NAEA and NATP

[Bees Knees]

Having been thru 2 audits I totally disagree.They only fine the preparer for the returns they audit.They do not pull all the EIC returns done by the preparer.They have a list in some coded order and you can argue each return.The last audit he started with a fine on 51 returns after going over each one with the preparer we agreed on 31 returns .Reasons why they were removed,preparers relative,lives next door to preparer,and knows from church.If you personally know tax payer you do not have to document as much.I now make them document every one.

Your statement appears to support my claim that they start by slapping the penalty on all of your EIC returns. Then you have the chance to argue away some of the penalties on returns where you personally know the client.

BTW, I did not make this up. I heard a reputable tax seminar speaker say that when they hit you with a penalty for failure to perform EIC due diligence, they start by applying it to all of the EIC returns you prepared that year.

[Bees Knees]

My point is really pretty simple. There is an EIC due diligence penalty of $500 return. The most disturbing story in the article was a guy who got slammed with $23,000 in penalties. That's 46 returns.

How does a guy get slammed with $23,000 in penalties? You think the IRS audited each and every return to come up with that number?

No. The guy probably did 46 EIC returns that year and IRS said his procedures were insufficient in verifying EIC eligibility.

[dtlee]

Thanks for the link

Don't forget that the $500 per return penality adds up to big money for the government. According to the CBO, they expect to net $9M (that's M as in Million) dollars from the EIC penalties in 2012, jumping to $19M in 2013. And it continues up from there. [Which suggests that they don't think we'll learn from our mistakes.]

Check out the numbers yourself at http://www.cbo.gov/sites/default/fil...ents/s1642.pdf

[What - you didn't know that the EIC penalty was enacted as part of the Korean Free Trade Bill?]

Don,

Having looked through this document a couple of times, I realized that the amounts in the chart represent the increase in revenue from raising the penalty by $400 from $100 per infraction to $500. Thus, the total amount they intend to collect from us is about 25% higher than the amounts listed.

Incredible!!!

[MLINDER42]

NAEA and NATP

That does seem rather harsh. Are you sure about that?

The chance you will be audited is slim both auditors told me that every one they have audited did at least 125 EIC returns.

[Will]

That does seem rather harsh. Are you sure about that?

That was a QUESTION for Bees Knees, Zeros.

[MLINDER42]

NAEA and NATP

Having been thru 2 audits I totally disagree.They only fine the preparer for the returns they audit.They do not pull all the EIC returns done by the preparer.They have a list in some coded order and you can argue each return.The last audit he started with a fine on 51 returns after going over each one with the preparer we agreed on 31 returns .Reasons why they were removed,preparers relative,lives next door to preparer,and knows from church.If you personally know tax payer you do not have to document as much.I now make them document every one.

[zeros]

Harsh?

No offense, but I really doubt that. I do about 50 EIC returns. If I fail to document answers to a few questions on ONE of them, I get penalized $25000?

That does seem rather harsh. Are you sure about that?

[Bees Knees]

Bees Knees states that the existence of a single EIC violation causing a penalty means that the penalty is expanded to include $500 per EIC return, even if the other EICs are not violating due diligence.

I will clarify…the code says per failure. Thus, technically the penalty is applied to each failure. In reality, if an IRS auditor believes that your normal procedures when doing an EIC return do not meet EIC due diligence requirements, he/she will assess the penalty for all EIC returns you did during the year, assuming you prepare all EIC returns using the same procedures.

For example: IRS auditor claims you failed to take proper steps to verify a client’s eligibility for EIC. You say you know the taxpayer is eligible because you have been doing her return for years, and she has always had two kids. But have you ever seen the two kids? Have you ever seen their Social Security Cards? Have you ever been to their house? Do you personally know the taxpayer and her family, or are you just taking the taxpayer’s word that she has these two kids? If you failed to do anything more than just take the taxpayer’s word on this return, IRS will assume you failed on all EIC returns you prepare. Thus, a failure on the one return IRS audits will translate into a penalty assessed on all EIC returns you prepare.

Of course you can appeal the penalty. But I suspect we are all creatures of habit and do each return using the same inadequate procedures. EIC due diligence means we have to perform an audit on our client, and obtain proof that they are eligible for EIC. That may mean we need to photo copy Social Security Cards to keep in our files, create worksheets calculating the time each kid spent with each ex-spouse, making photo copies of a self-employed taxpayer's books proving we took all deductions, etc. EIC due diligence means more than just filing out the 8867.

[DonPriebe]

We are expected to pay $19 MILLION in penalities in 2013

Don't forget that the $500 per return penality adds up to big money for the government. According to the CBO, they expect to net $9M (that's M as in Million) dollars from the EIC penalties in 2012, jumping to $19M in 2013. And it continues up from there. [Which suggests that they don't think we'll learn from our mistakes.]

Check out the numbers yourself at http://www.cbo.gov/sites/default/fil...ents/s1642.pdf

[What - you didn't know that the EIC penalty was enacted as part of the Korean Free Trade Bill?]

[Snaggletooth]

What about it?

No offense, but I really doubt that. I do about 50 EIC returns. If I fail to document answers to a few questions on ONE of them, I get penalized $25000?

Bees Knees states that the existence of a single EIC violation causing a penalty means that the penalty is expanded to include $500 per EIC return, even if the other EICs are not violating due diligence.

Will says he doubts this to be true, implying it is totally unreasonable.

I am inclined to agree in principle with Will, but since when is the IRS reasonable?

I don't know the answer. Which is it??

And by the way, if IRS is successful steamrolling us into keeping report cards for kids, etc. you're just kidding yourself if you believe they will stop with EIC. They will be deliriously happy with their results, and expand their "due diligence" to include all manner of auditing.

[Burke]

I have a few EIC's each year, but only one or two regular ones. One gives me anguish over the whole concept, but I interviewed this TP right down to her socks, asked and had her initial every question, have copies of the kids' SSNs, know her situation (corroborated by her priest) and she qualifies, hands down per IRS rules. MFJ, one professional W-2 income in the home, certainly not poverty level but takes advantage of every employee tax benefit, including 401k and 125 plan to lower income, 3 children, very nice house -- paid for -- no investment income, does not itemize. The only other thing I could do would be to ask her to bring in all her bank accounts to review. And I am NOT going to do that. When we all refuse to do these any more, perhaps Congress will put this benefit back where it belongs, not in the tax code.

[joanmcq]

I do very few EIC returns. One is the daughter of a long time client, single mom with low level state job. W-2, daddy is not in the picture.

Another is a now grown child of a long term client and former tenant. I've been doing his taxes since he got his first job. Now he has a kid, not married. He and his girlfriend came in for the tax interview. Again, one W-2 for him, she makes below the filing requirement-lost her job.

Third is one of my tenants. Also not married (yet-will be this year). Has two kids. Saw his fiancee pregnant wit h the second. Been over to the house quite a few times, so I can verify they do all live there! I do have a copy of the lease, lol.

So my question is: when a preparer knows the clients intimately, how much do you need to document?

I have a few others where they are just low income singles-older students coming out of school for their first jobs & living on the loans, etc. Now when I was doing audit rep for TT users, I saw a lot of egregious examples of huge Sch C losses used to offset wage income, etc.

[Will]

As for the penalty, if you get caught with one EIC return that does not stand up to the due diligence requirement, the IRS assesses the $500 penalty for EACH EIC return you prepare, regardless of how many failed the due diligence requirement.

No offense, but I really doubt that. I do about 50 EIC returns. If I fail to document answers to a few questions on ONE of them, I get penalized $25000?

[Bees Knees]

One thing about EIC due diligence. Those who do volunteer work for low income taxpayers who are required to follow IRS guidelines for preparing EIC returns have their own set of due diligence to follow. The volunteer must photo copy the photo ID and Social Security Card for new EIC customers and keep for their files. They must also ask the customer each of the EIC eligibility and Qualifying Child questions. This is obviously above and beyond the 8867 checklist that is now required to be attached to the return. Tax seminars that I have attended have stated that we need copies of work papers in our file IN ADDITION to the 8867 checklist.

As for the penalty, if you get caught with one EIC return that does not stand up to the due diligence requirement, the IRS assesses the $500 penalty for EACH EIC return you prepare, regardless of how many failed the due diligence requirement.

I agree with others that maybe it is a good time to increase our fees for each EIC return.

On another note, some of you recall that I announced to each of my clients before tax season that their fees would go up 25% due to increased regulations on tax preparers. As expected, I lost maybe one or two clients at the most. Maybe none since I still have some coming in with extensions they filed on their own.

[JoshinNC]

It is much easier for young women to take that approach

Sorry for taking offense.I have been here for ten years and it never fails to amaze me the make up of the neighborhood.Marriage is not important men are replaceable.The term "babies daddy" drives me crazy they want children but do not want husbands.

When the govt' is there to provide financial stability. Walter Williams, a local to you, has written on this phenomenon many times before.