Implementing Knowledge From RTRP Training Course Requires Close Inspection of Taxpayer Forms

December 20, 2011 by  Filed under: Taxes 

The most obvious steps in tax preparer duties are usually the most important. For example, gathering the income reporting records of a taxpayer is a critical procedure. Experienced tax practitioners learn to ask taxpayers about all their income-producing activities for the year. An important objective of the registered tax return preparer program is establishing consistency in applying tax rules to various income sources.

However, use of the correct form to report a specific type of income begins with a taxpayer revealing the true income amount. Any report from a payment source to the taxpayer is relied upon for accuracy. This is the figure that the IRS will match with the income tax return. One example is collecting any W-2G issued to a taxpayer with gambling income. This exercise is essential before applying the skills acquired from an RTRP training course regarding such income.

A couple that received a big payout in 2005 from the slot machines at the Imperial Palace Casino in Biloxi, Mississippi, could have significantly benefited from someone with tax preparer education. Instead, the couple incorrectly filed their tax return for that year. The IRS caught the error in 2010.

The taxpayers received a W-2G reporting gambling winnings of $604,093. However, they believed that their winnings were $993,728 and that the difference comprised federal and state income tax withheld. Their federal income tax return stated gambling winnings of $993,728 and $370,022 of federal tax withholding. They received a refund because their tax liability was less than this withholding claim.

In 2010, the IRS sent a letter to the couple about the withholding discrepancy. The W-2G did not reflect any tax withheld. Therefore, the IRS assessed the couple for the $370,022 of inaccurate withholding claim. Naturally, interest and penalties were also charged. What happened next became a situation beyond what even a capable enrolled agent might endeavor to resolve with the IRS.

The couple initially filed a petition with the US Tax Court. But their petition for a hearing by the Court was denied. This is because the Tax Court only has jurisdiction to resolve a valid deficiency assessment against a taxpayer. The notice received by the couple was not a notice of deficiency. Instead, it was simply an assessment to correct overstated income tax withholding. The IRS was not disputing the income reported by the couple – including the inflated amount of gambling winnings.

The couple clearly owes tax on $604,093 of gambling winnings, not on $993,728 of reported winnings. But the deadline expired long ago to amend a 2005 tax return. Apparently, their error entailed receiving a $604,093 lump sum from the casino instead of $993,728 as installments over several years. Misunderstanding aside, the couple now owes tax on more gambling winnings than they received. That would have been an easily avoidable error in tax preparer work by a skilled professional.

For now, the couple is awaiting a determination from a Collection Due Process Hearing. If IRS Appeals sustains the tax assessment, the taxpayers may then appeal that decision in Tax Court. Meanwhile, interest continues to accrue on whatever amount is ultimately assessed on the couple.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for tax preparer duties and tax professionals. Access to free questions for the registered tax return preparer program is available on their website.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: