Preparing Your Clients for Higher IRS Due Diligence Standards

Under the revised Circular 230 requirements that govern a CPA's and Enrolled Agent's practice before the IRS, accounting and tax professionals will need to do more due diligence than ever before. For example, it is no longer sufficient just to accept a Profit & Loss and Balance Sheet report from QuickBooks and use the report to prepare a tax return.

In 2010, in an effort to become more efficient with small business audits, the IRS purchased approximately 1,200 to 2,000 QuickBooks software licenses and began training their revenue agents on how to use the software. IRS agents will have the authority to ask for electronic copies of QuickBooks files, but requesting electronic copies of QuickBooks files from businesses under audit will be at the discretion of the agent.

Have you stopped to think about the potential exposure you bring to yourself as tax professional if you prepare a corporate tax return without conducting due diligence on your clients' QuickBooks file?

As the world changes and the rules become more stringent, I believe that we, as professionals, must implement new policies to protect ourselves and our clients. Our clients may not understand initially why we are enforcing new policies and higher due diligence requirements, so it is part of our job as professionals to not only do the work, but also educate our clients in order to have long-lasting relationships.

I view new tax regulations and higher due diligence requirements as a revenue-generating opportunity. Perhaps instead of reviewing your clients' QuickBooks file at year-end when it is time to prepare their tax returns, you can charge a small retainer to review their books on a monthly basis. What a great way to generate recurring revenues during your off-peak time of the year, while also ensuring your clients do not make the same mistakes throughout the year. These mistakes only lead to more work for you during tax season when you should be spending your time preparing tax returns and continuing to offer sound business advice.

How about getting your clients educated on the basics of QuickBooks, which I refer to as the "fundamentals." Wouldn't life be less hectic if you teach your clients how to manage their books and not have them rely on learning from their friend or neighbor, or by watching a two-minute YouTube video?

Education serves a purpose for accounting professionals, but also helps our clients. In the long run, clients can save money by learning how to properly manage their QuickBooks file, and you can earn more income by reviewing their books periodically without having to spend a lot of time doing clean-up work.

Suggest to your clients that they take a group-live QuickBooks seminar, or even watch a self-study DVD that provides hands-on computer-based training. They will feel much better about managing their own books and will have a new appreciation for what you do for them.

As we progress into uncharted territory with the revised IRS due diligence requirements, I hope that you take the extra step to protect yourself and your clients. What may be a challenge can turn into a revenue-generating machine.

Printed with permission from Andrew G. Poulos.

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