Increase on preparers due diligence failure for EIC credit

[MLINDER42]

Eitc

But with out written back up how can you prove due diligence?I know have a form they sign that is now proof we asked additional questions.

[Gary2]

The auditor wanted back up for both income and expenses.He never would answer what back up we should have.This is why I wanted to fight the fine.My boss took the easy way and paid the fine.The fine was against the preparer not our EFIN and not against me.If either of these had happened I would have talked him in to fighting it.

I'd think you'd need to be clear with the auditor that the preparer's responsibility is to prove due diligence, which is not the same as proving the income and expenses.

[Black Bart]

MLINDER - about the audit

ML -- I do a few hundred EITC returns and was trying to gauge/guess/judge the amount of new risk involved.

I know from your past posts that you do good work and are with a reputable firm, but was wondering if maybe the sheer volume of returns y'all do was what triggered the audit. Didn't you say when you originally posted about it last year (or whenever) that your company did two or three thousand EITC returns?

Thanks.

[JohnH]

I thought about this thread while listening to a story on NPR this afternoon. The story was about the "Buy Here, Pay Here" car dealers. Turns out they make up about 1/3 of all car dealerships in the US.

Typically they mark up the car an average 200% over their cost, get a high down payment in relation to the actual cost of the vehice, then finance at rates in the 30% range. A high percentage of the cars get repossessed, and the dealer just cleans the car up, makes minor repairs, and puts it right back on the lot to start the process all over again.

So how do people who have to borrow money at 30%+ manage to accumulate money for a down payment? About 40% of sales at these dealerships occur in the Jan - Mar time frame, and they offer tax return preparation services for their customers....

[taxxcpa]

That would, of course, violate the rules against contingent fees. In many EIC cases, it would also violate the rule against unconscionable fees.

.

You are right. Instead of a contingent fee, just bill them at $350 per hour. That is about what a lawyer or some CPAs charge. It is a lot less than most Doctors charge.

[Gary2]

I think you should add the amount of their EIC to your fee. Then they would have no motive to cheat (but you would).

That would, of course, violate the rules against contingent fees. In many EIC cases, it would also violate the rule against unconscionable fees.

But I think it goes without saying that your pricing structure has to include time, effort, expertise, and risks.

[Nashville]

Industry Organizations

If I have to audit a client, I will quit. I don't have that many to begin with. Sometimes I have a normally prosperous proprietor who will have a bad year and receive EIC.

On January 1, Medicare payments to doctors is scheduled to drop by almost 30%. It will be interesting to watch how the AMA responds to this. My guess is that almost all doctors will refuse to take medicare patients.

Where is the "AMA" for our industry? and what are they doing?

What would happen if all tax preparers stopped preparing returns with EIC? I don't have a problem with due diligence, but I know of several situations where fraud was actually turned in and then the IRS did absolutely nothing. And this talk of tax preparers being "the first line of defense" against EIC fraud?

IRS is doing this to avoid pursuit of the cheats. That crowd is for the most part judgement proof. The best way to stop them is to deny them all future EIC.

Would be good to hear from some of our board members who are with HRB, JH, or Liberty, and how they plan to handle this. Their offices are overrun with EIC recipients as soon as W-2s are available, and I'm certain they are not planning to refuse preparation for that group.

[taxxcpa]

Guess I will need to come up with something similar for the EITC folks...although I did a grand total of one EITC tax return last season.

QUESTION: Is it appropriate to add a surcharge to client bills to cover any extra "paperwork" for the EITC situation??

FE

I think you should add the amount of their EIC to your fee. Then they would have no motive to cheat (but you would).

[FEDUKE404]

Extra signature documents

My software prints out "Bank Account Verification" that I have the client review and sign to ensure it has the correct information for Direct Deposit.

Sandy

Not knowing what software Sandy uses, my guess is this "Bank Account Verification" form has nothing to do with official government tax documents but is merely a CYA document generated by the tax-preparation software.

I have a MS Word document, created by moi, that basically shows the bank's name/RTN/DAN along with the relevant deposit and/or debit details. The form is stapled to the Form 8879, sent to the client, and returned to me prior to any efile transmittal. Regardless of what I already have on file, in a pro forma/questionnaire, or wherever -- THAT is the information I use when the return is efiled.

Guess I will need to come up with something similar for the EITC folks...although I did a grand total of one EITC tax return last season.

QUESTION: Is it appropriate to add a surcharge to client bills to cover any extra "paperwork" for the EITC situation??

FE

[JohnH]

Yes, we are expected to audit every EITC return and keep workpapers. The IRS considers tax preparers to be the "first line of defense" against taxpayer fraud.

From here: http://www.irs.gov/newsroom/article/...206382,00.html

snip from "Prepared Remarks of Doug Shulman, Commissioner of Internal Revenue, Before the National Press Club on April 13, 2009:

"I believe the IRS has to do a better job working with the tax preparer community and making them part of our overall compliance strategy. They can be our first line of defense against non-compliance and stop a small problem from becoming a big one."

The camel's head is firmly entrenched in the tent, and the rest of the body is well on its way...

[WhiteOleander]

Does that mean we should ask for all the bank accts and do a cash reconciliation for each EITC client who has a Schedule C??

A lot of my clients don't even have bank accounts.

[S T]

Software

My software prints out "Bank Account Verification" that I have the client review and sign to ensure it has the correct information for Direct Deposit.

Sandy

[AccTaxMan]

For efiled clients, this was included in the signature package with the bank account verification, and forms 8879, and I have that signature form in file - even though it is not transmitted via efile with the return.

Not sure how my software is going to handle for the 2011 filings completed in 2012.

Sandy

Sandy, what is the "bank account verification" that you are talking about there?

[AccTaxMan]

This interests me. Another preparer said he asks for all the bank accts for a cash reconciliation. What are others' asking for, whether it is a Sche C, 1065 or 1120S?

Does that mean we should ask for all the bank accts and do a cash reconciliation for each EITC client who has a Schedule C??

[clr]

Signature

In that case why not just have them sign the 1040 or 1040a. This would cover the whole return.