RRCredit

[erchess]

Thank You Burton

That was a very good post. You are among the more learned people on this board and I appreciate the way you share with the rest of us.

I don't do bank products but if I did I would follow the practices suggested by my bank on returns with bank products.

I am going to warn all of my clients that their refunds could be delayed (either the whole refund or just this part) due to problems with this credit.

I am going to claim the credit if I can get hard info from the IRS website or the client's letter from the Service or my own calculation of what they should have gotten based on the prior year return and I have a client who agrees with that information. With my clients, I expect that to be the vast majority.

I am going to follow the procedure to let the the IRS calculate the Credit in all other cases. I am clear on the procedure for doing this with a paper return. Can anyone enlighten me on the procedure for doing it electronically?

[Bees Knees]

As of Friday, January 23, IRS still does not say anything about this on their website.

http://www.irs.gov/newsroom/article/0,,id=203030,00.html?portlet=6

They still say to claim the credit on line 70 if you are due a credit, or if you want, IRS can figure it for you. Nothing about your refund being delayed if you enter the correct amount of credit on line 70. The only mention of a refund being delayed is if you enter the wrong amount on line 70.

I'm still going to enter the correct amount on line 70, and then inform the client that IRS is having problems with this credit, and their refund may be delayed due to having to verify everyone's tax return.

[ChEAr$]

Rrc

As of Friday, January 23, IRS still does not say anything about this on their website.

http://www.irs.gov/newsroom/article/0,,id=203030,00.html?portlet=6

They still say to claim the credit on line 70 if you are due a credit, or if you want, IRS can figure it for you. Nothing about your refund being delayed if you enter the correct amount of credit on line 70. The only mention of a refund being delayed is if you enter the wrong amount on line 70.

I'm still going to enter the correct amount on line 70, and then inform the client that IRS is having problems with this credit, and their refund may be delayed due to having to verify everyone's tax return.

I shall be claiming the correct amount, as verified by IRS web site if necessary, and
not warn clients about anything. the problem IRS is having is with incorrect amounts
claimed only.

Our clients have enough to worry about without our alarming then unnecessarily.

[Koss]

RAL Denial

It appears that all of the RAL lenders have decided to deny any RAL application that is based on a tax return in which the taxpayer is claiming the recovery rebate credit.

Originally, HSBC and a couple other banks had decided that they would simply not lend the amount of the RRC. But they have now declared that they simply will not lend any amount to those taxpayers who claim this credit.

For those of you who do not offer RALs, this is of no consequence. I stand by my original position that those taxpayers who are eligible for the credit should claim it on the return, and that preparers should not override the calculations except in unusual cases where there some doubt as the amount of the credit or the taxpayer's eligibility.

But for those who offer RALs, it is now a matter of simple common sense. If the client is seeking a RAL, you have an ethical obligation to inform the client that any return that reflects the RRC is not eligible for a RAL, and you have to inform the client of this BEFORE the return is electronically filed. And I think the client does indeed have the right to choose not to claim the credit.

Finally, I think the IRS will, in most cases, change the return on the back end to include the credit for those that are eligible but do not claim it, and the taxpayer will receive an additional refund later.

Choosing not to claim the credit, if the choice is made by a fully informed client, is not unethical or improper. It is actually the other way around. Filing the return WITH the credit is unethical if the client is applying for a RAL, because you already know it will be denied.

BMK

[joanmcq]

It sounds to me than the RAL banks don't want to experience a delay in THEIR getting paid, and so are working around this by denying RALS to anyone claiming the credit. In other words, they are used to getting the refund money within a week or so of actually issuing the RAL. They don't want their payment to be held up for 12 weeks, so are spreading this crap. If they don't want to issue RALS on returns with RRCs then fine. But don't spread bullcrap as though its coming from the IRS.

[Corduroy Frog]

Mr. Koss and Bees et al

It appears that all of the RAL lenders have decided to deny any RAL application that is based on a tax return in which the taxpayer is claiming the recovery rebate credit.

For those of you who do not offer RALs, this is of no consequence.

I've read this entire thread, and the complexion has changed with the passage of a few days into the filing season.

Even if you do not offer RALs, the issue DOES impact you if you offer electronic filing, as almost all of us do. It appears the RAL bankers do not wish to risk advancing the credit, and this would not happen if they were not concerned about the credit impacting the timing of the refund.

There appears to be a "gap" in real versus perceived IRS authentication. Apparently, the RAL bankers are convinced there could be a problem.

Like Bees Knees, I don't know why we can't just file a return correctly like preparers are supposed to do, and move on to the next client. However, if there is talk about holding up refunds, then we will get sucked back into the issue if the phone starts ringing in a couple weeks because clients are not getting their refund.

I don't have a lot of confidence in the IRS mass inspection of perhaps a million returns where eligibility from 2007 and 2008 status must be compared. This process could take months, not a few days.

So if there is an amount on line 70, what options do we offer our clients? What do we tell them?

1) I'll file your return correctly, but can't promise when you will receive your money, even with e-filing.
2) I'll file your return without claiming the credit on line 70, assuring that you will receive your refund timely, assuming it is otherwise bereft of problems.
3) If I file without the credit, I will file an amended 2008 return to assure that you will someday receive the recovery rebate. I charge a minimum of $50 to file an amended return, so make sure there is enough RR to justify the effort.
4) If I file without the credit, we won't file an amended return, but instead we'll hope the IRS discovers this [as Burton suggests] in the course of their own mass inspections.

These are OPTIONS we need to discuss with our clients.

The unfortunate real-world fallout is that most clients entitled to a $3000 refund will be in such economic straits that they will elect a $2700 refund if given the options above. They should not have to pay us another $50 for an amended 2008 return, but preparers should not have to do a 1040X for free either. The government has created this train wreck, not us -- and not our clients.

[David1980]

Advisory board is meeting this week in DC, so their may be more information released after that.

[OtisMozzetti]

My approach

I am expecting to take the following approach:

1. Claim zero as everyone's Recovery Rebate Credit, by entering $5000 as the amount of last year's economic stimulus no matter what.

2. If time permits, make sure to check the IRS site and run the software separately with that number entered in order to ascertain the correct amount of RRC. Advise the client that once the IRS gets to it in quite a few weeks, the client should get a check mailed with that difference amount of RRC.

3. Now, I need to call all those clients--RALs or not--who had any RRC shown on returns I have already filed and present the bad news that because of etc. etc. their refund will be delayed.

Grrrrrrr, I am not at all happy about the way that all of this has been administered! I don't care that I am an Enrolled Agent; this has definitely not been the IRS's finest hour (nor the finest hour of the RAL bankers).

[Bees Knees]

If you don't claim the credit on line 70 when they are due a credit, and IRS does not pick up on that fact right away, your client may get a second refund later in the summer, in which case your client calls you saying you screwed up the return because IRS sent more money...

As I said before, I'm filing the return correctly and advising the client IRS is having problems processing returns this year. It may take sometime before you get your refund.

[ecb34691]

If you go to IRS.gov and check their tips on recovery rebates, you will notice that they updated it 1/23/09. They indicate that only 3% of the people will probably be due a RRC and it may delay the refund if you put an amount on line 70. Leaving it blank will speed to refund as they will calculate just like they do for people on EIC if you leave that line blank. Word we've heard is that IRS will be manually checking each return that has an amount on line 70.

[Bees Knees]

If you go to IRS.gov and check their tips on recovery rebates, you will notice that they updated it 1/23/09. They indicate that only 3% of the people will probably be due a RRC and it may delay the refund if you put an amount on line 70

It does not say that. It says:

Figuring the Recovery Rebate Credit incorrectly or entering inaccurate information will delay the processing of your tax return and any refund due.

http://www.irs.gov/newsroom/article/0,,id=203035,00.html

There is a difference.

[ecb34691]

IRS website on the recovery rebate errors under the tax professional section tax tip special 2009-2 was updated today 1/27 to slighly change they wording to indicate that they will figure the rebate amount for anybody due it, Understand they are supposed to issue to the tax professional industry on Wed their plans.

[Koss]

IRS Guidance

The text on the IRS website, on the Recovery Rebate Credit information page, is as follows:

You can let the IRS figure the credit when you file your 2008 Form 1040, 1040A or 1040EZ. If you're filing on paper, simply follow the line-by-line instructions to choose this option. If you're filing electronically, the software will figure the credit for you. (Emphasis supplied)

There is absolutely nothing to suggest that anyone should override the calculations performed by any tax software.

I acknowledged a few days ago that the RAL banks have chosen to deny any RAL application associated with a return that claims the RRC, and that in this context, the client may choose not to claim the credit. Furthermore, the IRS will probably calculate the credit for these clients, and send the additional refund later.

But if the client is not applying for a RAL, I see no reason to force the credit to zero if the client is eligible. There is no guidance from the IRS stating that the refund will be delayed if the credit is calculated correctly.

BMK

[ChEAr$]

My software

Taxwise, in latest update on RRC worksheet instructs us to put no entry on the last line,
even if warranted and quote IRS to that effect. However as of this morning I saw nothing
official on IRS own web site to that effect.

Further, the note said that IRS would separately calculate the amount and remit by
separate check/dd in the future.