The IRS announced yesterday that a second round table meeting will be held January 25th, 2012 to discuss the new Real-Time Tax System (RTTS). The first meeting, held on December 8th, 2011, consisted of representatives of consumer groups, tax professionals and state and federal governments. The second round is to attain feedback from small to large businesses, financial institutions, software providers and state revenue commissions.
In the past, the IRS used what is known as the “look back” model that took months after a tax return filing to determine if it was accurate and compliant. Now with RTTS, the IRS will conduct compliance and accuracy checks upon initial return processing against third party information (i.e., past filing status, social security number verification, and W-2 and 1099 information to include unearned income from dividends, annuities, pensions, and withdrawals from retirement plans, etc.). They will then allow the taxpayer to make corrections or submit substantiation to claims of deductions and credits, if needed, before processing the return.
The American Institute of Certified Public Accountants (AICPA) openly supported the move in a December 8th, 2011 statement citing that the initiative will eliminate the need for millions of IRS contacts with taxpayers, improve overall efficiency of the tax system, and may help curb identity theft and Earned Income Credit fraud.
What does this mean? The IRS is getting smarter and faster. Ultimately, the Real-Time Tax System will catch up to non-compliant tax payers and fraudulent filers more quickly, increasing the need for taxpayers to file on time, file accurately, and consider utilizing professional tax services. The IRS will charge a 20% Accuracy Related Penalty for any increase in tax they find that exceeds 10% or $5,000, and a 40% Fraud Penalty if the IRS deems willful intent to deceive.
Also keep in mind that you are the final signature on a tax return, and other than some cases of fraud or criminal activity by a tax preparer, you will be held responsible for your return. Make sure that any preparer is able to answer questions you may have regarding the preparation of the return, and is able properly backup any item you feel needs addressing. Stay away from tax preparers touting their ability to increase your refund by finding loopholes, using OID deductions, or claiming Earned Income Credits for children and dependents that do not live in your house, you do not financially support, and who are not related to you.
As always, seek professional services and advice from a trusted source and do the right thing the first time. This will save months of headaches and costly mistakes.
Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Specialist at the tax resolution and mitigation firm ASAP Tax Relief .
