I keep thinking I'm doing something wrong when I do one of these returns. single mom with 2 children. How do you live on that? Received MWP of $400; EIC of $5036; Additional child tax credit of $1508; W/H = $924. Total credits of $7868. Refund of $7865. Oh well, must be right......
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Originally posted by zeros View Post
From ยง1.6695-2(b)(3)(i)
Regarding EIC Due Diligence
A tax return preparer must make reasonable inquiries if a reasonable and well-informed tax return preparer knowledgeable in the law would conclude that the information furnished to the tax return preparer appears to be incorrect, inconsistent, or incomplete. The tax return preparer must also contemporaneously document in the files the reasonable inquiries made and the responses to these inquiries. -
Good poiint
I do only a few returns that wold have EIC
What important statements should one enter on the 8867 Due Diligence Questionnaire, that we have the Taxpayer sign?
I can default these questions on the 8867 Questionnaire that I have the taxpayer sign - I would only have to enter the individual tax payers answers case by case that I give to the taxpayer for signature, or give to them for their handwritten answers, and let the taxpayer know that it is submitted as part of their tax return.
Thanks for sharing,
SandyComment
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Some questions
Who lived in the home with the taxpayer during the year?
How did the taxpayer live on 13k?Comment
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other income
She might be getting some non-taxable income like child support, or social security for the children, or welfare. It is a good question to ask, but I know my clients would say "it ain't easy, sister! But that's my only income!"Originally posted by zeros View Post
I was duped last year by a loyal couple. They came in to do their taxes together, but swore to me that they had separated. (They had been coming to me for years.) They knew that if she was HOH with kids, it meant "free money."
My Christmas card to his "new" address came back "not at THIS address!"
They are fired, and I have mud on my face. But what more could I do? I was very, very clear with them on the laws and the penalties for fraud. They swore it to be true. No more! I won't risk doing their return again.
What would you do if you were faced with this situation? You seriously doubt that they are separated at all, but they are swearing they are. I hate confrontation and I just can't call them liars. What to do??"I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur GodfreyComment
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With the scenario you pose I would do the tax return. ยง6695 and Regulations thereunder require due diligence by the preparer asking the questions and documenting such questions and the answers given by the taxpayer.Originally posted by Possi View Post
Perhaps the crucial question would be if they resided together the last six months of the year and the answer. If the answer were yes, then I would not do the returns. If no, then I would do them.Comment
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Relief from EITC
After having worked part-time a couple of years for a friend who owned a "storefront" RAL-factory (I do not really prepare too many returns on my own until early February anyway), I must say it is a pleasure not to go the EITC route any more.
Simply stated, people will lie to you. They will totally "forget" other income, especially government handouts they (and/or their "dependents") are receiving. Many otherwise-married couples know quite well how to play the HOH game, use different addresses for him/her, and are able to keep the various Social Security cards well-organized. ("Yes, SIR, they lived with me for [at least] seven months and nobody received nothing else. I do have at least three children/grandchildren/(etc) and no one else ever lived in that house with me.")
When I was an employee, I asked the proper questions and recorded the pertinent responses....frequently while silently gritting my teeth. As a Sch C person, my approach is different and at any sign of "problems" I start tossing the questions as quickly as Madame Pelosi jumped up (previously) at the State of the Union addresses. Losing such a potentially problem client causes no great stress to me.
Having been around taxes for way too many years (and remembering the "arrival" of the EITC and how the dollar amounts were modest) I think the EITC is probably close to being the "third rail" of income taxes. EVERYONE knows the back door welfare system is abused like crazy, but no one dares to challenge it......because.......
FEComment
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Didn't need to. Got EIC last year as well. Probably also got food stamps, housing subsidy, reduced or free medical services, aid from the local food bank, and utility subsidies.Originally posted by veritas View PostComment
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How does TP live on low income and still recieve EIC?
Well, I have a couple clients who for 20 yrs have paid heavy premiums in a Life Ins Policy VUL to be exact when they had the income. Now they dont have the income so they borrow from their Ins policy at about a 2% avg net plus massive belt tighting. One of the spouses has a W-2 job but it pays very little for which they can recieve EIC etc. Yes there is only so much you can borrow from the Ins policy unitl it drys up and NO you dont have to pay the loan back in which the loan will be subtracted from the death benefit. 20 yr avg on the market has been good to them and got to hand to these taxpayers for putting their money away when they had vs. blowing it.Originally posted by veritas View PostComment
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The fallacy of the EITC system is that it assumes low income = poor. Not always. It does not measure wealth (except to the extent of investment income). But if that is in tax-free investments or comes from trust principal for example, it is not calculated on the tax return. Just a part-time job can generate this for a lot of people who otherwise are supported by other means.Originally posted by veritas View PostComment
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But it does seem to really help some people. For instance a young family with several chldren, a stay at home Mom, a Dad that works full time all year, and most importantly aren't on welfare. It is a way to help people who can't make enough to work hard and not be too much of a drain on the system. I know they can be viewed as being on welfare, but this way, if done legally, it preserves their self respect.JGComment
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My Pet Peeve
While we preparers are held to a standard of due diligence, there appear to be massive campaigns to extend this benefit to more and more Americans.
New York has a program to contact taxpayers who may have overlooked the EIC. After I diligently questioned and prepared a clients return, determining that he did not appear eligible for the EIC because of his situation, he was sent a letter from the comptrollers office informing him that an error may have been made on his return. If his children were his Qualifying Children (they were not), he would be eligible for over $5K in additional money. A 1040X and a Schedule EIC were included in this correspondence. They were mostly complete except for a box or two that he was told to check "yes" to and the empty signature line of the 1040X that he was told to sign. The letter implied that once he got his money from the federal, he would likely receive money from New York as well.
As some of you know, I have spent a great deal of time trying to research and understand the Uninformed Definition of a Child. Most taxpayers don't spend any time understanding the definition(s) of a Qualifying Child and could not come up with even a partially correct definition.
At a conference given jointly by New York and the IRS, I asked about this disparity between requiring me to do due diligence and then sending a filled out document telling a taxpayer to check a box and get $5K. Their answer was that their program was very successful and that they have found thousands of taxpayers who inadvertently omitted the EIC from their returns.DougComment
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The totality of a return must make sense to me or I won't sign it. Could they live on this income? What was their explanation? Can I confirm anything?
In the end, if I am comfortable with a client's explanation(s), but must rely on a representation made by a client, I will always have the client sign and date a letter of representation. It will spell out exactly what they are representing to me.
If the client waffles about signing it, I ask them why I should I sign something they won't themselves sign, then I show them the door.Comment
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Income vis-a-vis due diligence
I don't believe due diligence requires us to determine "how taxpayers live" on the income items presented and, it seems to me, is something we simply can't know. We have no information at all on much of welfare (Aid to Dependent Children, Food Stamps, SSI, etc.). Other answers might be:
(1) I borrowed money from relatives/the bank (can we prove otherwise?).
(2) I sold my furniture/car/boat/whatever (it happens).
(3) I'm working for cash and didn't get any forms (at which point we do have to balk).
Anyway, outside of absurd representations -- such as "I didn't get any 1099s or keep any records, but made $12,550 mowing yards" (income required for maximum EIC of $5,666 on three kids) -- I'm not delving into a recreation of anyone's life style or living requirements. After all, many S-corp salaries don't explain our Tahoes and cul-de-sac spots.
Anyway, I figure that's the taxpayer's business. I get affadavits signed stating these figures are correct and stop worrying about it.Comment
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How can they live on $13,000? Not as well as they would like but it can be done. I have a lot of low income clients who live inner city, and a lot of immegrant clients. I had one client who has raised her 4 kids, and now some grandkids on about $15000 a year that she makes at a greenhouse. She always had more than $1000 in withholding and used her EITC to pay the rent for the year in advance. I have seen some of the fraud that others have spoke of, and have turned away clients who are exceedingly blatant, but I also know that there are some honest poor people to whom EITC is how they live all year.
For a laugh check my post on MI EITC.Comment
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