We now must be cleared by client to file extension

[dtlee]

Just to keep this alive and on the front page

I am also looking for clarification of where the IRS has documented this new requirement.

It seems to be contrary to their goals. The paper form does not even need a signature, nor indicate who prepared it, so we could easily flood them with paper if such a requirement were imposed. However, they don't want us to paper file.

Also, having read through many many versions of Circular 230 in the past three years, I am having trouble figuring out which subsection would be violated.

The signature form instructions are very clear when that form must be completed and when it is not required.

Hopefully, we can find this reference before we all violate it unknowingly.

[John of PA]

This from another message board.

"Karen Hawkins, Director of Office of Professional Responsibility,
unequivocally states that a tax preparer should NOT file extensions on
behalf of a client that has not affirmatively authorized the filing. While
there may be some peculiar and particular sets of circumstances where a CPA
might be justified in doing so, Ms. Hawkins believes that either a pattern
of such extensions or an expressed 'policy' would be a clear violation of
Circular 230 standards (due diligence among others) and would likely
constitute a violation under §7216. If neither of these apply, OPR would
still consider filing an unsolicited extension an unauthorized use of the
taxpayer information. The tax preparer's professional duty to the client is
to attempt to secure authorization or to attempt to inform the client of his
or her or the entity's duty to file for an extension, not to act on the
taxpayer's behalf without authorization."

[dtlee]

Thank you, John.

I have in the past questioned peers who do this routinely why they do it without talking to clients and they claim their clients would complain if they didn't.

I have never wanted to get into a situation where clients expect me to routinely file an extension for them without their requesting it, so I won't do this. However, I understand my peers who consider this a valuable service they provide.

Despite my dislike for this practice, I might question the reference to §7216 as prohibiting this, but if accused, it would be the preparer who would have to show that they did not knowingly or recklessly disclose or use tax return information without prior signed consent. Applying §7216 to this practice would mean that if a preparer wanted to use the 2011 information to file extensions for the 2012 tax year, that preparer would have had to obtain that permission prior to completing and obtaining signatures for the 2011 return, or have an unsolicited request from the client to specifically use their information to file the 2012 extensions. Technically, once the 2011 return is complete and signed, a preparer is forbidden to ask for this permission and until that preparer is engaged again for the 2012 return, there is nothing they can do unless the client thinks of asking them.

[New York Enrolled Agent]

"Karen Hawkins, Director of Office of Professional Responsibility,
unequivocally states that a tax preparer should NOT file extensions on
behalf of a client that has not affirmatively authorized the filing. While
there may be some peculiar and particular sets of circumstances where a CPA
might be justified in doing so, Ms. Hawkins believes that either a pattern
of such extensions or an expressed 'policy' would be a clear violation of
Circular 230 standards (due diligence among others) and would likely
constitute a violation under §7216. If neither of these apply, OPR would
still consider filing an unsolicited extension an unauthorized use of the
taxpayer information. The tax preparer's professional duty to the client is
to attempt to secure authorization or to attempt to inform the client of his
or her or the entity's duty to file for an extension, not to act on the
taxpayer's behalf without authorization."

This is clearly hearsay and not an IRS announcement.

I have no idea if Ms. Hawkins actually said or did not say those words or something to that effect but it certainly doesn't rise to posting " IRS just announced that we must have authorization or OK from the client to send in an extension" as was written in the original post. It may come to pass that indeed that is her position but I would welcome an official IRS confirmation.

[FEDUKE404]

Source of ruling still unknown

While attorney Hawkins is apparently head of the OPR, the statement provided by John of PA appears to be more of a "professional opinion" than any Circular 230 guidelines which might govern.

Her statement is certainly logical, but hardly anything with "teeth" in it.....

Until I can find such a position clearly stated in Circular 230 or in a statute, I don't plan to give it too much credibility.

FE

[taxea]

I agree with taxxcpa...how do you charge a client for something they didn't authorize? Considering we all can probably predict which of our clients will need an extension...it is their responsibility to ask for and authorize one. How many times has a client, even of 10 years or more, ever bothered to call and advise you that they are going elsewhere? Even after I have sent out the yearly client packets I don't get a call saying client/s doesn't/don't need it cause they are going elsewhere.

[taxmandan]

Funny that you mentioned THAT phone call from client

... How many times has a client, even of 10 years or more, ever bothered to call and advise you that they are going elsewhere? ....

This past February a client of 13+ years called to tell me that she was not coming back to me for tax prep because her brother was going to do her taxes from now on. She explained that he is the manager of the VITA free tax program in town and would be taking care of taxes for her. She has 7 rental properties one of them in Cali., husband has multiple K-1 investments and she is self-employed. Just the kind of return that VITA is soooo good at doing. I appreciated her call since she always went on extension and I always filed it without waiting for her to tell me to, saved me the trouble this year.

[John of PA]

I would error on the side of caution here. Director Hawkins is more powerful than what may meet the eye.

[Dusty2004]

The Tax Book

I would error on the side of caution here. Director Hawkins is more powerful than what may meet the eye.

I do not have a copy of the new Tax Book but there was a line in there that it was required to have a client signiture before filing an extension.

Dusty

[FEDUKE404]

Signature ??

I do not have a copy of the new Tax Book but there was a line in there that it was required to have a client signiture before filing an extension.

Dusty

Are you perhaps referring to Form 8878 issues ??

FWIW: I think we are chasing our collective tails here. Most preparers, in today's regulatory environment, should hopefully think twice before ever "automatically" filing any extensions for a client.

And, so far, no one has produced a regulatory source for this "ruling." (With all due respect to OPR Director Hawkins....)

FE

[luke]

my 2 cents

You are asking for trouble by"automatically" filing an extension without prior approval. It only takes ONE unhappy (ex-) tax client to cause a problem with this! All someone has to do is COMPLAIN and Director of OPR WILL cause you more problems (based on her quote above). Since SHE will be ruling on any complaints you should pay attention!?

[taxmandan]

You are asking for trouble by"automatically" filing an extension without prior approval. It only takes ONE unhappy (ex-) tax client to cause a problem with this! All someone has to do is COMPLAIN and Director of OPR WILL cause you more problems (based on her quote above). Since SHE will be ruling on any complaints you should pay attention!?

Where is the taxpayer harmed if we file an extension they didn't want filed? Yes, OPR can create bureaucratic rules to trap tax professionals but Hawkins needs to explain the harm she wants to prevent.

[JohnH]

I can't imagine preparing an extension without at least speaking with the client. Besides, it's important to get the "knowns" correct on the extension request. To me that means at least having the Federal Withholding Tax and/or estimated tax payments correct. There's no way to know that information without speaking with the client or getting their basic documents via email or mail.

Beyond that, the only thing required is a good faith estimate of the final tax liability. There are many ways that figure can be way off the final mark.

My concern here is whether the IRS is now moving to a situation where they require us to obtain a signature from the client before preparing an unsigned form.

[dtlee]

This is a very interesting problem considering that Karen Hawkins has brought up not only the standards of Circular 230 but also the requirements of §7216. The penalties there would be very lucrative for the IRS; perhaps even easier to collect than those for EIC (lack of) Due Diligence.

A strict interpretation of the current regulations for §7216 require us to now consider our engagement to allow us to use tax information for "a tax year" rather than for "any tax year" as it had been under the prior rules. Thus, while we can contact a client for business continuation purposes, say, to ask if they will be using our services and to ask if they want us to file an extension, we cannot technically use their tax information for a year other than the one we were specifically engaged to prepare without prior signed consent. As I recall them, the regulations specifically allow us to prepare a federal return, the associated state returns, and estimates without prior signed consent. Extensions for subsequent years are never mentioned.

In the seminars I've been involved in, frequently the question of "How would the IRS know" has come up when discussing the §7216 ruiles.

Well, if we e-filed an extension and that client had already gone elsewhere to have a return prepared, it would seem to be evident that we were likely using the prior year's information beyond the scope of what is allowed and without a valid engagement for the current year. I am not as certain that preparers who routinely file extensions at the start of the season would be as obviously out of compliance, but those who file extensions later run the risk of being questioned if the IRS ever wanted to put teeth into the §7216 regulations as a way to raise money. I think if the IRS were to question this, we would want to have some level of documentation that it was authorized by the client (again, if the IRS ever wanted to use this to raise revenue, like they are doing with EIC Due Diligence audits).

[Black Bart]

I agree with this.

...Where is the taxpayer harmed if we file an extension they didn't want filed? Yes, OPR can create bureaucratic rules to trap tax professionals but Hawkins needs to explain the harm she wants to prevent.

There is no harm to the taxpayer. I've never yet had a client call me saying "What's the big idea of filing an extension for me and saving me X dollars of penalties and interest?" On the other hand, plenty have frantically called at/near/past extension date saying "Did you get me an extension?" Hasn't anyone else had those calls?

If true it's just another piece of goverment-issue red tape designed to create a chilling effect (230 penalties) among preparers and to vastly increase IRS penalties on taxpayers who will become delinquent without the unilateral intervention of preparers doing them this "favor" (at least that's how I view it).

At one time I knew of many accountants who routinely filed clients' extensions without permission (Why would anyone object?), but don't know if it's still a widespread practice (probably not). I've filed many on my own in past years, but no more; it's just...everything's too risky with the regulation-run-wild wonks in charge nowadays.

The Hawkins quote, whether real or not at present, rings true as to how IRS would state it and is, I'll say, coming if not already here.

Still, it makes you wonder -- don't these multiple-obstacle-erecting people ever think of trying to facilitate business rather than impede it? Who knows; I feel nailed down hand-and-foot now, but may later look back at this as "the good old days."