NAEA and NATP

[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.

[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?

[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.

[Will]

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

That was a QUESTION for Bees Knees, Zeros.

[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.

[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!!!

[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.

[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.