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Sunday, February 12, 2012

More due diligence reminders for 2012 filing season

Part 2 of my short article in the AICPA Tax Insider on due diligence reminders for the current filing season is now available - here.  (Part 1 is available here). Part 2 focuses on charitable contributions, unreimbursed employee business expenses, foreign reporting, EITC, other taxes (such as gift tax, use tax or business license taxes) and return review. Return review is an idea that stems from the 2010 Tax Court case Woodsam. In that case, a $3.4 million Form 1099-MISC was left off of the taxpayer's return which reported AGI of almost $30 million. The taxpayer tried to get the penalty waived since he had a paid preparer. But, there was no reliance on the preparer - this was some type of administrative error that caused one of the taxpayer's roughly 160 Form 1099s to not be reported.

The court reminded the taxpayer that he has an obligation to review his return to be sure it is complete. My due diligence reminder for this one is that practitioners should not give clients tax returns so close to the filing deadline that they do not have time to review them. Practitioners should also remind clients of the need to review the return and that they are responsible for its contents. And, of course, practitioners should review their preparation and review processes to be sure information provided by clients is not omitted.  Perhaps one element of a solution to that one would be to have the client tell the preparer how many information returns they are providing.

Due diligence obligations grow more complex and lengthy as the tax system becomes more complex. So certainly, an area where ever more time and attention needs to be paid.

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