I attended a seminar two weeks ago here in Northern California. An interesting discussion came up on the subject of how the IRS is now fining tax professionals — not taxpayers — who submit returns with “frivolous” documentation. While this sounds good on paper, it raises a number of interesting questions.
Who determines if the deduction or expense is viable?
How much due diligence can be reasonably expected of a third party tax preparer with hundreds of clients?
What is reasonable to expect of a client who may or may not have full documentation to support deductions?
Is it the role of the tax professional to be the first line of enforcement?
I don’t believe the IRS thinks the tax professional community is supposed to be a surrogate police force, but I’m not sure — based on the conversations I had — that this feeling is universally shared by everyone who attended the meeting.
Here’s an open question to the community: how do you interpret this change? How are you dealing with it?