With tax and accounting professionals heading into the beginning of the TY 2009 income tax filing season, the IRS has announced significant new changes that it plans to implement starting in Jan. 2011, along with enhanced enforcement measures that will start this season. The changes are geared toward providing regulation of the thousands of unlicensed and uncredentialed tax preparers across the country who offer filing services.

The most notable of the proposed changes schedule to start in 2011 (for 2010 income tax reporting) includes requiring paid preparers to register with the IRS, receive a “preparer tax identification number (PTIN), take an initial competency test and take at least 15 hours or continuing professional education (CPE) courses per year. Ethics rules found in Circular 230 would also be extended to this new group of paid preparers. The changes in licensing and CPE would not affect professionals already recognized by the IRS, such as CPAs, enrolled agents and attorneys, so long as they are in good standing with their respective licensing agencies.

“As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers,” said IRS Commissioner Doug Shulman. “Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Changes for 2010
In addition to the changes proposed for next year, the IRS has started sending notices to to approximately 10,000 preparers across the country who handle “large volumes of specific tax returns where the IRS typically sees frequent errors.”

These include reminding the professionals to practice due diligence when handling Schedule C income and expenses, Schedule A deductions and qualification for the EITC and homebuyer credits. Agents may also visit many of these preparers and, under a separate enforcement program, the IRS is also planning to conduct compliance investigations of paid preparers that may include agents posing as taxpayers.

Do you suppose the IRS has an ulterior motive for making these changes – like increasing revenue? The global recession has resulted in less Americans working and that means less tax revenue for the IRS. By implementing these measures, the IRS can make up some of the difference by dissuading tax preparers and tax advisors from taking chances on questionable deductions. If you are a tax preparer or tax advisor – beware!

source: cpatechnologyadvisor.com

A Brooklyn man who ran a tax preparation business in Flatbush was sentenced last week in Brooklyn federal court to two years in prison for defrauding the IRS.

Remy Milien, who owned and operated the Maximum Refund tax return preparations company, fabricated people’s tax returns without their knowledge so as to make his services more attractive to his customers.

Between the years 2000 and 2002, Milien defrauded the U.S. government of an estimated $200,000 to $400,000 by listing false tax deductions on the returns of his customers, as well as on his own forms.

He was sentenced before Judge Edward R. Korman to two years in prison last week, after pleading guilty in 2007 to 21 counts of fraud in U.S. District Court for the Eastern District of New York, located on Cadman Plaza East in Downtown Brooklyn.

The IRS determined the extent of Maximum Refund’s fraudulent operations after analyzing tax return forms that passed through its office and interviewing some of the taxpayers, as well as sending an undercover agent to Maximum Refund to have a tax return prepared.

Milien, without asking the agent for any relevant information, prepared a fraudulent tax return form with fabricated deductions. Thus, investigators determined that he was performing these illegal operations without the knowledge of the taxpayers he represented, some of whom may face unanticipated tax debt and audits.

Maximum Refund processed over 2,000 tax returns in total — almost of all of them for low-income individuals. These sorts of crimes are difficult for the IRS to prosecute because they consist of consistent small-scale frauds by third-party tax preparers that aggregate into large-scale fraud after hundreds of repetitions.

Milien fabricated tax deductions on the 1040 income tax returns for his customers — for example, gifts to charity, job expenses, gambling losses and medical expenses. A majority of the returns claimed itemized deductions in excess of 50 percent of the taxpayers’ adjusted gross income, according to court documents.

As Milien performed much of this fraud without the knowledge of his customers, presumably he was trying to make his business more popular by offering customers impossible and illegal savings on income tax.

A close analysis of 26 returns by the IRS revealed that Milien’s fraudulent claims lost the IRS roughly $58,000, which he now owes in restitution. Furthermore, upon analyzing 125 more tax returns processed by Maximum Refund, the IRS found additional losses of over $200,000 in fraudulent claims on more than half of the forms.

Milien’s requests in court for a lower sentence based on his low risk of recidivism were dismissed by prosecutors, as they argued that while he was charged with several counts of fraud, he actually committed these same crimes hundreds of times.