EIC Due Diligence

[Janitor Bob]

I could use some advice....I have a repeat client with the following household situation: Files as HOH. lives with girlfriend (no income), and 2 children. I'll omit the gory details, but suffice it to say that girlfriend and both children are taxpayer's dependents (and children are qualifying children for EIC and CTC.

No other person(s) provided support to girlfriend or children.

According to taxpayer, the only source of income for the household is $18,086 from two part-time jobs held by the taxpayer. The situation is the same as last year. Last year, I had taxpayer verify these facts because I just did not see how it was possible for a family of 4 to live on this income. As much as I prodded the client last season, he was believable and I noted his statements in my notes.

This year, the increased Due Diligence requirements and additional 8867 page/questions has me worried about covering my butt.

I have a statement for the taxpayer to sign attesting to the facts above. In your opinions, would this cover my due diligence requirements?

How far must I dig? At what point does my role as tax preparer turn into private investigator?

The headache on these types of returns is just not worth the hassle.....I have increased his rate this year in hopes that he will go elsewhere next year.

[JohnH]

You probably can't increase your rate enough to make him go away and/or to make it worth your while. And the situation doesn't seem to pass the smell test. Maybe you just need to level with him.

Over the past few years I've found it best to be honest with people claiming EIC who ask me to prepare their returns. I just tell them that I'm not questioning their veracity, but the huge penalties are something I'm not willing to risk. I tell them I've come to consider returns claiming EIC to be a special class of return with its own complexities. Not mathematical complexities - regulatory complexities. So they should go to JH or HRB because those companies have the deep pockets to absorb penalties better than I do.

[jainen]

>>I just did not see how it was possible for a family of 4 to live on this income<<

Maybe you can't see it, but 46 million Americans live in poverty (less than $23,000 for a family of four). That's one in six, so obviously it can be done. At least the gentleman is earning significantly more than minimum wage.

All you have to do is fill out the worksheet and answer the questions. If you have reason to think his housing costs, for example, are too high for his income, you can inquire further. Perhaps he has some non-taxable arrangement for help. But remember, there is NO support requirement for claiming EIC.

[Pacun]

One thing to keep in mind is that the EIC was designed to help people who live with little money. That should not be a problem when preparing their returns if you fill out the worksheet. Plus, remember that this person will get about 10K in refunds and that's also included on their yearly "money to spend".

[rfassett]

And think food stamps, state health benefits and cash assistance (in addition to the EIC) and you have a family of four bringing in (through cash and assistance) somwhere north of $40,000. Still not a lot to live on, but a far cry from the $18,000 being reported. Now if he has a $2,000 house payment (or some other "expense" that does not fit) you may want to "dig deeper".

[JohnH]

All of the above answers illustrate yet again the pitfalls of preparing returns claiming EIC. Other than the occasional slam dunk, it's a specialized field of tax preparation. We are called upon to make judgement calls having nothing to do with our role as tax preparers - except for the fact that IRS is forcing those who prepare these particular type of returns to perform a function better left to Social Services professionals. It's beyond ridiculous.

You original post said you are trying to send the client away by raising his fees in hopes he will leave. Why not be honest with him and tell him right now you won't prepare the return? Maybe give him a quick estimate so he can know what to expect, which might be a good incentive for him to get on to the next preparer. Hopefully he will understand your reasoning and appreciate your honesty. If so, then you've enhanced a friendship. If he doesn't understand, then you will know he's so self-focused that he doesn't care about the risks you're taking on just as long as he gets his check, in which case you don't need his business anyhow.

[Guest Taxed]

Also this year because of delayed filing and aggressive ads by the usual suspects in the business the EIC taxpayers are banging down the doors. I end up with EIC taxpayers because it is a relative or friend of my long time clients. Few years back I used to accept walk-in customers and that was nothing but problem with folks shopping around on price and how quick you could get them their refund. My friends in the business used to do RAL (I never did because I disagree with the charges and concept). I stopped walk-ins. Now it is strictly by appointment.

May be they will bring that RAL product with some tweaks back, now that IRS will take its time (21 days) to send you the refund??

The funny thing is when the fellow who referred finds out that his daughter got twice as much as his refund, it really burns him! Have to then explain to him the concept of EIC, and he says how can I get in on that??

[ILLMAS]

Too bad we can't ask how much cash money they have under the mattress, savings or if they receive food stamps or a housing allowance that frees up some of their earned income, but you will be surprised. In my experience I have seen TP make a couple of thousands, but have a few thousands in savings and this is considered low income?

[Elrod]

JB,

I made a signature line right on the 8867 form then copied a bunch. I've done this since the 8867 form came out, years back.

After going through it with client, I have them sign it.

Just made me feel oozy'er inside.....Try it.

[RitaB]

Recently, I heard a news story describing how a single parent with two kids in PA is better off financially making $29,000 a year than a single parent making $69,000. You can search "In Pennsylvania it is better to make $29,000" and get some articles about it. (And, I know 29,000 is more than 18,000, but I had to take the opportunity.)

Here's a video:

http://video.foxnews.com/v/2017186123001/single-moms-do-better-with-welfare/

[Guest Taxed]

Do you folks recall how active it gets at the EITC Workshops at the IRS Nationwide seminars. You got to rush to get a decent seat! I forget the lady's name he head at IRS for that program, but she was pushing very hard for us to make taxpayers aware of this good thing called EITC from the Govt. Remember those glossy flyers and cards?

So why shouldn't taxpayers avail themselves of this benefit. I was glad when they got rid of advance EITC (remember that baby), what a pain in the neck it was at tax time for taxpayers who did not bring "adequate" documentation.

Now with the new rules and the $500 penalty for preparers, i think all of us have to give this a second look and figure out how much more time and effort and the liability is at stake and can we even charge for that from the taxpayer by bumping our fees. As it is these folks grumble at what you charge currently!

My favorite is 2 sisters (both my long time clients), one gets EITC other does not. And i have to hear one bitch every year how the other got a big LCD TV right after tax season and so on! Guess who got the big TV (just go to Walmart around mid Feb!)

[ILLMAS]

Do you folks recall how active it gets at the EITC Workshops at the IRS Nationwide seminars. You got to rush to get a decent seat! I forget the lady's name he head at IRS for that program, but she was pushing very hard for us to make taxpayers aware of this good thing called EITC from the Govt. Remember those glossy flyers and cards?

So why shouldn't taxpayers avail themselves of this benefit. I was glad when they got rid of advance EITC (remember that baby), what a pain in the neck it was at tax time for taxpayers who did not bring "adequate" documentation.

Now with the new rules and the $500 penalty for preparers, i think all of us have to give this a second look and figure out how much more time and effort and the liability is at stake and can we even charge for that from the taxpayer by bumping our fees. As it is these folks grumble at what you charge currently!

My favorite is 2 sisters (both my long time clients), one gets EITC other does not. And i have to hear one bitch every year how the other got a big LCD TV right after tax season and so on! Guess who got the big TV (just go to Walmart around mid Feb!)

Funny, but true. I see tons of TV commercials, bring in your tax refund and buy this car, furniture etc.... We will even prepare your return.... I don't recommend none of this to my clients, I always tell them to save it and pay me first.

[mcb39]

Depending on where you live, it is very possible for some people to live on that kind of income. Take a look at the car they are driving. Are you familiar with the area where they live? These are the kind of people that the EIC was intended for. I would never send anyone away unless I knew they were out and out lying to me. It is not for us to judge once we have done our due diligence. I would never raise the fee on a family like that. Either be truthful with them and tell them you don't want to be involved or prepare the return at a reduced rate. There are people out there living in a world of hurt. HRB and Liberty are feeding off of them and I find that hard to accept. I will not give them a loan at high or zero interest. I will, however, hold their check. Certain clients know that they have to come cash in hand and they keep coming. As long as EIC is part of the tax law, I feel just as responsible to those clients as I do to the wealthier ones.

This is not to indicate that my business base is composed mostly of EIC clients. But, I have several in the mix. Most of my clients are middle class to slightly above.

[msbaysalr]

Since the IRS wants us to do their work for them, they tell us what to do and how to do it, don't you think they should be paying us as employees?? They just don't tell us what time to come and leave work, maybe we could start working IRS hours and get benefits??

[Guest Taxed]

IRS hit a slight speed bump after losing that case, but they will be back and before you know it you will be an IRS auditor without pay or benefits but if you don't do what they tell you to do, not only do they fire you they haul you to jail! What a country!

[Janitor Bob]

I reviewed my notes from last year and I have recorded that they get gov. assistance for housing (rent), Food stamps, and Medicaid. He does have a car, but is not of any value....all of the gov. assistance plus a $9,000 refund equates to an income of near $40,000/year.

[taxxcpa]

It looks like the due diligence requirement will cause honest tax preparers to raise their fees considerably since even a valid EIC claim may be a cause for a penalty due to missing some step in the due diligence process.

The effect of the price increases will drive many EIC claimants from the honest preparer to the Turbo Tax preparer who never signs a return he prepares.

Due diligence is a big bonanza to crooked, non-signing preparers.