Tax Practitioner Responsibility

As tax professionals, we bear the responsibility for the technical aspects of our work. Our services encompass the application of tax law, the completion of necessary forms, and guidance for clients on compliance regulations. However, one principle remains unwavering: the taxpayer is ultimately responsible for their tax returns. They must file a return and provide all required information in accordance with Section 6011(a) of the Tax Code. At Dynamic Tax Services, our operations run more smoothly, and we can effectively reduce compliance and practice management risks when clients grasp these principles, particularly the significance of accurate reporting and timely filing of their tax returns.

The following are essential points that every taxpayer should understand, and our tax professionals at Dynamic Tax Services will emphasize these crucial aspects.

The IRS Holds Taxpayers Accountable

The IRS places the responsibility of accuracy squarely on the taxpayer, regardless of whether a professional prepared the income tax return. By signing the return, clients are making a declaration under penalty of perjury, affirming that the information is accurate, complete, and truthful. This signature carries significant weight.

If a tax return contains errors that lead to additional tax liabilities, the taxpayer is obligated to pay the outstanding balance. Interest will accrue from the original due date until the payment is made. In some cases, the IRS may impose an accuracy-related penalty of up to 20% on the underpayment.

Hiring a tax preparer does not automatically absolve taxpayers from penalties. In certain situations, such as when a tax preparer fails to adhere to tax laws or provides incorrect advice, it may serve as a potential defense; however, this is not guaranteed.

It is crucial for clients to understand these responsibilities before signing the Engagement Letter.

 

Complete Information Is Not Optional 

A tax return filed by a paid tax professional is only as accurate as the information provided. Taxpayers are responsible for disclosing all income and providing all relevant documents. 

That includes forms W-2 and 1099, schedules K-1, brokerage statements, and documentation supporting deductions and credits. It also includes life changes such as marriage, divorce, new dependents, and changes in custody. Self-employment income is omitted because it was never shared, so the return is still incorrect. The IRS will hold the taxpayer themselves accountable, not the tax preparer who never received the information. 

Set expectations early. The tax interview is a full-disclosure conversation, not just a document upload. 

Reviewing Before Signing 

 

Many clients often believe that signing their tax return is the final step in a process they haven't fully examined. This misconception is misleading; signing the return indicates that clients affirm its accuracy. We strongly encourage clients to thoroughly review their tax returns and reach out to Dynamic Tax Services with any questions. During this review, clients may identify discrepancies, such as typographical errors or other mistakes. It’s essential to pay close attention to the following key areas:

  • Total Income

  • Adjusted Gross Income

  • Taxable Income

  • Claimed Credits and Deductions

  • Refund or Balance Due

Clarifying any unfamiliar figures before filing is crucial; don’t wait for an IRS notice to address potential issues.

 

IRS Notices Do Not Go Away 

One common issue that often arises is ignored mail. Many problems escalate when taxpayers neglect to open or respond to notices from the IRS or state authorities. Remember, deadlines are crucial. Unpaid interest and penalties can accumulate rapidly; what starts as a minor discrepancy can quickly spiral out of control. 

It's important to note that responsibility does not automatically transfer to the tax preparer upon receiving a notice. Unless the taxpayer forwards the notice and specifically engages the tax preparer to take action, the responsibility for addressing the issue remains entirely with them. 

Please take this seriously: if you receive a notice, contact us immediately. 

"My Tax Preparer Did It"...This Is Not A Shield

Many clients mistakenly believe that hiring a tax professional absolves them of liability. This is not the case. 

The IRS typically holds taxpayers accountable for issues like underreported income, inflated deductions, and unpaid taxes. Even if a tax preparer makes an error, the taxpayer is still responsible for paying the tax along with any accrued interest. Courts have consistently ruled that taxpayers cannot escape liability for additional taxes, penalties, or interest simply because of a preparer's mistake. 

When clients grasp their responsibilities, they tend to be more engaged and meticulous about the information they provide. At Dynamic Tax Services, we aim to ensure that all tax clients fully understand this principle, alleviating any concerns related to their tax obligations.

Recordkeeping Is Also The Taxpayer's Job

To verify elements on a tax return—such as income, deductions, and credits—taxpayers must keep thorough records. This includes invoices, mileage logs, receipts, and other essential documentation. At Dynamic Tax Services, our professionals can provide guidance on what information to retain and for how long, acting as your tax preparer. However, the responsibility for preserving these records ultimately lies with the taxpayer.

When the IRS reviews a tax return, the burden of proof rests with the taxpayer. Without adequate documentation, deductions and credits may be disallowed, underscoring the importance of maintaining precise records to support claims made on tax returns. Dynamic Tax Services advises taxpayers to organize their recordkeeping throughout the year, rather than just at tax time, to ensure they can present sufficient documentation for their deductions and credits during an IRS review.

Partnership in Tax Success

At the heart of a successful tax engagement lies our partnership. We bring our expertise and meticulous attention to detail, while you, as the taxpayer, provide complete information and essential documentation. It’s important to understand that our shared objective is to enhance compliance. We are here to guide you through the preparation process, while your responsibilities include reviewing documents, maintaining relevant records, and disclosing all necessary information.

Both Dynamic Tax Services and you, our valued client, play vital roles in ensuring the security and success of this collaboration.

Summary

Our objective is to file an accurate tax return that withstands scrutiny, ensuring your compliance with the IRS while safeguarding your interests. At Dynamic Tax Services, we uphold the highest standards of integrity, which necessitates complete documentation for every deduction we claim. In response to the IRS's enhanced due diligence requirements, we are also refining our processes. To work collaboratively and prevent any delays in your tax refund or inquiries from the IRS, it is essential that we receive all necessary documentation upfront.

If additional information is required for verification, please refer to the attached IRS documents:

TREASURY DEPARTMENT CIRCULAR No. 230, Regulations Governing Practice before the Internal Revenue Service: This document serves as the primary authority for tax professionals.

 

 

  • Section 10.22 (Diligence As To Accuracy): Requires tax practitioners to exercise due diligence when preparing tax returns, verifying the accuracy of representations, and handling documents for filing.

  • Section 10.34 (Standards For Advisory and Signing Tax Returns): Mandates that tax preparers demonstrate due diligence, ensure consistency, and inquire further if any information seems incomplete or incorrect.

  • Section 10.36 (Procedures To Ensure Compliance): Stipulates that firms must implement adequate procedures to comply with Circular 230.

IRS PUBLICATION 3112, IRS e-file APPLICATION AND PARTICIPATION: This publication details the requirements for Authorized IRS e-file Providers, emphasizing the importance of maintaining accurate records and undergoing suitability checks.

FORM 8867, PAID PREPARER'S DUE DILIGENCE CHECKLIST: This mandatory form (along with its instructions) is required for preparers claiming specific credits (EITC, CTC/ACTC/ODC, AOTC) or head of household status. It necessitates confirmation that the preparer has asked the appropriate questions and gathered supporting documentation.

IRS WEBSITE - "DUE DILIGENCE REQUIREMENTS FOR TAX PREPARERS" (EITC CENTRAL): Emphasizes the obligation to retain client documents and records of information received for a period of three (3) years.

SIGNED ENGAGEMENT LETTER & TAX ORGANIZER:

Although the IRS does not explicitly require a written engagement letter in a single publication, Circular 230 Sections 10.22 and 10.34 (Due Diligence) suggest that a clear understanding of the scope of services, the client's responsibilities (in providing information), and the accuracy of records is essential to maintain professional standards.

  • Best Practices: Tax professionals utilize engagement letters and tax organizers as primary documentation to fulfill these due diligence requirements, clearly defining the responsibilities of both the client and the tax preparer.

  • Records Retention: Documentation related to the engagement, including a signed engagement letter and the completed tax organizer, is crucial for demonstrating due diligence in the event of an IRS investigation.

For guidance on accurate documentation and due diligence, refer to Circular 230, particularly Sections 10.22 and 10.34. For specific e-file provider requirements, consult Publication 3112.

 

TO ENSURE YOUR TAX RETURN IS PREPARED ON TIME, PLEASE:

1) Sign The Engagement Letter;

2) Complete The Tax Organizer; and

3) Upload All Supporting Documents To Our Secure Portal