January 2019 JD Supra
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Due Diligence is necessary for Taxpayers to have the Right TAX Representative was published by JD Supra on 1/8/19.

As 2018 comes to an end, many Taxpayers are wondering about their tax reporting situation under the Tax Cut Jobs Act.  Taxpayers ought to be asking themselves if their Tax Representative understands: 

  • Although you itemized deductions through Schedule-A in 2017, that you may no longer be able to do so as certain deductions on the Schedule-A have been limited?
  • That because deductions will be limited, perhaps the standard deduction will be more beneficial.
  • If the standard deduction applies to you?   
  • If your State and Local Taxes (SALT) are greater than the new limit of $10,000 per return?
  • What happens if your mortgage is greater than $750,000? Or if you have a HELOC?
  • If the new 20% Qualified Business Income deduction to lower tax rates for owners of certain pass-through entities applies to you?
  • International tax codes, how to deal with multiple countries, and how to manage the relationship between the IRS and Foreign Tax Authorities?
  • If you own Virtual Currency and have never reported a gain and or loss?

Is your Tax Representative fit to practice?

The Office of Professional Responsibility is the Statutory Authority that addresses the conduct of a Taxpayer’s representative before the IRS.  Under Title 31 of the United States Code, Section 330, a Taxpayer’s representative is fit to practice because he or she has “good character, good reputation, the necessary qualifications to provide a valuable service to clients, and competence to advise and assist them in presenting their cases”.

Can your Tax Representative practice before the IRS?

Only Attorneys, CPAs and Enrolled Agents can practice before the IRS under the US’s Treasury Department’s rules and regulations governing practice before the IRS as described in Circular 230: “the common name given to the body of regulations promulgated under the enabling statute found at Title 31” defining “practice” and who may practice before the IRS.  

What does it mean to Practice before the IRS?

Practice before the IRS under Circular 230 includes:

  • Communicating with the IRS on behalf of a taxpayer regarding the Taxpayer’s rights, privileges, or liabilities under laws and regulations administered by the IRS.
  • Representing a Taxpayer at conferences, hearings, or meetings with the IRS.
  • Preparing, filing or submitting documents, or advising on the preparation, filing or submission of documents, including tax returns, with the IRS on behalf of a Taxpayer.
  • Providing a client with written tax advice on one or more Federal tax matters.

Taxpayers beware of Written Tax Advice (including Fax and Email) from your Tax Representative regarding tax issues arising from:

  • a transaction IRS has determined is a tax-avoidance transaction,
  • a partnership or other entity or investment plan, or any other plan or arrangement, that has tax avoidance or evasion as a principal purpose, or
  • a partnership or other entity or investment plan, or any other plan or arrangement, that has tax avoidance or evasion as a “significant purpose”.   if the written advice is a “reliance opinion” (reasonable, factual and contains legal assumptions), or a “marketed opinion” (the opinion will be used by a promoter to market an investment).

Don’t be a victim of your own making  

Taxpayers sign Tax Returns under penalty of perjury and are responsible for the information in their Return – even if the Return is prepared by someone else.  If a Tax Return is inaccurate, a Taxpayer may face an audit, civil penalties or criminal charges. Taxpayers should not be victims of their own making, take the time to investigate their Tax Representative and be sure that they are choosing the right Representative; one that will not expose them to “additional scrutiny or liability” due to lack of experience or unethical practice.