What would you do?

[Acctaxman71]

Client qualifies for the EITC. And then she told you she also did some works on the side and got paid by cash. But she did not keep a record. She told you she estimated the total for the whole year is approximately $2,000. The problem is that by adding this $2,000 (which is only an estimated figure in the first place), it will actually increase her EITC and her refund. What would you do? I find it very troublesome that the 'estimated amount of income' will increase her refund.

One thing I am sure is that she did not make up the additional income in order to increase his EITC. She revealed that to me only after I kept asking her whether she had other sources of income to support her family's living expenses in 2008.

[thomtax]

I probably would tell her that I need something in writing before I could add it to the return, just to protect myself against an ambitios IRS examination. According to postings on this and other boards, the IRS seems to be pushing to have something to justify all things being claimed as income, especially if it is adding to EIC.

LT

[veritas]

What would

Tim Geithner do?

[S T]

Trying to exercise

Due Diligence,

So it is taking longer, and longer, to complete a tax return.

Even for those clients that I have had for 20 years

The thought that preparer penalties on returns I complete, are driving me crazy this year for 2008 filings.

Did Tim Geithner receive any undue penalties or his preparer receive any penalties ? I doubt it!

Sandy

[Black Bart]

I guess

I'd do it since you think she's telling the "truth" (as far as can be reasonably known), but I'd make up a statement for her to sign detailing those circumstances and releasing you from all liability for penalties and interest in case she has to give it back to IRS later. Too, get her to write out (while sitting across the desk from you) a list of the main separate jobs, rough dates (months is close enough) worked, and estimated amounts earned from each "employer" (she's got to have some idea and if she says "just different ones," ask for names and "about" amounts). Not much cover, but it's your fig leaf if audited (not much risk anyway on a $2K biz though)

Next; give her a lecture -- "IRS demands records/ you have to keep a list next year/ get a notebook and write this stuff down or we can't do your taxes/ blah-blah-blah. If you can get her to go along quietly, you can maybe have a nice little "C" client every year from now on.

Good luck. This "sufferin' responsibility" is rough, ain't it?

[ChEAr$]

What I would do

is treat it not as se income, but simply put it on line 20, other income. That would be
correct income, but, I don't think, would increase the EIC. Call it 'hobby income'.

[BHoffman]

I am surprised how eloquent many of the EIC recipients are regarding the tax credit income variants. I had one guy, self employed, who hit the income number that would afford him the greatest amount of EIC. However, his AGI was not sufficient to cover his Sch A mortgage interest deduction. OK, sometimes that happens because people live off their home equity line of credit. But upon further questioning about bank deposits, he asked me if the IRS would look at his daughter's bank account if he were a signer.

You know, I just pushed his paper back to him and said I didn't want to do the return. He shrugged and said OK and left. This fellow was in the trades, not some college boy. To talk to him, he didn't seem like a tax genius. But he sure seemed to know how to work that system. I don't want to prepare any EIC returns anymore.

[Black Bart]

Don't give up the ship!

...how eloquent many of the EIC recipients are regarding...the...variants...one guy, self employed...hit the income number that would afford him the greatest amount of EIC...pushed his paper back...said I didn't want to do the return...fellow...didn't seem like a tax genius...seemed to know how to work...system.

I don't want to prepare any EIC returns anymore.

Oh; don't throw out the baby with the bathwater -- EIC is legal (whether or not we agree with it in principle) and they're not all professional crooks. While A-71's client wasn't going to turn in the cash, neither was she trying to rig the EIC (like the con-man you showed the door). Or like the one back in "stimulus season" who told me he'd made exactly $3,000 "mowing yards" until I explained SE and he promptly hit the road.

Lots of people have a little larcency in their souls, but usually you can get at most of the truth if you talk it out of them. It seems clear that Acctaxman71's client is working some kind of sure-enough cash side "job" (an occupation and not a hobby -- sorry Harlan, but I disagree about the line 21 treatment) and the profit should be reflected on a C as best we can determine it. Nothing wrong with her picking up some EIC if the income justifies it. Besides, think of the greater good -- we're creating honest taxpayers (she may eventually work her way out of that EIC bracket and pay in some income tax).

Press on! Courage! Chin up! And all that sort of stuff...

[ChEAr$]

here's how I feel about it.

One client who was single, small W2 amount, qualified for EIC with children. Nothing
wrong with this scenario. Except she also played the piano every Sunday at her church
and was paid for this as "independent contractor".

typically she didn't want to report the income, since it was "under the table", and when i
insisted, decided to go elsewhere. yes, the extra amount even after SE tax would have
increased her refund.

Do you think I even told her before she walked? (grin)

[Black Bart]

Ha-ha & touche.

One client who was single, small W2 amount, qualified for EIC with children. Nothing wrong with this scenario. Except she also played the piano every Sunday at her church and was paid for this as "independent contractor". typically she didn't want to report the income, since it was "under the table", and when i insisted, decided to go elsewhere. yes, the extra amount even after SE tax would have increased her refund.

.Amazing that you can find "under the piano" money in church, isn't it?

Do you think I even told her before she walked? (grin)

I suggest we let our ethicist-in-residence , Erchess, rule on this course of action.


P.S. Did you hear about the preacher who asked a man why he didn't attend church? Guy says, "Pastor, I would come to church, but there's so many hypocrites there!" Pastor replies, "Oh, come anyway -- after all, just one more won't hurt."

[tpnl]

You are surprised that clients know how to work the system or were you being sarcastic?

I had a mother and daughter in getting their taxes done. They do not live together but wanted to sit with each other as I went over their returns. The daughter made more money than the mom. Daughter received less EIC because of the higher income. The mother looked at the daughter and said, "See I told you, you should have quit that job in October."

We get new clients all the time trying to work the system. After you interview them and they say something that changes the return, they now know how to answer those questions to the next preparer. I won't do a return for someone I think is lying. They just move on to someone who will.

By the way, I don't appreciate the IRS putting more requirements on me to verify that the person is telling the truth. IF the EIC is so abused maybe they should change it and leave us alone. My work load is getting bigger but my clients are all complaining about my fee.

[joanmcq]

'taint the IRS but Congress, the president, whatever thinking people are not taking advantage of the EIC, rather than abusing it. I'm really trying to figure out where they get the idea that there are people out there that qualify for this and don't take it.

[Jesse]

I'm really trying to figure out where they get the idea that there are people out there that qualify for this and don't take it.

I've often wondered that myself!

[Black Bart]

Ain't it the truth.

Originally Posted by tpil
By the way, I don't appreciate the IRS putting more requirements on me to verify that the person is telling the truth. IF the EIC is so abused maybe they should change it and leave us alone. My work load is getting bigger but my clients are all complaining about my fee.

Right you are, tp. I'm firing off an email to the Commisssioner suggesting a (refundable) tax credit for First-Time Lie Detector Buyers and, further, demanding IRS immediately discontinue EIC, leave me alone, cut my workload, and abolish all fee-related complaints.

'taint the IRS but Congress, the president, whatever thinking people are not taking advantage of the EIC, rather than abusing it. I'm really trying to figure out where they get the idea that there are people out there that qualify for this and don't take it.

Hmm...well...I'd email my clueless congressman instead except he's already busy throwing ever-increasing wads of EIC cash at "people who don't know about it" while the IRS simultaneously threatens drastic penalties against tax preparers who refuse to halt this (pick one) surprising/astonishing/amazing rush of broke folks "going for the green."

[BHoffman]

Somehow I'm getting the impression that the IRS wants anyone who might qualify for EIC to have their returns prepared solely by VITA. They are advertising this "free" tax prep services, announcing that YOU might be eligible and not know it, and I've seen a few posts here and there where IRS is just showing up at preparers offices for EIC audits. Nice job - scare the preparers into turning clients away to VITA. I'm more than happy to do just that.