“If you’re willing to offer a helping hand to a friend at tax time, just make sure everyone’s clear about how it works and where responsibility ultimately lies. (Spoiler alert: It’s on the taxpayer.) © BrianAJackson/iStock
Not everyone is cut out to complete a tax return. They’re complex and confusing, and by 2013, the federal tax code contained nearly 4 million words [source: Erb]. It’s no surprise that about 60 percent of American taxpayers hire professionals to prepare and file their returns for them [source: Ohlheiser].
But some people simply get help from friends or relatives, and this is perfectly legal. With the taxpayer’s permission, you absolutely can take on the responsibility of filing someone else’s taxes. However, both you and the recipient of your generosity should understand that it’s the taxpayer, not the preparer, who is ultimately responsible for any mistakes. If you goof, you’re not on the hook for any back taxes, penalties or interest; the person whose taxes you prepared is.
If you’ve taken the time to prepare another’s taxes, you might want the freedom to discuss your work with the Internal Revenue Service. The taxpayer can list you in the "Third Party Designee" area on the return just above the signature box. This gives the IRS permission to talk to you about the return. The conversation is limited to issues such as missing information and return preparation, processing and status [source: IRS].
If you really mess up and the tax return you so carefully crafted is audited, you probably won’t be able to help out. Only an authorized representative is permitted to help the taxpayer during an audit, and you can’t be named as a representative. The IRS recognizes only certain professionals for this position, such as lawyers, certified public accountants and enrolled agents. To be admitted to this last category, the tax preparer must pass an IRS test or be a former IRS employee.
Other than simply helping out a friend in need, there are other reasons for filling out another person’s tax return. If your dependent child has income from a job or investments, she may be required to file a tax return, depending upon the amount earned. Under those circumstances, parents are responsible for filing their child’s return if the child can’t understand the process. Even if her income doesn’t reach the mandatory level for the year, she still may be eligible for a refund.
Another family-related tax issue may arise when someone dies. Taxes still need to be filed, but, typically, the executor or estate administrator handles it. However, if no overseer was specified, a survivor is required to step up. If that’s you, you’re required to file the tax return for the year in which your relative died, and for any preceding years they did not file [source: TurboTax]. Depending upon the deceased’s level of organization and the relationship between the two of you, finding all the necessary documents can be a difficult process.
If you feel you’ve mastered enough of the tax code to help a friend in need, work carefully. You don’t want to set your pal up for a collision course with the IRS.
Originally Published: Dec 18, 2014
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Sources
- American Bar Association. "Filing Your Return with a Tax Preparer." (October 31, 2014) http://www.americanbar.org/groups/taxation/resources/taxtips4u/filing.html
- Erb, Kelly Phillips. "A Beginner’s Guide to Taxes: Do I Need to Hire a Tax Preparer or Can I Do My Return Myself?" Forbes. February 12, 2013. (October 31, 2014) http://www.forbes.com/sites/kellyphillipserb/2013/02/12/a-beginners-guide-to-taxes-do-i-need-to-hire-a-tax-preparer-or-can-i-do-my-return-myself/
- Internal Revenue Service. "Disclosure Authorization." June 18, 2014. (October 31, 2014) http://www.irs.gov/taxtopics/tc312.html
- Internal Revenue Service. "Enrolled Agent Information." April 24, 2014. (October 31, 2014) http://www.irs.gov/Tax-Professionals/Enrolled-Agents/Enrolled-Agent-Information
- Internal Revenue Service. "The Examination Process (Audits by Mail)." January 2014. (October 31, 2014) http://www.irs.gov/pub/irs-pdf/p3498a.pdf
- Internal Revenue Service. "1040 Instructions." 2013. (October 31, 2014) http://www.irs.gov/pub/irs-pdf/i1040.pdf
- Ohlheiser, Abby. "Majority of Americans Will Pay Someone Else to Fill Out Tax Returns This Year." Slate. January 9, 2013. (October 31, 2014) http://www.slate.com/blogs/the_slatest/2013/01/09/tax_season_2013_most_americans_won_t_do_their_own_taxes_will_pay_professional.html
- TurboTax. "Death in the Family." 2014. (October 31, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Family/Death-in-the-Family/INF12090.html
- TurboTax. "Tax Filing Requirements for Children." 2014. (October 31, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/Tax-Filing-Requirements-for-Children/INF14501.html
