Tax Prepares May Increase Fees by More Than 6%
In addition to the recent responsibilities related to implementing the new health insurance requirements for all individuals, new regulations taking effect for the 2016 tax year are greatly increasing the time prepares must put into the completion of many tax returns.
These new regulations issued by the IRS implement new due-diligence requirements that tax return preparers must follow when they prepare returns that claim a child tax credit, additional child tax credit, or American opportunity tax credit (T.D. 9799; REG-102952-16). Before these changes, the due-diligence requirements and the penalties for noncompliance applied only to claims for the earned income tax credit (EITC). These new rules apply for returns or claims for refund prepared on or after Dec. 5, 2016, for tax years beginning after Dec. 31, 2015.
To comply with the due-diligence requirements, besides submitting Form 8867, the preparer must complete the worksheet in Form 1040, 1040A, 1040EZ, or any other form the IRS may prescribe for each credit, including how each credit was computed and the information used to make the computation. The preparer must not know or have reason to know that any information the preparer used to determine eligibility for, and the amount of, each credit is incorrect. The preparer also must make reasonable inquiries when required, documenting those inquiries and responses contemporaneously.
Finally, the preparer must retain for three years the Form 8867, the worksheet (or alternative records), and the record of how and when the information that was used to determine eligibility for, and the amount of, each credit was obtained by the preparer, including the identity of any person furnishing information and a copy of any document the preparer relied on in preparing the return.
The regulations were also amended to reflect other legislative changes that subject the penalty amount to an inflation adjustment. The $500 penalty for each breach of the rules, which applies separately to each credit, is adjusted for inflation. For 2016 and 2017, the inflation-adjusted penalty is $510.
All of this greatly increases the time preparers will have to devote to all returns and especially those that may be eligible for these credits.
Tax and accounting firms plan to raise their fees for accounting services by 6.1% in 2017 and tax prep fees by an average of 6.4% according to a study by the National Society of Accountants.