Stopping the Most Common Tax Return Error

The most common error we find on tax returns is incorrect or missing estimated tax payments.  We all do our best to keep track of the date and amount of our estimates, but when there is a difference between the amount of estimated taxes claimed on a tax return and the amount in the IRS or FTB system, you can expect a notice in the mail.

How can you make sure that the amount of federal estimated tax payments you are claiming is accurate?  Absent perfect record keeping, you can call the IRS and verify the amounts.  Be prepared to wait a little longer this year. Average wait time is 17 minutes to talk to a live person, up from 12 minutes in 2011.  But that is just the average.  If you call at peak times expect to wait substantially longer.  Another way to get accurate information about estimated tax payments is to authorize your tax return preparer to communicate with the IRS and/or FTB.  (They won’t disclose your tax information to anyone without your approval).

An authorized representative who has registered with IRS e-services or the FTB can access limited data about your taxes online.  Included in the limited data is a history of your estimated tax payments.  Authorization is usually done on a Form 2848 for IRS and a Form 3520 for FTB.  These are Power of Attorney (POA) forms.  These POA forms are limited to the specific tax agency and generally to specific types of tax and years or periods.  With access to the government records there is rarely an error in matching estimated tax payments claimed and the amount on the IRS/FTB records.

There is another advantage to having a POA on file with the tax agencies.  Whenever a POA is on file for a taxpayer the tax agency sends copies of all communications to the authorized representative(s) named on the POA.  When a notice is sent regarding an error on a tax return a copy goes to the representative.  The copies of communications are not limited to notices about estimated tax payments.  All communication sent to a taxpayer will also be sent to the authorized representative.  Whether the notice from the tax agency is about an error on a tax return or notice of an examination (ouch!) your authorized representative will receive a copy.

Having a copy of all notices sent to your tax return preparer has some advantages.  Frequently the tax preparer can answer an IRS or FTB inquiry easily and your involvement in the process can be minimized.  We all know how everyone feels when they get mail from the IRS: anxious, nervous, scared or worse.  You may be able to reduce that anxiety if you know there is someone else reading a copy of the notice at the same time (or before you depending on the mail).

A word of caution: Don’t authorize just anyone to access your information.  Your authorized representative should be someone you trust. Check their credentials.  You can verify the status of a CPA license on the web at the state board of accountancy or an attorney license on the website for the state bar.  In California you can verify a CTEC Registered Tax Preparer on www.CTEC.org.

At Seid & Company, CPAs we offer our clients the option of listing us with the tax agencies as authorized representatives.  With the authorization in place we verify that the date and amount of estimated taxes claimed on federal and state tax returns will match tax agency records.  Verifying the date and amount of estimated tax payments BEFORE filing your tax return is one sure-fire way preventing the most common of errors on tax returns.

If you have any questions on using an authorized representative or want to have the peace of mind knowing that someone else will be getting a copy of the letter from the IRS or FTB – contact one of the tax professionals as Seid & Company, CPAs.