NAEA and NATP

[JoshinNC]

I'd have a different name for this type of "practice"

Low income is average return single female making under 25,000 with two children. 85% of returns have EIC .70% take bank products and only 20% are MFJ.That is the break down of my over 2000 returns in 2012 down 150 from year before because we refused to do some returns any more.

but it might get me permanently banned from this forum, so I will refrain.

[okie1tax]

Low Income

What I really hate about it is that I haven't seen a single paycheck from the Treasury Department!

[joanmcq]

The one who said they asked the client to fill out a form listing income and expenses, sounds to me like they did it right there and then.

With numbers from the ceiling? Or did they have the requisite calendar, receipt books, or ANYTHING that shows the client didn't make up numbers on the spot?

I can see this not being determinative of due diligence.

[dtlee]

This is a "no win" situation

This is solely my opinion.....

The majority of Tax Preparers are unfamiliar with the enormous (was going to say "ridiculous") due diligence requirements for EIC. I have tried to enlighten peers at seminars and gotten responses like "My software has a three page form I can print out and have the client sign to take care of this" or "My software won't let me e-file the return unless I check off a box that says the income and expenses look right, so I'm covered."

I have cited some of the horror stories I've learned where fines were assessed because the preparer did not know a detail which would not have impacted EIC at all but indicated that the preparer did not perform due diligence. I have cited scenarios where the student was a student (no disputing that), but the preparer lacked a copy of any school records in the file. The EIC was never challenged, but the preparer was fined.

Until more preparers (or perhaps the "right" preparers) are hit with these fines, the organizations will be very slow to act. These EIC audits have been going on for at least three years and are so lucrative that they increased the fines.

The downside of some of the comments in these threads is that we, as the new enforcement arm of the IRS in these matters, will become the bad guys. We will antagonize the clients with questions about who lives where and why. We will get the negative feedback on the internet and elsewhere. ("Do you believe that this guy asked me for a copy of my lease!?") If we increase fees to account for the fines or the added responsibilities, I can even imagine "News" reports saying, "Preparers in the area are price-gouging low income taxpayers to cash in on their federal income tax credits. Tune in at 11." I can hear the interviewed client saying, "I take home less than $20,000 a year to feed my family and they wanted $1,000 of that to prepare my taxes because I'm poor."

I think the IRS is almost too happy with having us in the middle of this mess.

[Edward]

dtlee - well stated. This squeeze that IRS has on us leads me to the point where I am going to refuse ALL future EITC clients - its just not worth it.

[MLINDER42]

NAEA and NATP

I take offense to the post about my practice.I charge less than the big boxes and I do several representation cases a year free of charge for people that have no money.I am the only tax office in my area open 12 months a year.I handle CP2000 for people that are not my clients free if it is no big thing.We all pick how we make our money but I would not be able to do those things if I had to worry about making money in the off season.I do taxes only taxes and representation.You could not live in the DC area with out making a good living.

[JoshinNC]

I assume you are responding to me

I take offense to the post about my practice.I charge less than the big boxes and I do several representation cases a year free of charge for people that have no money.I am the only tax office in my area open 12 months a year.I handle CP2000 for people that are not my clients free if it is no big thing.We all pick how we make our money but I would not be able to do those things if I had to worry about making money in the off season.I do taxes only taxes and representation.You could not live in the DC area with out making a good living.

I was talking more about your clientele then your practice. I'm sure you are diligent, as you have stated here in this forum, but your clientele is one that seems very odd to me. More than 70% of your clients are 20-something females with less than $25k in income, two or more children and no husband. I realize the Federal government has replaced the responsible father in many homes, but this just seems totally ridiculous to me.

[MLINDER42]

NATPand NAEA

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.

[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.

[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.

[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?

[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.

[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.

[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.

[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?]