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By Marcia Richards Suelzer, Toolkit Staff Writer
It's no secret the federal government is short on money. So the nation's tax collector is trying to fix this situation.
The IRS is attempting to increase revenue collection by closely scrutinizing individual tax returns most likely to contain errors. To this end, the Service mailed letters to 21,000 paid tax preparers who complete large volumes of tax returns with Schedules A (Itemized Expenses), C (Business Expenses) or E (Supplemental Income). In addition, 2,100 of these individuals can expect a visit from the IRS to verify that they are using due diligence and complying with all requirements when they prepare individual tax returns.
Warning. The IRS focused on returns with a high percentage of attributes that indicate errors in filing Schedules A, C or E. This does not mean returns that were actually found to contain errors. Rather, it means the IRS is targeting certain types of deductions that are likely to be on every small business owners' tax returns. Even if your tax return preparer did not receive a letter, you can rest assured that he or she is well aware of the initiative and is going to expect you to provide documentation for every expense.
While the IRS doesn't require that your preparer audit your books or verify every detail, he or she cannot ignore the implications of information that you furnish to him or her. In addition, your preparer is required to make reasonable inquiries whenever information that you provide appears to be incorrect, inconsistent with an important fact or assumption, or incomplete. Additionally, your preparer is obligated to make appropriate inquiries to determine the existence of facts and circumstances required as a condition for claiming a deduction or credit.
Be Aware of the Hot Buttons on Returns
When the IRS evaluates a return, the staff members zero-in on certain deductions. The letters sent to preparers provide both them (and you) with advanced warning of where the IRS will direct its attention for the 2011 tax year. Based on last year's returns, these are the items that are going to be examined more closely. Make sure you have the documentation to support each one that you claim.
Targeted items on Schedule A (Itemized Deductions):
The most common issues on Schedule C (Business Expenses):
Schedule E (Supplemental Income) items mostly likely to pique the IRS's curiosity:
As the year draws to an end--and the countdown to tax season begins--be prepared to help your tax professional prepare an accurate tax return on your behalf by assembling necessary documentation and following the rules regarding expense deductions. Advance preparation can reduce the likelihood of costly penalties and interest that can result from an inaccurate return.
And if you happen to prepare your own tax returns, consider yourself forewarned.