TAX PREPARATION COMPLIANCE MANUAL

Transcription

1 TAX PREPARATION COMPLIANCE MANUAL Tax Season Jackson Hewitt Inc. All Rights Reserved.

2 The Tax Preparation Compliance Manual (Compliance Manual) is confidential and proprietary and should be available only to tho.se involved in the preparation of tax returns. This manual sets forth our key policies, procedures, and practices governing the preparation of tax returns. We reserve the right, in our sole judgment, to revise, modify, delete, rescind, or revoke any of its standards, policies, specifications, and requirements at any time. Keep the Compliance Manual current at all times, this version supersedes and replaces any previous versions.

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4 Table of Contents I. TAX COMPLIANCE TEAM OVERVIEW... 1 A. Chief Tax Compliance Officer... 1 B. Tax Compliance Office... 1 C. Compliance Designee... 2 D. Audit Advocacy & Defense Services... 2 II. TAX PREPARATION REQUIREMENTS... 3 A. Satisfy Tax Compliance Requirements... 3 Assign Tax Compliance Designee... 3 Verify EFIN Ownership... 3 Get PTINs... 3 Implement Preparer ID Controls... 4 Administer the Tax Preparation Readiness Test... 4 Ensure Mandatory Training is Completed... 4 Post Tax Compliance Hotline Information... 4 Return Tax Preparation Code of Conduct Acknowledgments... 4 Execute Tax Compliance Operator Acknowledgment... 4 Review of Red Flag and Risk Analysis Reports... 4 Notify Tax Compliance Office of Government Visits, Preparer Letters, Inquiries, or Audits... 4 B. Comply with Legal Requirements Governing Tax Preparation... 5 C. Comply with Bank Requirements for Financial Products... 5 III. STANDARDS OF CONDUCT AND BEST PRACTICES... 7 A. Complying with the Tax Preparation Code of Conduct... 7 B. Ensuring Client Identity... 7 C. Meeting Due Diligence Requirements Copy Requirement Penalties... 9 D. Completing Annual Filing Season Program Requirements...10 E. Safeguarding Client Information...10 F. Reporting Information Theft...11 G. Reporting Obligations...11 H. Understanding Corrective Actions...12 Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page i

5 IV. THE IMPACT OF FRAUD A. Risks to Your Business...14 B. Risks to the Taxpayer...14 C. Risks to the Jackson Hewitt Brand...14 V. DETECTING AND PREVENTING TAX FRAUD A. Using Background Investigations...15 B. Using Red Flag and Risk Analysis Red Flag Report a) Mandatory Red Flag Stops b) Optional Red Flag Stops c) Analyzing the Red Flag Report Risk Analysis Report Suite a) Using the Preparer Risk Analysis Reports b) Understanding and Analyzing the Preparer Risk Analysis Reports c) Using the EITC Due Diligence Summary Return Verification C. Procedures for Addressing Potential Fraud Addressing the Client a) Examples of a Suspicious Client b) Examples of Questionable Social Security Cards c) Examples of Suspicious Forms W-2, 1099 and Addressing the Tax Preparer Addressing Management a) Preparer Suspension Protocol b) EFIN Suspension Protocol Other Consequences VI. GOVERNMENT INQUIRY AND AUDIT REPORTING REQUIREMENTS A. Reporting Government Tax Inquiries...23 B. Legal Representation...24 C. Failure to Cooperate...24 VIII. Appendices A. Tax Compliance Hotline...26 B. Tax Preparation Code of Conduct...28 Page ii 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

6 I. TAX COMPLIANCE TEAM OVERVIEW Jackson Hewitt (also referred to as us, our, or we ) strives to provide our clients with tax preparation services of the highest quality. Preparing complete and accurate personal income tax returns is the cornerstone of our commitment to our clients and the foundation of our business. We value honesty, integrity, and adherence to the highest ethical standards by everyone involved in the preparation of tax returns. We do not tolerate fraud, dishonesty or any other conduct that stands in the way of these core values. The Tax Compliance Team is committed to helping you adhere to Jackson Hewitt s core values; our goal is to ensure clients receive the highest quality tax return preparation while minimizing your risk of audit and penalties in the case of audit. The Tax Compliance Team provides various tools and resources, such as this Compliance Manual, which specifies required policies, practices, and obligations regarding tax return preparation. This team also provides tax preparation best practices, which can save you time, help you provide excellent client service, and help you comply with IRS rules and regulations. Together with your Tax Compliance Designee (Compliance Designee), we monitor your offices tax return preparation, compliance with Jackson Hewitt s Tax Preparation Code of Conduct and the policies provided in this manual, as well as IRS rules and regulations. We will alert you and recommend corrective strategies if we notice training needs or suspicious activity. Jackson Hewitt Tax Compliance is comprised of the following roles: A. Chief Tax Compliance Officer The Chief Tax Compliance Officer (CTCO) ensures Jackson Hewitt training, tools, and relationships support our commitment to provide our clients with tax preparation services of the highest quality. As our principal liaison with the IRS, the CTCO meets with the IRS on a regular basis and communicates their efforts back to you and the company s executive team. The CTCO tracks and monitors the status of IRS and other government audits and inquiries and provides the Office of General Counsel and Chief Executive Officer with periodic updates on such matters. B. Tax Compliance Office The analysts in the Tax Compliance Office use various tools to identify training needs, detect potential fraud, and eliminate or report verified fraud. These tools include the Compliance database, Risk Analysis and Red Flag reports, and Field Visits. The Tax Compliance Office periodically reviews Risk Analysis and Red Flag reports to ensure that your Compliance Designee has adequately addressed tax return preparation concerns. If the responses are incomplete or unsatisfactory, your Tax Compliance Analyst will raise their concerns with the Compliance Designee. If necessary, they will contact you to discuss any concerns and recommended actions. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 1

7 C. Compliance Designee You are required to assign a Compliance Designee for each PCenter before Go Live. The Compliance Designee should be part of your management staff. If you are the owner of a franchise, you may appoint yourself. You may want to consider naming an additional Compliance Designee if your PCenter consists of more than 10 offices. The Compliance Designee s initial responsibility is to become knowledgeable on the contents and requirements of this Compliance Manual and the Tax Preparation Code of Conduct to ensure your business s adherence to all the requirements set forth. The Compliance Designee also plays an important role in the areas of compliance training and the monitoring of tax return trends and anomalies. The Compliance Designee ensures that the Tax Preparation Readiness Test is administered in a monitored environment and that no tax preparer will be permitted to prepare tax returns unless he or she has passed the test subject to the testing requirements. Encourage staff to contact the Compliance Designee for questions regarding ethical obligations, standards of conduct, tax fraud prevention, or due diligence. The Compliance Designee should discuss these matters with you and should be encouraged to consult with the Tax Compliance Office for advice. Finally, it is the responsibility of the Compliance Designee to monitor the Red Flag and Risk Analysis reports for each office. D. Audit Advocacy & Defense Services Our Audit Advocacy & Defense (AA&D) team has extensive experience with the process that typically occurs. This team is comprised of members of the Tax Compliance Office including former IRS Agents, CPAs, and Enrolled Agents. AA&D provides full-service representation and support services before, during, and after any audit that may occur to both operators and staff. Some services are included as part of your Jackson Hewitt franchise fee, such as the initial consultation and an introduction to the self-service tools provided on JHnet; other services are available for an additional fee. Page 2 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

8 II. TAX PREPARATION REQUIREMENTS Before your office may prepare tax returns and process them electronically using ProFiler (sometimes referred to as going live ), you must complete certain government and operational requirements that establish that your offices are ready to conduct business in accordance with our requirements. These requirements consist of the completion to Jackson Hewitt s satisfaction of various forms and agreements such as financial product agreements with our bank partners, issuance of a certificate of insurance to Jackson Hewitt and our retail partners, completion of the ACH account information form, verification of office information, processing center address, and installation of the current software release on computers. For more information, the Operations Manual outlines standards, policies, specifications, rules, and requirements applicable to the operation of your Jackson Hewitt Tax Service business. The Operations Manual is on JHnet. For your convenience, Tax Compliance Requirements, Legal Requirements, and Bank Requirements are summarized below. A. Satisfy Tax Compliance Requirements Use the following checklist to help you verify that the appropriate people have completed, or where applicable will complete, each of the following requirements: Assign Tax Compliance Designee You are required to have a Tax Compliance Designee on your management team to monitor and coordinate the compliance activities for your Processing Center (PCenter). The designee information must be maintained and up to date at all times in Location Settings eservice. If any information regarding the designee changes, it must be updated within two business days. Verify EFIN Ownership You must have a current Electronic Filing Identification Number (EFIN). An EFIN is assigned to a tax preparer by the IRS to allow electronic filing of tax returns as an Electronic Return Originator (ERO). Each of your locations must have an active EFIN. The EFIN must be held in the name of one of the owners of your franchise and must be kept current with regard to contact information and physical address. Get PTINs The IRS requires all paid tax preparers (including attorneys, CPAs, and enrolled agents) to obtain a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns. Simple instructions are included in the PTIN Requirements for Tax Return Preparers article on the IRS Website. Preparers must have a PTIN in order to save and transmit a tax return using ProFiler. Client Service Associates (CSAs) and Tax Technicians (as long as they are using the CSA program ONLY), Receptionists (unless they will be doing tax returns or providing advice on tax returns), and Books Clerks are not required to have a PTIN. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 3

9 Implement Preparer ID Controls Implement the following controls to track the activities of your tax preparers: Assign each tax preparer a unique Password and Username. Ensure no tax preparer has more than one Password and Username. Prohibit tax preparers from sharing their Passwords and Usernames and take all steps necessary to prevent tax preparers from doing so. Administer the Tax Preparation Readiness Test The Tax Preparation Readiness Test (TPRT) is designed to ensure that Jackson Hewitt tax preparers have sufficient knowledge to prepare accurate tax returns using ProFiler. The test is typically administered by your Tax Compliance Designee in a controlled environment and each preparer must complete the appropriate training modules before testing. Ensure Mandatory Training is Completed All employees involved in the preparation of tax returns (including you, your managers, and Compliance Designee) must attend and satisfactorily complete all mandatory training. Post Tax Compliance Hotline Information Each of your Jackson Hewitt offices must post information about the availability of the Tax Compliance Hotline website and phone number. The hotline is for use by employees, not clients, so they can report concerns about actual or suspected tax preparer fraud. A Tax Compliance Hotline poster is included in the Appendix of this manual. Return Tax Preparation Code of Conduct Acknowledgments You are required to obtain the signed acknowledgments from each person subject to the Tax Preparation Code of Conduct before the beginning of each tax season. A copy of the Tax Preparation Code of Conduct is included in the Appendix of this manual. Execute Tax Compliance Operator Acknowledgment When you designate the Tax Compliance Designee, in Location Settings you acknowledge that you have received, read, and will comply fully with the policies, terms, conditions, and requirements stated in the Compliance Manual. Review of Red Flag and Risk Analysis Reports You or your Compliance Designee must review the Red Flag and Risk Analysis reports twice per week during tax season peak periods and once a week during non-peak periods, and take appropriate actions as described in the Using Red Flag & Risk Analysis Reports section. Notify Tax Compliance Office of Government Visits, Preparer Letters, Inquiries, or Audits You or your Compliance Designee must promptly notify the Tax Compliance Office of any government inquiry involving your business. For example, you must notify us of letters to preparers such as the Targeted Area of Concern regarding EITC, ERO visits, or EITC Audits. Page 4 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

10 B. Comply with Legal Requirements Governing Tax Preparation You must comply with the Internal Revenue Code (IRC), state tax laws, and related federal and state regulations pertaining to the preparation of paid tax returns. Failure to comply with all Internal Revenue Code (IRC) and regulations governing tax preparers could subject you to penalties, such as the following: IRC Section 6694(a) Description Penalty Understatement of taxpayer s liability due to an unrealistic position 6694(b) Understatement of taxpayer s liability due to willful or reckless conduct 6695(a) Failure to provide a copy of return to a taxpayer $50 per failure 6695(b) Failure of a preparer to sign a return $50 per failure Greater of $1,000 or 50% of tax prep fee Greater of $5,000 or 50% of tax prep fee 6695(c) Failure of a preparer to furnish an identifying number $50 per failure 6695(d) Failure to retain a copy or list of returns filed $50 per failure 6695(e) Failure of employers to file correct information on each tax $50 per failure preparer employed 6695(f) Negotiation of taxpayer s refund check $500 per check 6695(g) Failure to be diligent in determining EITC eligibility $500 per failure 6701 Aiding and abetting understatement of tax liability $1, Improper disclosure or use of tax return information $250 per disclosure 7206 Willful preparation of a false or fraudulent tax return or other document Up to $100,000 and three years 7216 Knowingly or recklessly disclosing or using return information imprisonment Up to $1,000 and one year imprisonment When any Internal Revenue Service (IRS) forms requiring a signature change, for example, Form 8879, the IRS requires a new form be signed and kept on file with the ERO. ProFiler automatically prints a new form when this occurs. Your client must sign the new form before you can retransmit the tax return to the IRS. For more information about these legal requirements, you may also consult the following materials published by the Internal Revenue Service: IRS Circular 230, IRS Publication Number 1345, IRS Publication Number 470, IRS Publication Number 947, and IRS Regulations. In addition, you can consult the individual within your organization responsible for training (such as the Compliance Designee). C. Comply with Bank Requirements for Financial Products Each year many of our clients choose to receive financial products in connection with their tax return preparation. We are committed to offering such products fairly, with full disclosure, so our clients can make informed choices about available products. In furtherance of this commitment, you are required to complete financial products compliance training prior to the start of each tax season. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 5

11 You must follow requirements established by Jackson Hewitt and the financial institutions that make financial products available to our clients. These requirements, as set forth in the financial product program guidelines issued by each of our financial institutions, generally require you to: Provide all required disclosures to the client and obtain signatures on all documents required by the bank, federal laws, and state laws; Fully disclose all fees associated with the financial products; and Provide the client an opportunity to read and understand the Application and explain all financial product disbursement options to the client. Allow the client to decide which product, if any, and disbursement option best fits the client s needs. Page 6 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

12 III. STANDARDS OF CONDUCT AND BEST PRACTICES Our clients expect our operators and tax preparers to prepare their tax returns accurately, safeguard their personal information, and act with integrity. To help meet these important expectations, we have developed standards of conduct you must follow. In addition, there are a number of best practices that we highly recommend, which will help you provide excellent client service, while ensuring accurate tax return preparation and keeping client data safe. A. Complying with the Tax Preparation Code of Conduct The people in your organization involved in the tax preparation process are required to comply with the standards of professional ethics and integrity set forth in the Tax Preparation Code of Conduct. These standards are specific to the preparation of income tax returns and are in addition to any general codes of ethics or codes of conduct applicable to your organization. The Tax Preparation Code of Conduct is included in this Compliance Manual and can be found on JHnet. B. Ensuring Client Identity If you need to verify a client s identity, you can ask to see a valid Driver s License, State issued ID card, or Passport. If these are not available, you can ask for two forms of ID such as Social Security Card, Voters Registration Card, Utility Bills, Mortgage Statement, etc. These should only be used to verify the identity for tax purposes. As a best practice, we do not recommend keeping a copy of these documents. However, note that if you use one of these documents for EIC purposes you are required to keep a copy. If facilitating financial products, you must see a valid Government-issued photo ID such as a Driver s License, ID card, or Passport. For more information about Financial Products requirements, please refer to the Financial Products page on JHnet. C. Meeting Due Diligence Requirements The IRS has increased their scrutiny of returns regarding due diligence, especially with regard to EITC. There are a number of esessions and training modules available to help you learn more about due diligence and the ways you can document it. In addition to the required training, we recommend that all preparers take the free EITC Due Diligence Training from the IRS. Software and technology cannot satisfy due diligence requirements; it is each preparer s responsibility to use judgment and common sense to determine the appropriate level of due diligence needed on a case-by-case basis to ensure true and accurate returns every year. Although the EITC checklist and record retention requirement are met by using ProFiler and by NHQ systems, preparers must perform and document due diligence to satisfy IRS requirements. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 7

13 An excellent way to help incorporate due diligence during the interview process, which can also improve the service you provide, is to use Client Data Sheets during the interview process. Once the client has completed and signed the data sheet, you can refer to it while entering data in ProFiler. For example, using the information from the data sheet, you could strike up a conversation regarding the client s business, asking where they get their business cards, if they use a local advertising, or if they have to pass any tests like those that you do to be licensed. These types of questions during the interview not only help you build a relationship with the client, they can help document due diligence if you take notes on the sheet while you are having the conversation and the questions and the client s answers confirm, clarify, or complete information provided. Client Data Sheets can also help speed up the interview process, because you can type in the information from the sheet. You should clarify information and make comments so they are not just sitting across from you while you enter the data and remember to take notes of the questions you ask and their answers on the sheet. It is critical to keep in mind that preparers will encounter situations that require further inquiry about information provided by the client; specifically in cases where the information provided seems incorrect, inconsistent, or incomplete - in these situations, preparers must ask appropriate questions. Both the questions and the client s answer must be documented in ProFiler Notes at the same time the return is being prepared. Preparers are expected to use common sense and document information where appropriate, keep copies of documents provided by the client and relied upon, and gather additional details where warranted to determine EITC eligibility and amount. Documenting these inquiries and the client s answers can be a large part of substantiating due diligence in case of an audit. A best practice would be to add detailed ProFiler Notes in the situations such as the following: EITC with disabled dependents age 24 or over EITC with an absent parent(s), for example claiming children who are not the son or daughter of the taxpayer or where both parents are not on the return. EITC with a low adjusted gross income EITC claiming single or HOH filing status with young dependents and no child care expenses EITC with Schedule C and no expenses IRS Reject Code 506/507 indicating the IRS already received a return with one of the Social Security numbers used in the return you are submitting High Vehicle Mileage High Schedule A Deductions compared to AGI (medical, charitable contributions, itemized deductions) Schedule C losses or those with high expenses and little or no income Page 8 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

14 High Employee Business Expenses that are ordinary and necessary for the taxpayer s job (vehicle mileage, work tools, does the employer have a reimbursement policy, etc.) Remember to keep copies of any supporting documentation provided by the client in the file and use ProFiler Notes to reference the supporting documents in the appropriate place during the interview. You can scan supporting documents and store them with ESS. For example, TP gave copy of Form 1098-T statement could be entered in ProFiler Notes and the copy should be kept with the client file. Help clients understand you are asking probing questions since the IRS may require additional information or documentation. Tax preparers must exercise due diligence in preparing or assisting in the preparation of, approving, and filing tax returns, and they must document the due diligence they have done. What constitutes due diligence is not specifically defined. Instead, IRS rules, regulations, publications, and other materials provide general guidance as to what constitutes due diligence. It is the responsibility of the preparer to exercise the appropriate level of due diligence to ensure the tax return information is true and correct based on the facts and circumstances involved. Preparers are expected to apply common sense and ask reasonable questions to ensure the return is prepared accurately. Due to the critical nature of due diligence, Ethics and Due Diligence is a required training course. 1. Copy Requirement If you rely upon a document during the preparation of a tax return, you should scan it and save a copy in Electronic Signature Storage (ESS). If you do not have ESS, make a photocopy to keep in the client file. Form 8867, Paid Preparer s Earned Income Credit Checklist, Part IV, asks which documents you relied upon to determine EIC eligibility and then indicates, Keep a copy of any documents you relied on. If you check that you relied upon a document, you must have a copy of that document in the records. If a client does not have a specific document, but you can determine their eligibility without the document via interviewing, personal knowledge, or previous returns then you can complete the return with proper documentation of the due diligence steps you took. 2. Penalties All paid tax return preparers who determine the eligibility for, or the amount of, the EITC are subject to the EITC due diligence requirements and to the penalty, which is $500, under section 6695(g) of the Internal Revenue Code for failure to comply. This includes preparers who sign the return, preparers who prepare the EITC portion but do not sign the return, and the employers of these preparers. Record retention period is three years after the later of the date the return was due or the date it was transferred in final form by the preparer to the next person in the filing process. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 9

15 Preparer must keep copies of any documents that the client provides and the preparer used to determine eligibility for or amount of EITC. Preparer is required to use Form 8867 and submit it with every EITC tax return or claim for refund. IRS can assess penalties against a company that employs others to prepare tax returns if the employee does not meet EITC due diligence requirements. But, only if one of the following applies: Management participated in or, prior to the time the return was filed, knew of the failure to comply with the due diligence requirements; or The company failed to establish reasonable and appropriate procedures to ensure compliance with the due diligence requirements; or The company establishes appropriate compliance procedures but disregards those procedures through willfulness, recklessness, or gross indifference, including ignoring facts that would lead a person of reasonable prudence and competence to investigate or figure out the employee was not complying. To help prevent penalties being assessed in case of an IRS Due Diligence audit, it is imperative that preparers adhere to a due diligence policy. We recommend that you have a written due diligence policy. D. Completing Annual Filing Season Program Requirements We highly recommend that all preparer s in our network take advantage of the IRS Annual Filing Season Program. This new program aims to recognize the efforts of non-credentialed return preparers who aspire to a higher level of professionalism. You must obtain 18 hours of continuing education, including a six-hour federal tax law refresher course with test, to receive an Annual Filing Season Program Record of Completion from the IRS. PTIN holders without an AFSP Record of Completion or other professional credential will only be permitted to prepare tax returns. They will not be allowed to represent clients before the IRS. Review the IRS page for more information regarding the Annual Filing Season Program. E. Safeguarding Client Information Protecting client information is required by law. Violation can result in the assessment of penalties. IRC 6713 provides for a $250 penalty for each improper disclosure or use of tax return information by a tax preparer up to $10,000 per year and IRC 7216 provides for a $1,000 penalty and one year imprisonment for knowingly or recklessly disclosing or using tax return information by a tax preparer. In your roles, you and your employees are privy to confidential details about your clients. You must honor and maintain that confidentiality at all times. Your staff must: Page 10 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

16 Not discuss client information in front of other clients; and Not discuss office procedures outside the office. Store tax files, checks, and cash cards in a locked cabinet or office at all times. Keep in mind the need to safeguard client information at all times, for example, when working at your desk with client information exposed to passers-by keep it covered when not in use, when you copy information be sure to clear the copier memory, and when you are done with client files ensure they are stored properly or shredded. Exercise precautions when ing information that is confidential, restricted, or personally identifiable. If this type of information must be exchanged, use your JH , which is encrypted. Do not use public accounts. Never put a Social Security Number in an . Use receipt numbers whenever possible. F. Reporting Information Theft If you suspect that data has been compromised in any way, it is critical that you immediately contact your Operations Director and/or Police and then Support and your Tax Compliance Office analyst; they can help minimize the risk to you and the brand. Your Operations Director will assist you with completing the required Incident Report. Even if you do not suspect anything has been taken, if data security has been breached you must notify us and complete the Incident Report; this could be from internal theft, a break-in, or anything where data integrity is in question. No matter the circumstances, failure to prevent the loss, theft, unauthorized acquisition, unauthorized access, or other actual or potential breach or compromising of the security or confidentiality of personally identifiable information can be damaging. You must immediately notify the person or persons whose personally identifiably information was compromised, and take appropriate steps to minimize the loss. For more information related to safeguarding client information, refer to the Client Data Security & Record Keeping article on JHnet. G. Reporting Obligations If anyone in your office observes or becomes aware of an actual or potential violation of the Internal Revenue Code (IRC), the policies in this manual, our Tax Preparation Code of Conduct, or any other unlawful or unethical conduct relating to tax preparation, they must immediately report the circumstances to you, your Tax Compliance Designee, and the Tax Compliance Analyst assigned to your area. If a matter has not been resolved to your satisfaction, or you wish to report a situation anonymously, you may report the incident online 24 hours a day, 7 days a week at or call toll-free: The hotline is for employee use only. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 11

17 H. Understanding Corrective Actions If the Tax Compliance Office becomes aware of questionable tax preparation in your office, corrective actions range from requiring additional training to termination of your franchise agreement. Generally, the first step your tax compliance analyst takes is to you or your Compliance Designee, to notify you of our findings and concerns. If they are unable to resolve the situation via , they will call you so that you can begin to correct the situation. In more serious situations, your tax compliance analyst may ask you to review files over the telephone or to schedule a Field Visit. In these cases, the files needed for review are determined in advance. Once a review has begun, we may determine that we need to see additional files to make a determination. All requested files and documents must be provided to the tax compliance analyst and/or field auditor. During the visit, they will meet with you and/or your Compliance Designee, and/or other members of your management team as needed. After a call or visit, the Tax Compliance Office will send you a follow-up letter detailing the findings, discussions, and agreed upon actions. In some cases, the Tax Compliance Office may conduct surprise visits as well. If, at any time before or after a visit, you refuse to take appropriate corrective actions, the CTCO is authorized to prohibit a tax preparer s access to ProFiler or take other corrective action as the CTCO deems appropriate under the circumstances. Page 12 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

18 IV. THE IMPACT OF FRAUD The consequences of fraud can be severe and may include monetary penalties, expulsion from the IRS e-file program, and legal action. Tax preparer fraud generally involves the preparation and filing of false or incomplete returns by tax preparers who knowingly understate the taxpayer s income or claim inflated personal or business expenses, false deductions, unallowable credits, or excessive exemptions on tax returns prepared for their clients. In addition, tax preparers may also fraudulently manipulate reported income amounts to obtain tax credits, such as the Earned Income Tax Credit (EITC). Another level of fraud occurs when taxpayers attempt to use fraudulent Forms W-2, use a filing status they aren t eligible for, or assume another identity. From a legal standpoint, tax preparer fraud generally has two elements: 1. The understatement of a taxpayer s tax liability (or overstatement of an allowable credit); and 2. The intent of the person to commit the fraudulent act. Fraud can be a civil law violation as well as a criminal offense. Both types of fraud involve the same basic misconduct, but criminal fraud is a more serious offense, which, if proven, can result in imprisonment. Civil fraud, by contrast, typically results in the imposition of financial penalties by the IRS, and may include the issuance of an injunction preventing the preparation of tax returns in the future. Specific types of tax preparer fraud include: Engaging in conduct subject to penalty under IRC 6694, including preparing federal income tax returns that assert or contain frivolous positions, unrealistic positions that are not disclosed (within the meaning of 6662(d)(2)(B)(ii)) on the return, or that willfully or recklessly understate a client's liability as set forth under 6694(b); Knowingly and intentionally instructing, advising, or assisting clients to understate their federal tax liabilities on federal tax returns; Engaging in any activity subject to penalty under IRC 6695, including failing to satisfy the EITC due-diligence requirements under 6695(g) (and the accompanying Department of Treasury regulations); Preparing and filing federal tax returns based on information known or suspected to be fraudulent, such as claiming false dependents, using suspicious or fraudulent Forms W-2, reporting income or deductions or losses from sham businesses; and Engaging in conduct subject to penalty under IRC 6701, including preparing, or helping others prepare, any tax forms or other documents to be used in connection with any material matter arising under the IRS laws that the defendant or defendant's employee knows will (if so used) result in the understatement of another person's tax liability. It is important to note that fraudulent tax return preparation does not include an unintentional tax preparer error. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 13

19 A. Risks to Your Business Your business will be adversely impacted if your employees or anyone else affiliated with your business commits fraud, even if you were not involved in or aware of the fraudulent activities. As an operator of a tax preparation business, you are considered by law to be a tax preparer and as such, you are required to understand and comply with the rules and regulations of the tax preparation industry. You may even by liable as an employer of a preparer who determines the eligibility for, or the amount of, the EITC under section 6695(g) of the Internal Revenue Code if they fail to comply with due diligence requirements and you do not have appropriate policies and procedures in place. Aside from the criminal and civil penalties, the commission of fraud in your office will harm the reputation of your business and this will affect your ability to attract and retain clients and employees. The paid tax return preparation market is highly competitive. Potential clients have choices; many choose not to be associated with a business tainted by fraudulent activities. Other harm arising from fraud consists of: Damage to the goodwill of your business; Loss of productive tax preparers who choose not to be associated with a disreputable business; Termination of your franchise agreement (if you own a franchise); and Termination of your employment (if employed by a company-owned operation). B. Risks to the Taxpayer Taxpayers can be harmed by tax fraud in many ways. A taxpayer who participates or is complicit in the perpetration of the fraud runs the risk of being prosecuted or investigated and penalized in the same way as a tax preparer. More often, a taxpayer will be liable for paying the tax, interest, and penalties resulting from the understatement of the tax liability on their tax return, even if the taxpayer was completely unaware of the tax preparer s fraud. In these situations, taxpayers undoubtedly feel a sense of betrayal and blame the tax preparer, your business, and Jackson Hewitt for their predicament. C. Risks to the Jackson Hewitt Brand Our brand has a strong national reputation. Opinions about the brand are formed based on the collective actions of all operators in our network so positive or negative views about one office affect all other offices. Accordingly, the reputation and goodwill of the brand is impacted by any fraudulent activity within the Jackson Hewitt system regardless of where the conduct occurs and who commits it. Thus, the presence of fraud can result in greater scrutiny by regulators, lost clients, reduced market share, and lower sales volume for everyone, even if your offices operate with the highest standards of integrity. For this reason, we must all share a common goal of maintaining the goodwill and reputation of the Jackson Hewitt brand. Page 14 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

20 V. DETECTING AND PREVENTING TAX FRAUD Addressing suspected or actual fraud in a professional, timely, and effective manner is critical to minimizing the potential harm to clients, your business, and the Jackson Hewitt brand. Some of the systems and tools that help reduce or detect fraud include; background investigations, Red Flag Reports, Risk Analysis Reports, Tax Compliance Team, and Return Verification. For general questions regarding ethical obligations as a tax preparer or tax fraud prevention and detection, your Tax Compliance Designee should be the primary contact. The Tax Compliance Office can also address questions regarding the detection and prevention of tax preparation fraud. We recommend you use the protocols included in this chapter if you suspect fraud. A. Using Background Investigations There are many ways to prevent and detect fraud. For example, background investigations can help you determine if a candidate s history meets your requirements. We believe that background investigations are such a critical part of the hiring process that we have made them mandatory for all new candidates applying for employment with company-owned operations. If you will be operating in retail locations, criminal background investigations are mandatory for all tax preparers assigned to those retail locations. A background check can yield information on many subjects including, for example, an applicant s criminal conviction history or credit history. You must decide what information is relevant to the job requirements for the positions in your organization. Most employers, especially those in the financial services industry, consider information about a job applicant s credit and criminal histories to be especially relevant. Background checks should be required only when the information sought is clearly relevant to the candidate s ability to perform the duties of the position. B. Using Red Flag and Risk Analysis These reports were developed by the Tax Compliance Office to help you monitor the quality of tax return preparation in your office. You can also use these reports to support hiring decisions, highlight training needs, and detect suspected fraud. 1. Red Flag Report We have developed criteria to track tax return filing trends, and we call these data points Red Flag criteria. A return including one or more of the Red Flag criteria may indicate a high-risk tax situation (i.e., error or potential fraud) or identify an area where preparers may need additional tax preparation training. The criteria are monitored and analyzed at the PCenter, office, and tax preparer level. The Compliance Designee should review and analyze the Red Flag Report at least twice per week for each office during peak periods and once per week during non-peak periods. Red Flag reports are updated daily. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 15

21 The purpose of reviewing these reports is to identify the overall tax return filing trends experienced in each office and trends specific to each individual tax preparer within each office. The existence of Red Flag criteria on a tax return does not automatically mean that the return is fraudulent or was prepared in error; however, the return should be checked for documented due diligence and errors. A pattern of Red Flags for an office or an individual tax preparer indicates that further investigation is warranted to understand whether there is a problem requiring further attention. These reports should be monitored minimum twice a week during the peak filing periods and weekly during non-peak periods. Peak periods are (a) January 16 to February 15, and (b) April 1 to April 17. For more information about using the reports, refer to the Help topic on JHnet titled About Red Flag Report. a) Mandatory Red Flag Stops Mandatory Red Flag stops apply to any federal income tax return meeting criteria identified as unlikely or high-risk. Review the specific criteria in About Red Flags on JHnet. Tax returns meeting any of these criteria will be stopped in Return Management and will not be processed until manually released. Prior to a return s release from Return Management, the Compliance Designee, Office Manager, or you are required to review it to ensure accuracy. Review the tax return, information supplied by the client, check sheets, calculations, and preparers notes to ensure that all due diligence requirements are satisfied before the return is released. If you or your management team is not satisfied with the accuracy of the tax return, it should not be filed. If necessary, you should secure additional information, documentation, and facts from the client to ensure that the tax return is accurate. If this requires eliminating a deduction or credit from the tax return, then that is the appropriate step to take. Document all actions taken to ensure the tax return is accurate. The basis for any changes should be explained to and discussed with the client. If the client refuses to agree to the required changes then you should inform him or her that Jackson Hewitt cannot assist with the preparation of his or her tax return. b) Optional Red Flag Stops In addition to the mandatory Red Flags, you may designate optional Red Flag criteria. If you choose to use one or more optional items, reviewing the tax return information for the optional item is similar to the mandatory procedure. Optional criteria are tracked in the Red Flag reports, but the default to stop the returns is turned OFF in the Location Settings eservice. You can turn ON the stop processing feature for the optional criteria. Review the specific criteria in About Red Flags on JHnet. Page 16 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

22 c) Analyzing the Red Flag Report A Red Flag analysis involves tax returns that have already been filed. To begin the analysis, access JHnet, then click Reports, Red Flag, and then enter the three-letter code for your PCenter. This produces the Red Flag report for the entire PCenter; select the specific offices on which you would like to perform a review by clicking the office number. The Red Flag data is displayed for each tax preparer in that office. Alternatively, view the Preparer report, which will display all preparers in the PCenter. Red Flag reports can be reviewed rather quickly when no particular statistical anomalies exist. For instance, where an office has less than 10% of the total number of tax returns with a Red Flag and each preparer has a percentage of Red Flag returns within the 5 15% range the review can be done quickly. The presence of a Red Flag indicator does not automatically mean that the tax return with the Red Flag indicator is inaccurate. It is expected that some returns with red flags are completely legitimate. They are simply higher risk and therefore need some extra attention. Nationally, the Red Flag average is usually 18 to 20% of all returns. That rate varies a bit depending on office location and area of the country. Some Red Flag reports will require additional investigation, for example: Situations where the Red Flag report identifies a tax preparer who has data substantially different from the balance of the office. For instance, a preparer has 40% of returns prepared that meet Red Flag criteria as compared to the rest of the office, which has a total of 10%.; An office, a group of preparers, or an individual preparer has a relatively high number of a particular Red Flag item. For instance, Preparer A has 87 tax returns with an EITC greater than $4,000 with a Schedule C attached to the tax return whereas no other preparer in the office has more than 10 returns with this scenario; An office has a high rate of Red Flag indicators (e.g., 35%) as compared to the PCenter (e.g., 18%); and Tax returns prepared by a tax preparer have characteristics that are inconsistent with other returns prepared in the office. For example, one tax preparer in the office claims education credits on 37 of 50 tax returns but no other tax preparer has that Red Flag criterion on any of their returns. The scope of the additional inquiry will largely depend on the trend in the data, but could include: A review of the tax return preparation files, looking for preparer notes among other things; Discussion with the tax preparer; Validation of some of the questionable information by contacting the client to verify the information. For example, self-employment, documentation for a questionable deduction, uses their vehicle for business purposes, etc.; Contacting the Tax Compliance Office, if needed. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 17

23 2. Risk Analysis Report Suite The Risk Analysis Report suite can provide another level of security to your operation by making it easy to implement policies, track return preparation trends, and monitor preparers in your office. Risk Analysis Reports automate much of the analysis done using the Red Flag Report and provides additional return statistics to help you more efficiently monitor the quality of returns prepared in your business. You and your Compliance Designee can use these reports to identify anomalies in tax preparation and to detect potential fraudulent activities. We recommend that you review Risk Analysis Reports twice a week during peak tax season and once a week during non-peak. For more information about analyzing the Risk Analysis Reports, refer to the Risk Analysis Guidance article or the Help topic About Risk Analysis Summary Report on JHnet. a) Using the Preparer Risk Analysis Reports The Preparer Risk Analysis reports provide risk scores calculated for preparers to help identify those preparers whose return activity should be examined more closely. The scores are calculated based on a group of potential risk indicators, comparing preparer and national statistics and then weighted based on the risk level each type of indicator. The high-level Preparer Risk Analysis Summary Report lists preparers for a selected PCenter in the order of their risk scores. The preparers with the highest risk score will be at the top of the report so you can easily identify whom you should focus on first. From that report, you can drill down to an individual preparer s Risk Analysis Scorecard, which illustrates the potential problem areas by comparing the preparer s return statistics to those for their PCenter as well as to National averages. There are additional return-level detail reports that you can access from a preparer s Risk Analysis Scorecard for further investigation. b) Understanding and Analyzing the Preparer Risk Analysis Reports A score may indicate a questionable tax situation (i.e., error or potential fraud) or identify an area where preparers may need additional tax preparation training. Each risk indicator is scored independently and what is a high score on one item may be a relatively low score on another, so indicators are not necessarily comparable and any score may mean there is some risk. A score does not always mean that there is fraud. It does mean that a given preparer s returns fall outside of the normal range for Jackson Hewitt returns based on national averages. A risk score may indicate something unusual such as a training issue, a preparer who focuses on one type of returns, or potential fraud and therefore that preparer s returns should be reviewed to determine the reason for the score. Tax preparer s with higher scores should be reviewed first as their statistics fall farther from the averages. Page 18 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

24 c) Using the EITC Due Diligence Summary The purpose of the EITC Due Diligence Summary report is to provide an easy way for compliance designees to review due diligence documentation for EITC. Although, preparers should be answering all questions thoroughly and addressing all diagnostic messages during the interview, we know that that sometimes things get overlooked. The EITC Due Diligence Summary allows Compliance Designees to check quickly to make sure that preparers are addressing some of the most critical areas requiring due diligence documentation. They can use this report to help ensure questions and responses are documented to help meet the 6695(g) requirements. The EITC Due Diligence Summary populates the day after acknowledgments are received. Keep in mind that the report simply indicates whether or not preparers have entered notes for six EITC scenarios; it does not indicate if those notes are adequate and it does not report on every situation that requires notes. It is important to remember that this report is a training tool and that ideally due diligence is documented during the interview (contemporaneously), addressed when the diagnostics pop-up, or is documented in the hardcopy file. As Compliance Designees find situations that should have notes, but do not appear to, they should work with preparers to determine how to ensure that notes are entered for future returns and what to do about the return that does not have adequate notes. Preparers cannot just go back and enter notes; however, if they have hard copy notes those can be added to Return Management. 3. Return Verification All tax returns prepared by offices in the Jackson Hewitt network must be accompanied by a Return Verification (Verification). The Verification is generated in conjunction with the tax return and is used to verify that all information within the tax return is accurate to the best of the knowledge of the taxpayer and the tax preparer. The Verification validates that all information submitted to the tax preparer is complete, accurate, and true to the best of the taxpayer s knowledge. It provides a summary of both the support documentation and declaration statements used within the tax return, and confirms the taxpayer s income, and accuracy and authenticity of Form W-2 and other documentation and information submitted by the taxpayer to the tax preparer. This must be signed by the taxpayers. Finally, the Verification includes a certification by the tax preparer that the tax return was prepared based on information and knowledge that was true, correct, and complete. It also certifies that, to the best of the tax preparer s knowledge, all tax positions are true and accurate. This certification must be signed by the tax preparer. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 19

25 C. Procedures for Addressing Potential Fraud In situations involving fraud, you will generally need to work with multiple parties, such as the client, the tax preparer, your Compliance Designee, and the Tax Compliance Office. 1. Addressing the Client If a client asks a tax preparer to omit income and/or expenses from their tax return, or to claim improper credits and deductions, the tax preparer should explain to the client that this request is inappropriate and say they will not prepare the return. If the client persists in the request, the preparer should bring the matter to your attention or to one of your Office Managers. You or your Office Manager should reiterate that your business will not assist the client in the preparation of a fraudulent tax return. If any dealing with the client causes the tax preparer to be concerned about their personal safety, then the preparer should prepare the tax return and check the Supervisor Review indicator in ProFiler then advise the supervisor of the situation. In situations where a tax preparer checks the Supervisor Review indicator, they should indicate why the return requires additional review. Reasons may include: Dependent Information; Filing Status; W-2 Information; EITC; and Other (enter description). For example, REVIEW! Suspect fraud. All returns that have the Supervisor Review indicator selected will be stopped in Return Management for further review. The supervisor will determine whether the return can be filed or not, if the returns cannot be filed the client must be notified. a) Examples of a Suspicious Client If several of the following items are present, the tax preparer should increase their scrutiny of the documents presented; however, the presence of one of the following items does not automatically mean that the client intends to file a fraudulent tax return. Has no address or phone number; Has no picture identification; Has suspicious identification; Did not file a tax return last year or in any prior years; Cannot produce written documentation with current name and address; Cannot be reached at the telephone number given; Appears to be following a script; and/or Is accompanied by a suspicious person. Page 20 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

26 b) Examples of Questionable Social Security Cards Tax preparers inspecting a Social Security card should be on the alert for cards that are obviously false. The Social Security Web site may be of assistance in detecting false Social Security numbers. Is typed rather than computer generated; Has lower case letters rather than all upper case; and/or Has one or more smooth edges rather than all edges perforated. c) Examples of Suspicious Forms W-2, 1099 and 4852 The existence of any one of these items could mean that the document presented has been falsified and tax preparers should consult their Compliance Designee or Office Manager for advice. The tax preparer may also check the Supervisor Review indicator. For detailed information about suspicious Forms W-2, refer to the Form W-2 Fraud Detection page on JHnet. Contains strikeouts, erasures, or type overs; Is handwritten or photocopied; Is incomplete or altered; Contains errors in the name or Social Security number; Has incorrect or missing FICA or Medicare withholding; Has unusually high withholding (in excess of 20% of Taxable Wages) with no apparent reason; Contains round numbers; Is missing state required amounts; Uses dollar signs, commas, or other symbols; and/or Is the employer s copy of Form W Addressing the Tax Preparer The IRS has created sophisticated processes for detecting tax preparer fraud, including the use of algorithms that identify irregularities on tax returns. The increased use of electronic filing has made it easier for the IRS to detect these irregularities. In addition, the IRS receives information about preparers from taxpayers and undercover agents who shop tax preparers in an effort to locate those who are prone to engaging in fraud. Each of these methods is successful in identifying fraudulent tax preparers. Contact the Tax Compliance Office regarding tax preparers who engage in fraudulent practices so we can help you determine what actions must be taken. These preparers must immediately be terminated. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 21

27 3. Addressing Management Essential to achieving compliance is the creation of an environment where the message is clear that only quality, accurate tax returns will be prepared. Although prevention of fraud is the key to success, detection of fraud is necessary to support prevention. You must enforce a zero tolerance policy regarding fraud. You, your Compliance Designee, and the rest of your management team must respond to tax preparer questions and be able to counsel them regarding clients who request inappropriate tax preparation. You and your managers must also actively review the work performed by each tax preparer to ensure the accuracy of tax returns. If any irregularities are uncovered, you must promptly address the situation and, if necessary, contact the Tax Compliance Office. They will help you determine the next course of action and will report the situation, as needed, to the Chief Tax Compliance Officer (CTCO). a) Preparer Suspension Protocol The CTCO may suspend access to ProFiler for preparers with confirmed tax return irregularities or suspicious activity, including, but not limited to: Forged or fraudulent documents Missing or insufficient due diligence documentation Customer complaints High Number of Red Flags or scores on Risk Analysis The Tax Compliance Office will call the Franchisee owner and/or the PCenter s Compliance Designee to discuss the suspension and next steps. They may also use to notify the Franchisee owner, Compliance Designee, and/or the Tax Preparer. A suspended preparer may have ProFiler access reactivated with sufficient explanation of the irregular activity to the satisfaction of the CTCO. b) EFIN Suspension Protocol If necessary, the CTCO may suspend the EFIN for a franchise. The CTCO will work with Operations to discuss the suspension and what steps must be taken to correct it. The following situations may result in EFIN Suspension: Confirmed pervasive fraudulent activity Off-system return preparation Using preparers without valid PTINs Using an expired EFIN 4. Other Consequences Tax preparers who prepare returns improperly are also subject to the penalties outlined in the Comply with Legal Requirements Governing Tax Preparation section. Page 22 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

28 VI. GOVERNMENT INQUIRY AND AUDIT REPORTING REQUIREMENTS As a key component of our commitment to preparing accurate tax returns, it is our corporate policy to cooperate with all tax preparation related audits, investigations, inquiries, and reviews undertaken by the IRS or other federal, state, or local government agencies (Government Tax Inquiries). By way of illustration, this cooperation includes providing complete and truthful information and documents to government agencies in a timely manner (subject to the assertion of appropriate defenses and good faith claims of privilege). We strongly encourage and expect our Franchisees to adhere to this same policy. A. Reporting Government Tax Inquiries You are required to report promptly the commencement of any Government Tax Inquiry of your business or preparers to the Chief Tax Compliance Officer (CTCO) and shall provide the CTCO with copies of all documents relating to the commencement of such Inquiry within 24 hours of receipt. Such documents include all requests for information or documents received in connection with any such Government Tax Inquiry, findings, reports, or other conclusions reached by the government agency. As an example, we require that you provide: Copies of correspondence and other documents to and from the IRS regarding audits or examinations (such as a Summons, Information Document Request, letter, or any other communication); A description of the results of such audits and examinations or any other areas of interest; Correspondence and descriptions of any Department of Justice communications; Correspondence and descriptions of any other Governmental Tax Inquiry; and A description of any known compliance issues. You are also responsible for notifying us about inquiries that are presently ongoing as well as information about any inquiry closed within the past 12 months. We are interested in all matters whether they relate to you or any of your employees or anything else you believe may be of interest. In addition, any responses to such findings, reports, or other conclusions provided to the government agency must be provided to the CTCO within three days of delivery to the government agency. The CTCO shall determine whether you need to provide any additional information, including providing us with waivers under 6103 of the IRC (or comparable provisions under other applicable law) permitting the IRS or other government authority to share information developed during the course of the government inquiry. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 23

29 As part of the CTCO s review of all requests for documents and information provided to him, the CTCO will determine, in conjunction with the Office of General Counsel, whether because of the nature of the issues raised or the documents or information requested, any of the requests that you receive or are served with necessitate the Company s involvement. For example, the response to a request for copies of or access to ProFiler should be addressed only by the CTCO. In such instances, you will be directed by the CTCO to refer the government agency to the Company for a response to that specific information request. B. Legal Representation If you, your business, or any of your employees become the subject of a Government Tax Inquiry, you should immediately notify and discuss the matter with the CTCO. In some cases, you may need to retain legal counsel to represent you in connection with the inquiry. The CTCO will involve the Office of General Counsel as necessary. The Office of General Counsel, however, cannot represent Franchisees in such matters. C. Failure to Cooperate Cooperation with Government Tax Inquiries and the appropriate resolution of those inquiries is in everyone s best interest. We expect that you will comply with the requirements described in this policy, and appropriate corrective action will be taken if you do not. Page 24 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

30 VIII. Appendices A. Tax Compliance Hotline...26 B. Tax Preparation Code of Conduct...28 Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 25

31 A. Tax Compliance Hotline Our success as an organization is built on a foundation of ethical decision-making and a commitment by every employee to uphold the highest standards of professional conduct on the job. The best way to sustain an ethical culture is for each of us to act with integrity every day doing the right thing when it comes to our own behavior, being aware of what s going on around us and being willing to speak up when we see or suspect activity that could harm our organization. A preparer taking tips, preparing returns off-system, misappropriating client s personal information, embezzling check stock or cash cards, endorsing or negotiating client checks or cash cards, or falsifying documents should be reported. Help us put integrity in action if you see or suspect misconduct, talk to your manager. If doing so makes you feel uncomfortable, you can easily communicate your concerns 24 hours a day, 7 days a week, without fear of retaliation online using the following link: You can also use the toll-free number to report, which is Remember, the hotline is for internal use only and the number must not be given to clients or used to address general client service issues. Page 26 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

32 Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 27

33 B. Tax Preparation Code of Conduct Everyone in the Jackson Hewitt system involved in the preparation of tax returns (including, for example, tax preparers, office managers, and tax preparer assistants) is required to follow the standards and requirements set forth in the Tax Preparation Code of Conduct. Use the Tax Preparation Code of Conduct as a guide to help you understand and apply the core principles to preparing tax returns with integrity. Every person involved in the preparation of tax returns must sign the Tax Preparation Code of Conduct Acknowledgment of Receipt confirming that they have received, read, understand, and will comply with the policies, terms, and requirements stated in the Tax Preparation Code of Conduct. For your convenience, the Tax Preparation Code of Conduct is also available as a separate document on the Tax Compliance Office page of JHnet. Keep a copy of these signed acknowledgments for four years from the date they were signed. Page 28 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

34 TAX PREPARATION CODE OF CONDUCT It is your responsibility to read, understand, and comply with the provisions of the Jackson Hewitt Tax Preparation Code of Conduct. You must: Comply with all tax laws and regulations including, but not limited to, the complete and accurate preparation and timely filing of income tax returns and related documents. Safeguard personally identifiable information, not revealing any information appearing on a tax return or any information gathered for its preparation, except as permitted or required by law. Never use Social Security Numbers in s, letters, or messages. Secure data files, checks, cash cards, tax returns, and other personally identifiable information in a locked cabinet or room. Be aware to safeguard client information at all times, be sure to clear the memory on the copier or printer or when paperwork is to be disposed of or shredded, be sure it is in a locked environment at all times. Diligently seek to recognize, prevent, and report fraud and other abuse. Provide each client with all required printed documents, such as a receipt and Recap. Return, as requested, all records of the client necessary to comply with his or her tax obligations, unless specifically permitted or required to retain such papers under law. Be courteous and cooperative in dealing with representatives of governmental agencies. You are required to provide all information required by a statute or regulations, and/or formally requested by the authorized governmental agency. Report all inquiries by government agencies to the Tax Compliance Office. Report to your Compliance Designee or Tax Compliance Analyst, if you observe, have knowledge of, or become aware of any illegal or improper conduct on the part of another person; or if any doubt exists regarding the propriety of any actions, if you question the accuracy of the identities and/or taxpayer identification numbers of taxpayers, spouses, and dependents listed on tax returns. You are prohibited from: Making any fraudulent, untrue, or misleading statements or representations or engaging in any activity that is fraudulent, untrue, or misleading. Using or disclosing, or appearing to use or disclose confidential information acquired in your employment except when authorized or legally obligated to do so. Accepting more than a token gift from a client. Delaying the prompt disposition of any matter before the Internal Revenue Service. Continued on next page. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 29

35 You are prohibited from (continued from previous page): Acquiring any direct or material financial interest from a client during the term of the professional relationship. Procuring or attempting to procure, directly or indirectly, from government records or government sources, information of any kind not made available by the proper authority. Making changes to a tax return without the client s written consent after it has been signed by that client, unless specifically permitted or required under law. Taking a position in a tax return not reasonably supported by the information and documents furnished by the taxpayer, or knowingly misrepresenting or omitting material facts in the preparation of a tax return. Endorsing or otherwise negotiating any cash card or check issued to a client by the federal, state, or local government. Requesting a bank product on a return without written consent from the taxpayer. Guaranteeing either a tax refund or that a client will not be audited. Misstating or misrepresenting, intentionally, any information relating to the tax preparer s education, training, or experience. Obtaining the signature of a client on a tax return or authorizing document if such return or document contains blank spaces to be filled in after it has been signed. Requiring a client to enter into a loan arrangement or purchase other financial product in order to complete a tax return. Failing to process an application for a financial product promptly. Misrepresenting a material factor or condition of a product or service, or otherwise knowingly misrepresent facts while preparing a return. Suggesting, stating, promising, or giving the impression that a client is able to obtain special consideration from governmental agencies or their representatives. This includes referring to any previous employment with the Internal Revenue Service. Contacting a client outside normal business hours or for any purpose other than the preparation of the client s tax return or related services. Electronically filing a tax return without authorization from the client including when a change to the tax return results in more than either $50 change to Total income or AGI, or $14 to Total tax, Federal income tax withheld, Refund, or Amount you owe. Failure to abide by the requirements in the Tax Preparation Code of Conduct will result in the appropriate corrective action, as determined by management. You may be required to receive additional training, be relieved of the opportunity to prepare tax returns, or be subject to disciplinary action, which includes but is not limited to, termination of employment. If you do not read and/or acknowledge receipt of the Tax Preparation Code of Conduct, you will still be responsible for complying with its terms. Page 30 9/13/2014 Jackson Hewitt Tax Preparation Compliance Manual

36 Tax Preparation Code of Conduct Acknowledgment I acknowledge that I have received the Tax Preparation Code of Conduct and that I read, understand, and will fully comply with the policies, terms, and requirements stated in the Tax Preparation Code of Conduct. I agree to report any actual or suspected violation of any of the policies, terms, or requirements of the Tax Preparation Code of Conduct as outlined in the Tax Preparation Code of Conduct. I understand that failure to sign this Acknowledgment in no way relieves me of the responsibility to comply with the policies, terms, and requirements stated in it. Signature Name (Print) Job Title (Print) Date Sign, date, and return this form to your Tax Compliance Designee. Keep the Tax Preparation Code of Conduct for your reference. Jackson Hewitt Tax Preparation Compliance Manual 9/13/2014 Page 31