we will take a look at the current circular 230 rules and regulations as they apply to the role of the tax preparer, including due diligence and internal practice and procedures. We’ll also discuss what responsibilities we have to our clients as well as how they can maintain ethical standards when working with us as their tax preparer. Here’s a rough summary of this course’s topics:

Due Diligence

Tax preparers have a fiduciary duty to their clients, which means they are legally obligated to act in their best interest. Due diligence is vital in ensuring that your interests are protected and that your tax return is as accurate as possible. The Department of Treasury has rules and regulations in place that lay out a comprehensive set of guidelines for tax preparers. For example, according to Circular 230 section 10.51(b)(2), it’s imperative for preparers to make reasonable inquiries into their client’s federal income tax situations and previous years’ returns before preparing any new returns or documents on them. This is just one of many aspects to due diligence we will explore.

Internal Practice & Procedures

Tax preparers, like all businesses and professionals, have a duty to exercise reasonable care and diligence in providing professional services. This means they must exercise due care to avoid missing any tax deduction or credit that may be available to their clients. It also requires us as professionals to take steps to ensure accuracy, such as double-checking for arithmetic errors and missing documents. In short, we need to make sure we fully understand and employ the best practice and procedures. Tax laws are constantly changing, which makes it even more important to follow these practices and procedures. Our clients and our status as professionals can suffer serious consequences if mistakes are made on our clients tax returns. The IRS is not forgiving when it comes to filing an incorrect return. There is no statute of limitations for correcting tax returns and penalties can apply even years after a return has been filed (there are exceptions).

The Client’s Responsibilities

Clients should be aware that it is important to provide tax preparers with accurate and complete information on their tax return. Even if a client does not have any self-employment income, they should tell their tax preparer about each job they worked during the year, even if no taxes were withheld from their paychecks. This is especially true for taxpayers who may be eligible for refunds through earned income credit or credits for dependents. If a client believes that any refund due to them has been applied incorrectly, they are responsible for reporting any errors to both their employer and their tax preparer as soon as possible so that corrections can be made. There are many intricacies that we should be aware of as tax professionals in communicating with our clients about their responsibilities to the IRS. This course will help you grasp and understand those responsibilities.