Eitc due diligence audit

[mlinderEA]

I just received notice that one of my preparers is going to have a EITC audit.This is my third preparer to have one.He did 145 EITC returns the others did about the same.Does any one else have an office that they have come to more than one time.If this one goes bad my boss may decide to close it up he does not like the aggravation and does not need the money.We did 2100 returns last year of which 1500 had EITC.

[Matt Sova]

Wow!

71.4% of the returns were EITC returns? That is a very high percentage. Not saying that anything is wrong, but that could be the reason they are hitting your firm so hard.

[mlinderEA]

Eitc due diligence audit

Average income on all returns done is $22,000.The unemployment rate is 27% down from 32%Area hard hit by recession.

[Roberts]

71.4% of the returns were EITC returns?

I'd agree that this is the red flag. Let's face it, the IRS is looking for firms that abuse the EITC and push it onto returns that don't qualify. A high percentage is always going to draw a red flag. I'd anticipate getting an audit like this rather routinely until they are satisfied that nothing illegal is happening.

[FEDUKE404]

Perspective on EITC

I just received notice that one of my preparers is going to have a EITC audit.This is my third preparer to have one.He did 145 EITC returns the others did about the same.Does any one else have an office that they have come to more than one time.If this one goes bad my boss may decide to close it up he does not like the aggravation and does not need the money.We did 2100 returns last year of which 1500 had EITC.

I would guess you have a VERY large "bulls-eye" painted on your chest.

Last season I prepared less than a dozen EITCs, and I am seriously considered referring all of them elsewhere this upcoming season.

Hopefully you/your firm performed due diligence and a proper paper trail exists. Having said that, rest assured many EITC folks have learned how to "game" the system. Most everyone is "single", they get no government assistance, they live alone, they have ready access to some unused SSNs, and the list goes on and on. They did have to regroup when, several years ago, the definition of "foster child" became a bit more troublesome. The subterfuge also goes both ways: For a couple of years I worked (friend was owner of local franchise) for a national firm that also had a large percentage (but nowhere near your own!) of EITC returns. One preparer in the office was "known" to be a bit loose when answering the posed questions. She got a lot of clients who would refuse to see anyone else in the office, even for a plain vanilla one W2 return. You can draw your own conclusions. Did I mention that employee was told to take a hike before 04/15 arrived?

To a certain extent the phrase "live by the sword, die by the sword" applies to a tax business that basically cranks out EITC returns. It is certainly your right to do so, but I choose to take a different route.

Good luck on the audits!

FE

[mlinderEA]

Eitc audit

I wish we would do less we were doing better till the recession hit.The worst is that I keeping raising the price on these returns and feel that I am ripping off poor people but if the audits keep coming I have to make it worth while to do returns.I keep on top of my preparers and fired 2 last year because I did not think they asked all the questions.I gave my boss my word that I will work 2 more tax seasons than I am gone.

[FEDUKE404]

Big picture

I wish we would do less we were doing better till the recession hit.The worst is that I keeping raising the price on these returns and feel that I am ripping off poor people but if the audits keep coming I have to make it worth while to do returns.I keep on top of my preparers and fired 2 last year because I did not think they asked all the questions.I gave my boss my word that I will work 2 more tax seasons than I am gone.

I applaud your efforts with your employees.

My greater concern would be with (some of) the EITC clients involved. If they decide to game you by answering the questions you pose the "correct" way, you/your firm are still at risk of hearing from the IRS at some point.

I personally try to do everything I can to keep me and my clients OFF of the IRS radar screen. If doing so costs me the income from a few returns, so be it.

FE

[Snaggletooth]

Pursue the Taxpayer

Has anyone who has been through one of these "preparer audits" seen the IRS follow up and try to recover their money from these fraudulent clients who lie and milk the system?

I haven't heard of any. Disgusting.

[Lion]

Does the IRS arrive with disclosure statements so you can show them tax returns? Do they arrive without and expect you to show them tax returns? Do you/we have to get our clients to sign disclosure statements? Do the agents bring subpoenas? How can we show them returns and not violate confidentiality?

[Edward]

Don't ya all think the new Form 8867, when properly completed will reduce the audit potential by IRS? It certainly is a new approach which requires tax preparers to get more involved to eliminate the potential problems leading to audits. Any comments?

[Edward]

I would think that with the revised Form 8867 the IRS has placed additional responsibilities on the tax preparer and when properly completed, should reduce the potential for audits. Any comments?

[mlinderEA]

Eitc audit

The information on the new 8867 is the info they are looking for on the audit.Plus the added questions that the preparer asked to validate the claim.By law they have every right to look at returns that were filed.They never go after the clients because the clients may be entitled to the refund.They are auditing to see if you have proof that you asked the due diligence questions and delved far enough into the clients personal life.IRS does not have enough man power to audit these returns so they want the preparers who do the returns to do the auditing.All my preparers that have been audited have done over 125 EITC returns.I will report more after the audit the first part of November.

[ChEAr$]

Does the IRS arrive with disclosure statements so you can show them tax returns? Do they arrive without and expect you to show them tax returns? Do you/we have to get our clients to sign disclosure statements? Do the agents bring subpoenas? How can we show them returns and not violate confidentiality?

I would love to agree with you, Lion, re having to have client permission to disclosure information on a 8867 to an IRS auditor, but I kinda think that in this case, IRS holds the winning hand, i.e. has all the trump cards.

[Lion]

But what trumps do they hold? Is it a criminal investigation? Do they have a summons or subpoena or other legal document that compells us to break confidentiality? Can't OPR take away my EA if I show client's information to anyone without written client permission? Can client sue me? Can I legally show Forms 8867? (But, not the actual returns?) Who's done this? What did your lawyer advise? Have your clients learned what you did yet?

[mlinderEA]

Eitc audit

I checked with a lawyer on the first one and he said they have the right to audit EITC DUE DILIGENCE.They do not look at W-2's.If it is a schedule C they want to see proof of income.They also want to see the 8867.I have all mine signed.They want to see the notes of the questions you asked to make sure the children live with the taxpayer.My clients could care less this time of year 50% of the phones are wrong.At least 10 to 15 are in jail plus 1 or 2 are probably dead.Last year during tax season 5 ended up in prison before they picked up their checks.