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Art Werner: Due Diligence and IRS Enforcement | Quick Tax Tip

The IRS is increasing scrutiny, and your due diligence must meet the challenge.

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Quick Tax Tip
With Art Werner
CPE Today

As the IRS increases its enforcement efforts fueled by new funding and additional agents, understanding and practicing due diligence is more critical than ever for tax professionals. Due diligence requirements, established to ensure compliance with tax law, place a significant responsibility on tax practitioners to verify their clients’ eligibility for certain tax benefits.

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Tax professionals must now certify positions related to the American Opportunity Tax Credit, the Earned Income Tax Credit, the Child Tax Credit, and the filing status of Head of Household. These certifications require meticulous documentation, a thorough understanding of the client’s situation, and adherence to the law.

Failing to uphold due diligence can have serious consequences.

Not only can it lead to penalties for the preparer, but it also exposes their entire client base to potential audits. The IRS can scrutinize returns linked to practitioners who fail to meet these standards, putting their practices at risk.

To navigate this complex terrain, tax preparers should:

  1. Document Every Detail: Take comprehensive notes about client circumstances, including proof of eligibility for specific claims like Head of Household status or tax credits.
  2. Verify Information: Don’t rely solely on client-provided data. Cross-check details to ensure compliance with IRS requirements.
  3. Maintain Ethical Standards: Avoid enabling clients to misrepresent their tax situations. Being overly aggressive with interpretations can lead to complications for both the preparer and the client.
  4. Stay Informed: With 2025 anticipated to bring more focus on due diligence, keeping up-to-date with legislation and IRS guidelines is essential.

In the face of these heightened responsibilities, diligent, ethical tax preparation is not just about avoiding penalties—it’s about safeguarding your professional reputation and maintaining trust with your clients.