EITC Procedures You Currently Use

[MDEA]

Having handeled three EITC audits for preparers that work for me the last two they only checked returns that had nieces,nephews,brothers ,sisters and grandchild.You had to have copies of birth certificates to prove the status claimed.They also wanted proof that the child lived in the household.They looked at the 8867 and it had to be signed to prove you asked the questions.All three preparers had done more than 150 EITC returns. In talking to other preparers that have been audited all had done over 150 EITC returns.

[ADGFINANCIAL]

Mamalady, that is my EIC engagement letter. On my letterhead clients name, SS# and date of tax appointment meeting and then they sign it. Keep with the 8879 in my file.

Mr. Girard went over the questions on the Paid Preparer’s Income Credit Checklist Form 8867 with me for 2013. I had ample time to review the questions and to the best of my knowledge they are accurate

August

[MAMalody]

Mamalady, that is my EIC engagement letter. On my letterhead clients name, SS# and date of tax appointment meeting and then they sign it. Keep with the 8879 in my file.

Mr. Girard went over the questions on the Paid Preparer’s Income Credit Checklist Form 8867 with me for 2013. I had ample time to review the questions and to the best of my knowledge they are accurate

August

I do something similar and have them sign the From 8867.

[MsTabbyKats]

Mamalady, that is my EIC engagement letter. On my letterhead clients name, SS# and date of tax appointment meeting and then they sign it. Keep with the 8879 in my file.

Mr. Girard went over the questions on the Paid Preparer’s Income Credit Checklist Form 8867 with me for 2013. I had ample time to review the questions and to the best of my knowledge they are accurate

August

Just gave me an idea.....gonna have the client sign/date the 8867....with a handwritten statement by me.....acknowledging the information is correct..... and keep a copy with my files.

Thank you............

[Guest Taxed]

If you are doing an interview and completing that darn checklist, that should be the SOP!

[MDEA]

If the 8867 is not signed you have no proof that you asked the questions.This is from the mouth of two EITC auditors.

[MsTabbyKats]

If the 8867 is not signed you have no proof that you asked the questions.This is from the mouth of two EITC auditors.

Are there written instructions anywhere stating it needs to be signed? My software doesn't mention it....nor is there a signature line.

[Jack from Ohio]

Are there written instructions anywhere stating it needs to be signed? My software doesn't mention it....nor is there a signature line.

MDEA is correct. Karen Hawkins will eat you alive if an incident like this gets to her.

Try that defense on the compliance auditor. Let us know how that works.

[MsTabbyKats]

MDEA is correct. Karen Hawkins will eat you alive if an incident like this gets to her.

Try that defense on the compliance auditor. Let us know how that works.

I'm not doubting she will eat me alive.....but, can anyone cite where we are required to get a signature?

As the new season approaches.....I have more and more clients I plan to outsource.

[MDEA]

There are few written rules for EITC due diligence.In an audit you must prove that you exercised due diligence.The last audit which I lost in appeals I am going to district court.Know where does it say you must have birth cetificates to prove dependents other than son or daughter.The fine is $17,000.IRS took the preparers refund this year

[joanmcq]

I have very few EIC clients. Single mothers I do interview closely to verify the child lived with them. One that comes to mind has only W-2 income. Very little due diligence required except to verify the child's address is the mothers.

[Guest Taxed]

There are few written rules for EITC due diligence.In an audit you must prove that you exercised due diligence.The last audit which I lost in appeals I am going to district court.Know where does it say you must have birth cetificates to prove dependents other than son or daughter.The fine is $17,000.IRS took the preparers refund this year

MDEA, what was the reason EITC was disallowed? Taxpayer could not come up with birth certificates?

Frankly I don't recall making a copy of the birth certificates, I do scan the SS card of the dependent.

[Mr. Pencil]

I am going to district court

Which district, and why not Tax Court? If your position is that the law does not specify a birth certificate, what alternate documentation have you offered? If other claims were allowed, what documentation did IRS accept on the same points? Is the IRS alleging similarities in the claims?

As I posted earlier, I think the due diligence requirement is very vague and weak, nothing more than already provided by regulation and industry standards. I hope that means IRS is only using it to target abuse, but your experience might give me a different perspective.

[MDEA]

The EITC was not disallowed, but the preparer was audited. The auditor said for due diligence we had to check birth certificates of dependents that are not son or daughter if EITC claimed. Lost at appeals.

You can not take preparer penalties to tax court. You file 6118, when that is turned down, you go to Federal District court. Which is where the case is now.

[David1980]

Personally, I'd probably file a return claiming a qualifying child other than son/daughter without seeing or keeping a copy of the birth certificate. If the taxpayer's explanation makes sense when I ask why they're claiming the kid and not the parent and things don't feel sketchy I'd go with it. Guess if I go through an EIC due diligence compliance audit I might get hit with $500 on that. Or not. Doubt I'll ever find out, I would hope the minority of my clients with EIC is small enough that they'd never waste their time auditing it.

Do the per-taxpayer requirements change depending on what percentage of returns are affected? Say I file 500 returns and 5 of them include EIC and qualifying children other than son/daughter. Someone down the street does 500 returns and 400 of them include EIC and qualifying children other than son/daughter. Knowing nothing else, I'd assume the person down the street coached the taxpayers or sold them SSNs to use for dependents. Auditing the preparer for due diligence I would hope to see more than "I asked taxpayer why they are claiming the dependent instead of the parent and they said the dependent lives with them" in the notes for each of the 400 returns. If I were auditing the preparer, I would require higher due diligence of the one doing 400 returns in order to overcome my assumptions. I don't know if auditors are allowed to do that.

If that's who the IRS is going after, I don't have my sympathy for them. I do wish the IRS would go for criminal charges of some kind instead of a $500/return penalty though. After all, the easy way to stay profitable with $500/return penalty is to charge more than $500/return.

[Guest Taxed]

The EITC was not disallowed the preparer was audited.The auditor said for due diligence we had to check birth certificates of dependents that are not son or daughter if EITC claimed.Lost at appeals.You can not take preparer penalties to tax court. You file 6118 when that is turned down you go to Federal District court.Which is where the case is now.

Thank you MDEA. I just looked at all my returns that had EITC and did not find one where the qualifying dependent were not their own children. I will keep this requirement in mind, not that I am looking for more EITC clients.

[Mr. Pencil]

for due diligence we had to check birth certificates of dependents that are not son or daughter

Thanks for that info. The term "birth certificate" doesn't actually appear anywhere on the form or instructions, but I can understand why IRS might focus on potentially "borrowed" children. I'd better watch out for that one. The form asks why the parents are not claiming the child, a reasonable question along the lines of "incorrect, inconsistent, or incomplete" information. What answer are you trying to get the IRS to accept? 34 times.

[MDEA]

The main answers are Mother in jail,disapeared,in rehab,dead.Farther unknown.Preparer had done 250 returns 150 EITC.Since we have asked for birth cetificates lost over 500 returns.

[Mr. Pencil]

Mother in jail,disapeared,in rehab,dead.Farther unknown.

Wow, that's quite a town you've got! But every one of those problems should be easy to verify through Child Protective Services. So let me ask a third time, the same thing His Honor will only ask once, how did you document any of that?

[kcjenkins]

... every one of those problems should be easy to verify through Child Protective Services. So let me ask a third time, the same thing His Honor will only ask once, how did you document any of that?

My question is, what good would seeing a Birth Certificate do toward proving where the child lives? I think the real thing the IRS is questioning is the actual existence of the child. In many of the EITC fraud cases, the supposed children are supposedly from Mexico, and when challenged, no evidence can be provided to prove they even exist. But clearly, the main solution the IRS has arrived at is to put the screws to the preparers. And it should work, because it's unlikely that you could charge more than $500 per return to take those kids. Although I've read that some of those returns claim 5 or more 'nieces' or 'nephews', getting many thousands of dollars of EITC, so maybe they would pay that?

[MAMalody]

Wow, that's quite a town you've got! But every one of those problems should be easy to verify through Child Protective Services. So let me ask a third time, the same thing His Honor will only ask once, how did you document any of that?

When I lived in CA, CPS considered that informatiion privileged and would not verify it. Has that changed?

[MsTabbyKats]

Wow...I think we're all getting a bit paranoid. Me included..........

I did have a few that were questioned by IRS (a few years ago) and lost the credit....but that was it....they couldn't send proof that the children lived with them (school verifying child's address, or doctors letterhead stating the child was a patient with the child's address)......nobody went to jail, nobody got a fine.....just nobody got the credit.

Verify as best you can where the kids officially live...and the relationship. And....if things just don't make sense....and if you feel uncomfortable with the return....don't do it.

We aren't the tax police or social services.

Most important....the "dishonest people" know very well what they need to tell you for the EITC....people lie. So...get that 8867 signed to CYA.

(LOL...my best ever was "a married couple" with a huge refund. The $$$ was going into his account. About 2 minutes after I e-filed....she called me all upset. Seems they weren't really married and she was upset the money was going to his account. Now...should we be asking for marriage certificates too? If they say they're married...I take that at face value.)

[Mr. Pencil]

When I lived in CA, CPS considered that informatiion privileged and would not verify it. Has that changed?

The taxpayers would be able to get info to support their claims for qualifying children. By the time of the audit, it would be too late because obviously the return would have not been prepared with due diligence. My point remains that the same information would be required for dependents even if they weren't eligible for EIC. Tiebreaker rules are part of eligibility, so it is reasonable to determine if the natural parent is claiming the child.

[MAMalody]

Thanks for the clarification.

[Jack from Ohio]

Wow...I think we're all getting a bit paranoid. Me included..........

I did have a few that were questioned by IRS (a few years ago) and lost the credit....but that was it....they couldn't send proof that the children lived with them (school verifying child's address, or doctors letterhead stating the child was a patient with the child's address)......nobody went to jail, nobody got a fine.....just nobody got the credit.

Verify as best you can where the kids officially live...and the relationship. And....if things just don't make sense....and if you feel uncomfortable with the return....don't do it.

We aren't the tax police or social services.

Most important....the "dishonest people" know very well what they need to tell you for the EITC....people lie. So...get that 8867 signed to CYA.

(LOL...my best ever was "a married couple" with a huge refund. The $$$ was going into his account. About 2 minutes after I e-filed....she called me all upset. Seems they weren't really married and she was upset the money was going to his account. Now...should we be asking for marriage certificates too? If they say they're married...I take that at face value.)

You keep believing that. Let me know, when the compliance auditor visits, how that line of thinking works for him/her.

Everyone should read/see some of the seminars that Karen Hawkins, Director of Tax Preparer Compliance for the IRS, puts on and listen to how she is directing her department to do things.