The free trade agreements with Colombia, South Korea and Panama signed into law by President Obama earlier this month included little-publicized provisions that would increase tax preparer penalties and crack down on prisoner tax fraud.
The Korean trade deal in particular increases the penalty from $100 to $500 against tax preparers who fail to exercise due diligence when claiming the Earned Income Tax Credit on behalf of a client. The penalty can be assessed each time a preparer fails to exercise due diligence in determining the client’s eligibility for the refundable tax credit or the amount claimed.
The Korean trade pact also includes a provision requiring the Federal Bureau of Prisons and state prison officials to send the Internal Revenue Service a yearly list of all the inmates incarcerated in the past two calendar years and the first eight months of the year. The list would presumably be used to curb the filing of fraudulent tax returns by prison inmates.
The three trade agreements also include provisions accelerating the amount of estimated taxes due from large corporate taxpayers with assets of $1 billion or higher during the third calendar quarter of 2012 and the third quarter of 2016. Corporations would then be able to subtract a comparable amount of money the next quarter from their estimated tax payments.
The tax provisions are expected to raise revenue to help offset the cost of the trade agreements.
