IRS Collaboration with Tax Preparation Industry and the States: Is it good or bad?


IRS announced that it is teaming up the tax preparation and software companies , payroll and tax financial processors, and state tax administrators to combat identity theft refund fraud.  Is this good or bad for us tax preparers and our clients?  First let me say that I get four or five new tax related identity theft cases a year.  I know the misery and frustration it causes my clients and I would like nothing better than to see all this put to an end along with the dishonest tax preparers who do this. 

The way it will work is that taxpayer authentication process will be shared and looked at more closely by IRS and the tax software provider.  IRS will look at the Internet Protocol number and "addresses" to see if there is anything improper or repetitive (if you buy a personal tax software program and use it 200 times that might be improper or repetitive).  The entire tax industry will share analytical information about their filings with IRS and the states to help fight identity fraud.

However we all know that IRS and the states have had budget cuts, so they have to do more with less money.  If you are a tax preparer and your market is the earn income taxpayer you may be receiving more scrutiny and now your own tax software may be used against you because now IRS and the states will have more data to look at.  Even if that is not your market it will be easier to analyze the types of returns that you prepare.  This may be good or bad, what do you think?

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