Three Tax Takeaways for November 7

The IRS is expected to begin issuing Affordable Care Act penalties for businesses that were non-compliant during 2016. The IRS has already sent letters to businesses that they believe should have filed information returns but did not; this was the warning. If those businesses failed to answer the first letter, the next one, Letter 226J, is the penalty notice.

Head of Household filers are now included in the list of taxpayers who have to be questioned by their tax return preparers for evidence that they are truly entitled to make that money-saving claim. In the past, tax pros have been required to obtain and keep copies of due diligence evidence supporting their clients’ claims to the Earned Income tax Credit, American Opportunity Tax Credit, the Child Tax Credit and the Additional Child Tax Credit. Under the TCJA the due diligence requirements are extended to returns claiming the Head of Household filing status. These claims and credits are worth good money, and sometimes refunds even if you did not pay in. Because they are so enticing, they represent areas rife with fraud. Taxpayer’s are not the only ones stretching the truth here because these attributes are also the most common tools used by fraudulent tax preparers to “Bump up,” a fraudulent refund. So if you go to a fly-by-night tax service that guarantees a higher refund than anybody else, and nobody working there is a CPA or EA, don’t be surprised if you get an IRS letter a year later asking for copies of the college tuition records for kids on your return that aren’t even yours. You should also not be surprised that when you call the tax service, that they are nowhere to be found.

In relation to the above point, number three this week is what happens when you sign your tax return. Above the space where you sign your return you will see this statement; “Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year.” Make no mistake, once you sign that return you are responsible for what it contains because you attested under penalty of perjury, that you did examine it and it is true and correct. Don’t worry about what happens to the preparer, because there is a special place in hell for people that get caught making a living by committing fraud.

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