Taxpayers can be assessed accuracy-related penalties.

These IRS penalties can be the result of many factors, and I am not pretending to outline all posibilities. One that comes to mind is the Omission of Income. In this case maybe the taxpayer acted on the belief that the item in question was not income contrary to a specific IRS regulations and the like.  Maybe because, the taxpayer is under the belief that their is not a specific regulation that address the transaction in question. 

The general rule start from the premise that everything is income unless specifically exempt from taxes. That in itself stress the importance of having a tax professional on your side to look all transactions you had been involved. 

It can get even worst if the understament is over $5,000 or 10% of the tax required to be shown on your tax return. In this case the required accuracy-related penalty is 20% of the underpayment amount, or $400 ($5,000 x 20%).

Be careful and make sure that all items of income are included, it is the taxpayer responsibility.  They are exeptions, rules and procedures to be followed not discussed here.

For more information you may want to go to http:///www.irs.gov

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Taxpayer Indentification Number

Definition of TIN.

TIN is a Taxpayer Identification Number.

Types of TIN.

They are many types of TINs: Social Security Number (SSA), Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), Adoption Taxpayer Identification Number (ATIN), and Preparer Identification Number (PTIN).

Self-employee:

If you are self employee, you probably are using a SSA, EIN, TIN, and or a PTIN; depending on many factors such as type of work and entity.  You must provide the correct TIN number to the vendor you provide services to so that he or she can prepare/submit the necessary forms to you and the IRS at year end.

Employers:

All employers are required to obtain the correct TIN from vendors they get service from to be in compliance with the IRS regs and applicable IRC law.  Failure to do obtain the correct TIN and do the due deligence documentation required can make you subject to penalties.  In the event you do everything possible to obtain accurate information you are required make all payments to the payee subject to backup withholding. In some cases is 28% and others 30% of the amount paid. 

Payments that can be subject to backup withholding include: interest, dividends, rents, royalties, non-employee compensation, broker and bartering exchange transactions.

Due Diligence from Employers: (some of notice are below)

1-Ascertain that the TIN provided is correct

2-Update information from provider

3-Solicit and proerly document all efforts to obtain correct information

4-Make all efforts by the due date

5-Have Policies and Procedures

Failure to know the IRS regulations and keep documentation cannot relief you from being penalized by the IRS.

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Earned Income Credit changes for 2012

IRS Issues Proposed Regulations - That Would Require Tax Preparers to File Due Diligence Checklist with All EITC Claims Submitted in 2012.  THIS IS A PROPOSAL not a requirement just yet.  

IR-2011-98, Oct. 6, 2011

Proposal reads:

Preparers wold be require, beginning in 2012, to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC). It is the same form that is currently required to be completed and retained in a preparer’s records.  So, the propsed regulation require you, the preparer, to attach along with the tax return.

Objective

The due diligence requirement, enacted by Congress over a decade ago, was designed to reduce errors on returns claiming the EITC, most of which are prepared by tax professionals.

Currently we have...

The IRS created Form 8867, Paid Preparer's Earned Income Credit Checklist, to help preparers meet the requirement by obtaining eligibility information from their clients. Preparers have been required to keep copies of the form, or comparable documentation, which is subject to review by the IRS. To help ensure compliance with the law and that eligible taxpayers receive the right credit amount, the proposed regulations would require preparers, effective Jan. 1, 2012, to file the Form 8867 with each return claiming the EITC.

Further details can be found in REG-140280-09. Comments on the proposed regulations are due by Nov. 10, 2011, and a public hearing on the proposed regulations is scheduled for Nov. 7, 2011.

What's EITC

The EITC benefits low-and moderate-income workers and working families and the tax benefit varies by income, family size and filing status. Unlike most deductions and credits, the EITC is refundable –– taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.

Although as many as one in five eligible taxpayers fail to claim the EITC, some of those who do claim it either compute it incorrectly or are ineligible. The IRS is proposing this step as part of its efforts to ensure that the credit is afforded to taxpayers who qualify. For 2009, over 26 million people received nearly $59 billion through the EITC. Tax professionals prepare close to 66 percent of these claims.

Source: http://www.irs.gov/

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