The Internal Revenue Service today reminded taxpayers that carefully choosing a tax professional to prepare a tax return is vital to ensuring that their personal and financial information is safe and secure and treated with care.

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams.

It is important for taxpayers to understand who they’re choosing and what important questions to ask when hiring an individual or firm to prepare their tax return.

Another reason to choose a tax preparer carefully is because taxpayers are ultimately legally responsible for all the information on their income tax return, regardless of who prepares it.

The IRS has put together a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help individuals find a tax pro that meets high standards. There is also a special page on IRS.gov for Choosing a Tax Professional that can help guide taxpayers in making a good choice, including selecting someone affiliated with a recognized national tax association. There are different kinds of tax professionals, and a taxpayer’s needs will help determine which kind of preparer is best for them.

Red flags to watch out for

There are warning signs that can help steer taxpayers away from unscrupulous tax return preparers. For instance, not signing a tax return is a red flag that a paid preparer is likely not to be trusted. They may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund.

These unscrupulous “ghost” preparers often print the return and have the taxpayer sign and mail it to the IRS. For electronically filed returns, a ghost preparer will prepare the tax return but refuse to digitally sign it as the paid preparer. Taxpayers should avoid this type of unethical preparer.

In addition, taxpayers should always choose a tax professional with a valid Preparer Tax Identification Number. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid PTIN. Paid preparers must sign and include their PTIN on any tax return they prepare.

Other tips

Here are a few other tips to consider when choosing a tax return preparer:

• Look for a preparer who’s available year-round. If questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.

• Review the preparer’s history. Check the Better Business Bureau website for information about the preparer. Look for disciplinary actions and the license status for credentialed preparers. For CPAs, check the State Board of Accountancy’s website, and for attorneys check with the State Bar Association. For enrolled agents go to IRS.gov and search for “verify enrolled agent status” or check the IRS Directory of Federal Tax Return Preparers.

• Ask about service fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of the refund into their own financial accounts. Be wary of tax return preparers who claim they can get larger refunds than their competitors.

• Find an authorized IRS e-file provider. They are qualified to prepare, transmit and process e-filed returns. The IRS issues most refunds in fewer than 21 days for taxpayers who file electronically and choose direct deposit.

• Provide records and receipts. Good preparers ask to see these documents. They’ll also ask questions to determine the client’s total income, deductions, tax credits and other items. Do not hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is against IRS e-file rules.

• Understand the preparer’s credentials and qualifications. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent taxpayers in limited situations if they prepared and signed the tax return.

• Never sign a blank or incomplete return. Taxpayers are responsible for filing a complete and correct tax return.

• Review the tax return before signing it. Be sure to ask questions if something is not clear or appears inaccurate. Any refund should go directly to the taxpayer – not into the preparer’s bank account. Review the routing and bank account number on the completed return and make sure it’s accurate.

Taxpayers can report preparer misconduct to the IRS using Form 14157, Complaint: Tax Return PreparerPDF. If a taxpayer suspects a tax return preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct AffidavitPDF.

Source: IRS-2024-31, Feb. 01, 2024

Shorter, clearer letters to reduce taxpayer confusion; about 170 million notices sent to individual taxpayers annually

The Internal Revenue Service today announced work is underway on the Simple Notice Initiative, a sweeping effort to simplify and clarify about 170 million letters sent annually to taxpayers.

Part of the larger transformation work taking place at the IRS with Inflation Reduction Act funding, the Simple Notice Initiative will build off redesigned notice efforts in place for the 2024 tax season and expand on a recent successful pilot involving identity theft letters.

The Simple Notice Initiative will review and redesign hundreds of notices with an immediate focus on the most common notices that individual taxpayers receive. The redesign work will accelerate during the 2025 and 2026 filing seasons, improving common IRS letters going out to individual taxpayers and then expanding into notices going to businesses.

The IRS sends about 170 million notices to individual taxpayers every year, covering a range of issues from claiming the credits and deductions for which they are eligible for as well as meet their tax obligations. These notices are often long and difficult for taxpayers to understand. And they do not always clearly and concisely communicate the next steps a taxpayer must take.

“Simplifying and clarifying these letters will make it easier for taxpayers to understand the tax issues involved,” said IRS Commissioner Danny Werfel. “This will help reduce questions and save headaches for taxpayers, the tax professional community as well as the IRS. Improving these letters is also critical to our internal operations at the IRS, and an important part of our transformation efforts. Clearer letters can create a ripple effect, reducing taxpayer phone calls and visits and freeing up IRS staff to help others.”

This initiative builds on the IRS Paperless Processing initiative announced in August 2023 to advance the goal of providing world-class customer service to taxpayers. With these initiatives, taxpayers have the option to go paperless and conveniently submit necessary responses online, and taxpayers will receive clearer and more concise notices from the IRS, so they better understand the actions they need to take.

Filing season 2024: IRS reviewed, redesigned 31 notices

• The Simple Notice Initiative builds on the IRS’s continuous effort to improve notices. During the last year, the IRS reviewed and redesigned 31 notices in time for this year’s tax season. The IRS sent about 20 million of these notices in calendar year 2022.

• These include notices to taxpayers who served in combat zones that may be eligible for tax deferment, notices that remind a taxpayer that they may have unfiled returns and notices that remind a taxpayer about their balance due and where they can go for assistance.

Filing season 2025: IRS will review, redesign most common notices sent to individual taxpayers

• By filing season 2025, the IRS will review and redesign the most common notices that individual taxpayers receive. The IRS will focus on up to 200 notices that make up about 90% of total notice volume sent to individual taxpayers. This represents about 150 million notices sent to individual taxpayers in 2022.

• These include notices to propose adjustments to a taxpayer’s income, payments, credits, and/or deductions, notices to correct mistakes on a taxpayer’s tax return and notices to remind a taxpayer of taxes owed.

• The IRS will be actively engaging with taxpayers and the tax professional community to gather feedback on how these notices should be redesigned.

Filing season 2026 and beyond: IRS will review, redesign notices sent to businesses taxpayers as well as less common notices sent to individual taxpayers

• The IRS sends over 40 million notices to business taxpayers every year. In future filing seasons, the IRS will review and redesign notices sent to business taxpayers.

• The IRS will also review and redesign less common notices sent to individual taxpayers.

• Additional detail on the plan to redesign these notices will be shared in future updates.

Recent notice pilot shows how a redesigned notice can improve taxpayer experience while reducing call volume

The IRS is committed to delivering a better taxpayer experience through notices, over the phone, online and in-person. While taxpayers will always have the option to call, the IRS also wants to make it easier for taxpayers to resolve issues without having to pick up the phone. Plain language notices can help the IRS achieve this goal.

For example, the IRS recently conducted a pilot that sent redesigned versions of Notice 5071C to a subset of taxpayers. The Notice 5071C asks taxpayers to verify their identity and tax return online or over the phone to prevent the processing of fraudulent tax returns. As part of the redesign, the IRS shortened the 5071C notice from seven pages to two pages. The IRS also improved readability of the notice by updating the font and adding visual enhancements such as headers, icons and step-by-step instructions.

The IRS also clarified instructions and added a QR code that directs taxpayers to the IRS webpage where they can respond to the notice online instead of responding over the phone. See below for an overview of improvements that were made.

The IRS sent the redesigned Notice 5071C to 60,000 taxpayers. Compared to taxpayers who received the original notice, there was a 16% reduction in taxpayers who called the IRS as their first action, and a 6% increase in taxpayers who used the online option. The IRS will apply lessons learned from this pilot, among others, to the new initiative. These changes to this notice will be put in place during coming months.

Notice 5071C: Before and after redesign shows changes

Source: IRS-2024-19, Jan. 23, 2024

As part of ongoing efforts to protect taxpayers, the Internal Revenue Service reminds people that International Fraud Awareness Week serves as an important time to protect personal and financial information from scam artists and tax schemes.

International Fraud Awareness Week, which runs through Nov. 18, is an effort to minimize the impact of fraud through awareness and education. During the special week, the IRS – including the agency’s Office of Fraud Enforcement and IRS Criminal Investigation – continue working to raise awareness to fraud and scams affecting taxpayers across the country.

The IRS continues to encourage individuals, businesses and tax professionals to take time now to know the red flags of a scam, and to ensure defenses are in place to stop scammers and those who promote unscrupulous tax schemes.

Although this special week highlights international fraud, the IRS works throughout the year to raise awareness about tax scams and schemes. These efforts range from the annual Dirty Dozen list of tax scams to other tax schemes, including aggressive marketing involving Employee Retention Credit claims.

In addition, the IRS, state tax agencies and the nation’s tax industry work together in the Security Summit initiative to protect taxpayers, businesses and the tax system from identity thieves and related scams.

“During this special week, the IRS reminds taxpayers that we are on their side and looking out for them,” said IRS Commissioner Danny Werfel. “Our work on tax scams and schemes reflects this commitment. IRS employees are working to protect honest taxpayers from scam artists, raising awareness about emerging issues and rooting out the nefarious actors that perpetrate them. With modernization funding in place, the IRS is well positioned to disrupt scams as part of our transformation efforts.”

IRS Office of Fraud Enforcement: Shining a light on fraud

The IRS Office of Fraud Enforcement (OFE) promotes compliance with tax laws by strengthening the IRS response to fraud and mitigating emerging threats. This includes improving fraud detection, identifying areas of high risk, enhancing enforcement and helping develop and submit fraud referrals to IRS Criminal Investigation where appropriate.

During International Fraud Awareness Week, the IRS reminds taxpayers to be especially wary of scammers and promoters of bogus tax schemes aimed at reducing taxes or avoiding them altogether.

Many of these tax avoidance schemes are included in the 2023 IRS Dirty Dozen list and often involve unscrupulous asset protection professionals or promoters who lure people into placing their assets in offshore accounts and structures.

These promoters often sell their scams by promising that assets are out of the government’s reach. They may also suggest that digital assets are untraceable and undiscoverable by the IRS and that the transactions are anonymous. In fact, the IRS has a vast array of tools to combat offshore tax evasion, including working with its international treaty partners to identify and track assets, transactions and evidence.

Improper Employee Retention Credit claims

The IRS has seen a high volume of incorrect and improper Employee Retention Credit claims and continues warning taxpayers about them. The ERC, sometimes also called the Employee Retention Tax Credit or ERTC, is a pandemic-related credit for which only certain employers qualify. The credit is not available to individual employees.

Scam promoters are luring people to incorrectly claim the ERC with “offers” online, in social media, on the radio or through unsolicited phone calls, emails and even mailings that look like official government letters but have fake agency names and usually urge immediate action.

These unscrupulous promoters make false claims about their company’s legitimacy and often don’t discuss some key eligibility factors, limitations and income tax implications that affect an employer’s tax return.

It’s important to watch for warning signs such as promoters who say they can quickly determine someone’s eligibility without details, and those who charge up-front fees or a fee based on a percentage of the ERC claimed.

Anyone who incorrectly claims the ERC must pay it back, possibly with penalties and interest.

The only way to claim the ERC is on a federal employment tax return. The IRS continues to warn employers to not fall for aggressive marketing or scams related to the ERC. Employers should first check with their trusted tax professional before submitting an ERC claim, and the IRS has developed a special Employee Retention Credit Eligibility Checklist and frequently asked questions to help people quickly determine if they might be eligible.

As part of a larger effort to protect small businesses and organizations from scams, the Internal Revenue Service created a special withdrawal process to help those who filed an ERC claim and now want to withdraw it. This new withdrawal option allows certain employers that filed an ERC claim but have not yet received, cashed or deposited a refund to withdraw their submission to avoid future repayment, interest and penalties.

The new withdrawal process follows an immediate moratorium, announced by the IRS on Sept. 14, 2023, on processing new ERC claims. The moratorium, which will last until at least the end of this year, follows concerns about ineligible ERC claims.

Know the red flags

IRS impersonation scams involve fake text messages, social media accounts, e-mail and phone calls. Knowing what to watch out for can help keep taxpayers safe.

Remember, the IRS does not:

• Initiate unexpected contact with taxpayers by email, text messages or social media channels to request personal or financial information.
  • Scammers attempt to use these methods of contact to con individuals, businesses, payroll and tax professionals into providing personal information, PINs, passwords and other data.
  • If a taxpayer receives an unsolicited SMS/text that appears to be from either the IRS or a program closely linked to the IRS, the taxpayer should copy the entire message and send it as an attachment to phishing@irs.gov.
• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments.
• Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
• Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
• Ask for credit or debit card numbers over the phone.
• Leave pre-recorded, urgent or threatening phone messages.
  • In many variations of the phone scam, victims are told if they do not call back, a warrant will be issued for their arrest. Other verbal threats include law-enforcement agency intervention, deportation or revocation of licenses.
  • Criminals can fake or “spoof” caller ID numbers to appear to be anywhere in the country, including from an IRS office, which makes it difficult for taxpayers to verify the actual caller’s number.
  • Fraudsters have spoofed local sheriff’s offices, state departments of motor vehicles, federal agencies and others to convince taxpayers the call is legitimate.
  • Any taxpayer receiving a scam phone call should hang up immediately and not give out any information.
    • Contact the Treasury Inspector General for Tax Administration to report the call at IRS Impersonation Scam Reporting.
    • Report the caller ID and/or callback number to the IRS by sending it to phishing@irs.gov with the subject “IRS Phone Scam.”

Watching for these common scams can keep people from becoming victims of identity theft. Individuals should protect their sensitive personal information that can be used to file fraudulent tax returns and steal refunds.

Small businesses are big targets

Businesses of all types and sizes, especially small businesses, need to be aware cybercriminals could target their businesses with scams to steal passwords, divert funds or steal employee information.

The IRS continues to see instances where small businesses, including tax professionals, face a variety of identity-theft related schemes that try to obtain information to file a business tax return or use customer data for identity theft.

Businesses, including tax professionals, are encouraged to follow best practices from the Federal Trade Commission, including to:

• Use multi-factor authentication.
• Set security software to update automatically.
• Back up important files.
• Require strong passwords for all devices.
• Encrypt devices.

In partnership with the IRS, the Security Summit initiative is at the forefront of protecting taxpayers, businesses and the tax system from identity thieves. Working together as the Security Summit, the IRS, state tax agencies and the nation’s tax industry have taken numerous steps to warn people to watch out for common scams and schemes.

Source: IRS-2023-212, Nov. 13, 2023

The Internal Revenue Service is reminding taxpayers who pay estimated taxes that the deadline to submit their third quarter payment is Sept. 15, 2023.

Taxpayers not subject to withholding may need to make quarterly estimated tax payments. Taxpayers such as gig workers, sole proprietors, retirees, partners and S corporation shareholders generally must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.

A general rule of thumb is that taxpayers should make estimated tax payments if they expect:

• To owe at least $1,000 in taxes for 2023 after subtracting their withholding and tax credits.
• Their withholding and tax credits to be less than the smaller of:
  • 90% of the tax to be shown on their 2023 tax return or
  • 100% of the tax shown on their complete 12-month 2022 tax return.

More taxpayers will receive 1099-Ks for 2023

Taxpayers who were paid over $600 by payment apps and online marketplaces or received any amount by payment cards could receive a Form 1099-K, Payment Card and Third Party Network Transactions, starting January 2024, for payments received in 2023. This includes anyone with a side hustle, sole proprietors, and anyone selling goods and services online. It’s important to remember that taxpayers should report their income, unless it’s excluded by law, regardless of whether they receive a Form 1099-K or any other third-party reporting document. The 1099-K reporting threshold for third party reporting doesn’t change what counts as income or how tax is calculated. Find more information at Understanding Your Form 1099-K.

Figuring estimated tax

To figure estimated tax, taxpayers must calculate their expected Adjusted Gross Income (AGI), taxable income, taxes, deductions and credits for the year. To figure 2023’s estimated tax, it may be helpful to use income, deductions and credits from 2022 as a starting point.

Taxpayers can use the tools on IRS.gov to check if they are required to pay estimated taxes. The Tax Withholding Estimator, the IRS Interactive Tax Assistant and the worksheet in Form 1040-ES, Estimated Tax for Individuals all offer clear step-by-step instructions.

Avoid a penalty for underpayment

Taxpayers who underpay their taxes may have to pay a penalty regardless of whether they paid through withholding or through estimated tax payments. Late and skipped estimated tax payments can incur penalties even if a refund is due when a tax return is filed.

Taxpayers should use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if they owe a penalty. Taxpayers can also request a waiver of the penalty if they underpaid because of unusual circumstances and not willful neglect.

Special rules apply to some groups of taxpayers such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.

Paying the easy way

An electronic payment is the easiest, fastest and most secure way to make an estimated tax payment. The Payments page on IRS.gov provides complete tax payment information, how and when to pay, payment options and more.

Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account.

Taxpayers can also pay using a debit card, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit card, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.

Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment. Payment by check or money order made payable to the “United States Treasury” is also an option.

The IRS encourages taxpayers earning income not normally subject to withholding to consider making estimated tax payments throughout the year to stay current and avoid a surprise at tax time.

The fourth and final estimated tax payment for tax year 2023 is due on Jan. 16, 2024.

Source: IRS-2023-165, Sept. 6, 2023