Delinquent Taxpayers Beware; the IRS Is Getting Smarter and Faster 

The IRS is getting ready to roll-out its Real-Time Tax System (RTTS) which promises to catch inaccurate returns and delinquent taxpayers quickly.  In the past, the IRS used a “look back” approach to determine if a return was accurate and filed on time.  Typically, problems with returns were not found and acted upon by the IRS for many months resulting in higher penalty and interest assessments.

 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 taxpayers to make corrections or submit substantiation to claims of deductions and credits, if needed, before processing the return.

  What does this mean? 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 accurate on-time returns. 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.