Increase on preparers due diligence failure for EIC credit

[S T]

Software

In 2009 and 2010, for form 8867 -EIC Due Diligence, from my software, I could print out a signature form, that stated Taxpayer Name ssn# , "by signing below, I verify that the above information was provided by me and is true and accurate to the best of my knowledge."

The above information I would enter in the computer screen, such as "verified Schedule C income, birthdate, dependents, etc whatever I needed the t/p to verify.

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

[FEDUKE404]

Sign on the invisible line?

They do not have a place to sign but if you are audited you need proof that you asked the questions.Having the client sign on the bottom or some other form with the questions on it is the only proof they will accept.

That sounds absolutely ridiculous (the IRS signature requirement with existing form).

Assuming the Form 8867 remains as a draft form, do you think the IRS may (quickly!) redesign the form so that it can be signed??

FE

[MLINDER42]

Eic Due Diligence

They do not have a place to sign but if you are audited you need proof that you asked the questions.Having the client sign on the bottom or some other form with the questions on it is the only proof they will accept.

[clr]

Signatue 8867

Here is a draft copy of the new 8867. There is no signature line?????\

http://www.irs.gov/pub/irs-dft/f8867--dft.pdf

[MLINDER42]

Eic Due Diligence

During audit was told that the signature on the 8867 was the only way you could prove you asked the questions.in 2012 the form has to be e-filed with the return.Don't see how that does any good but to make sure it is filled out which we always did.

[Burke]

The auditor wanted back up for both income and expenses.He never would answer what back up we should have.

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?

[Burke]

We have always had the clients sign a copy of the 8867 which we keep in the file.This took care of most of the problems.

I just returned from a tax conference in which the speaker said we needed to have the client sign the 8867. Haven't seen a new form, not sure if this is an IRS requirement or just her good sense advice. Have been having the one or two I do each year initial the answers to a number of the questions. Think signature is a good idea whether needed or not.

[WhiteOleander]

"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."[/QUOTE]

If that's the case they need to be paying their share of the rent.[/QUOTE]

And we need access to the gov't employee health care and pension programs!!!!!

[DaveO]

[/QUOTE]
"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."[/QUOTE]

If that's the case they need to be paying their share of the rent.

[BHoffman]

do I have to audit them and prove how much they made or did not make?

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."

[MLINDER42]

Eitc Due Diligence

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.

[WhiteOleander]

I am curious about the 33 Sch. Cs that the agent said the preparer didn't have enough back-up for. What was being referred to? No back up for the income. Or deductions? etc.? Are we supposed to audit the t/p? If the client says they made $$$ doing whatever, do I have to audit them and prove how much they made or did not make?

If so, I think this is getting serious. The gov't is trying to force us to do their job.

[MLINDER42]

Eic Due Diligence

One of my preparers had an EITC due diligence audit 2 years ago.We have always had the clients sign a copy of the 8867 which we keep in the file.This took care of most of the problems.He caught her on 33 Schedule C returns that he said we did not have enough back up.The fine was $3300.00 my boss did not want to fight it so he paid.If they do it now the fine would be $16,500 which we would fight.I feel if we fought the first one we would have won in the end.I feel more people will fight these fines and in the end they will collect less money.

[Gary2]

Gary2,
Well noted on the "DIY" (not being part of the paid preparer group) but don't you think that there should be some form that the "DIY" people need to file as well to substantiante their EITC Claim

The form only substantiates that the preparer followed all the steps, asked the right questions of the right person, and believes they met the knowledge requirement. It doesn't substantiate any of the data. I expect that 100% of the e-filed 8867 forms will have all the right boxes checked, so they'll tell the IRS nothing. I think the real reasons that the IRS is requiring it is so the taxpayer gets a copy, and so that neither the preparer nor the taxpayer can claim they didn't know about it. This should help the IRS prosecute fraud cases against the taxpayers.

I guess what concerns me and irritates me - is that we (most of us) know the EITC regulations and due diligence - but IRS is going to penalize us - for due diligence

I'm not sure if you mean that the new 8867 filing requirement is a "penalty" or that you anticipate being fined in spite of your best efforts to do such returns correctly.

What is the current penalty - a taxpayer that is caught in fraud of EITC can not claim that credit for 10 years??? IRS estimates that somewhere between 23 - 28 percent of EITC claims are paid in error! Is IRS even bothering to note those returns and investigate, when it is easier to "track us down - as in Registered Professionals"

Two points: Part of the problem is that most of the taxpayers with fraudulent EITC claims don't have the money to pay it back, so denying them the EITC for future years is the strongest possible penalty short of incarceration. These are often people who fall into the right income ranges but don't have the dependents, or people whose businesses are marginally above the income ranges.

The second point is that there's a real cottage industry of illicit preparers that facilitate these returns (along with returns that are fraudulent in other ways), and pocket a big chunk of the resulting refunds. That's the real target of these rules.

Seems like any preparer of EITC returns will be at risk of investigation, penalties, etc. and that will only be the preparer or office that actually signs the tax forms.

No, only those preparers of EITC who don't know the rules or don't bother applying them. I don't see why a preparer who does EITC returns properly should feel at risk.

From what I've read of the IRS stance on this, they're not trying to raise revenue through penalties. They're trying to increase compliance, and the preparer penalties are one of the "stick" pieces to encourage many less qualified preparers to do better. The penalties aren't there to collect money from competent, honest preparers.

[JohnH]

It's easier and much more profitable to enforce the law against basically law-abiding citizens who slip up or make mistakes. They are the ones who have more to lose and thus will pay their fines & move on.

So the key is to lay little traps for them and then spring the traps at the appropriate time & let the revenue flow in. All the while, claim that the cost of enforcement exceeds the amount collected just to keep the game going and provide some political cover for the bureaucrats.