Eitc due diligence audit

[WhiteOleander]

Found this on you tube. There are some other fun ones.

http://www.youtube.com/watch?v=7PYlfgpuel8

[taxea]

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?

I have my clients review the 8867 for accuracy, initial pages 1&2 and sign page 3. These are kept in my client file in case of audit.

[Black Bart]

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?

Google "IRC 7602 Examination of Books and Witnesses". What comes up is kind of dated (before era of disclosure letters), but I'm assuming it's still the law. Don't know where else to look - maybe others do.

[AJsTax]

No confidentiality

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?

Have you not been following the discussions on this subject in the NAEA magazine? If not, I will summarize. There is NO confidentiality between a tax preparer and the IRS. If we are asked any question about a tax return that we prepared for a client by the IRS we must answer to the best of our knowledge. WE can get into big trouble for not answering truthfully and completely.
There are opinions on ways to avoid some of this if the audit is criminal in nature by using a lawyer in between. But then we have to be sure to be working for the lawyer and answering only to the lawyer to avoid the legal pitfalls.
It is my understanding that an IRS agent has the right to look at any information on a Federal tax return. and request supporting documents and work papers. None of that is confidential.
Think about it this way, we are preparing this tax return for the benefit of the IRS. We are required to do it to the best of our knowledge and ability. If we hide anything we are breaking the law.

[Jiggers]

Have you not been following the discussions on this subject in the NAEA magazine? If not, I will summarize. There is NO confidentiality between a tax preparer and the IRS. If we are asked any question about a tax return that we prepared for a client by the IRS we must answer to the best of our knowledge. WE can get into big trouble for not answering truthfully and completely.
There are opinions on ways to avoid some of this if the audit is criminal in nature by using a lawyer in between. But then we have to be sure to be working for the lawyer and answering only to the lawyer to avoid the legal pitfalls.
It is my understanding that an IRS agent has the right to look at any information on a Federal tax return. and request supporting documents and work papers. None of that is confidential.
Think about it this way, we are preparing this tax return for the benefit of the IRS. We are required to do it to the best of our knowledge and ability. If we hide anything we are breaking the law.

In a legitimate audit of a taxpayer, we do have to provide the information as you have stated.

I think the question is in regards to an EITC audit on the tax return preparer, us. The IRS isn't auditing the taxpayer, I think they are auditing our due diligence and the information we have that proved that the taxpayer qualified for EITC.

Do we have to provide the taxpayer records, without the proper authorization from the taxpayer? I would have to say yes, because the taxpayer is not being audited, we are.

If the IRS wants to do an audit of the return, then he will have to follow all regulations and procedures to do that. The IRS can't just change the return based on what information is disclosed on the EITC audit of us.

Am I right or wrong?

[Black Bart]

Gosh!

Have you not been following the discussions on this subject in the NAEA magazine?...

I haven't been following them either. Is it mandatory?

[mlinderEA]

Eitc audit

They do not change the return.They are not auditing the tax payer but the preparer.If you did not do the proper due diligence you are fined.It does not mean the client was not due the money it is only that you did not show that you asked the correct questions to ascertain if the client should have the EITC.They are coming Wednesday and Thursday have not slept well since I received the letter that they are auditing one of my preparers,He did 328 returns of which 160 had EITC .

[S T]

M---
I wish you well and "good luck" on your upcoming audit.

I for one appreciate that you are even sharing with us on the TMI Board regarding these EITC audits. It is such good information.

If at all possible, would you also share the procedures/questions of clients, that you have implemented - I know I have mine from Tax Software, etc --- but then I prepare less than 10 per year EITC returns. Or maybe what you should do is forward to TMI - Brad and his colleagues - to incoroprate into the TB Book! It would be a great resource material based on experience.

Take good care, get some sleep and I am sure we are all thinking about you in the coming days!

Sandy

[AJsTax]

nope

I haven't been following them either. Is it mandatory?

Not mandatory at all. But as an EA I would hope he/she/they are a member and do follow the information they provide. It can very eye opening at times. When the taxpayer signs and submits a tax return they are basically giving the IRS permission to request and inspect any documents that were used to provide the information included on the return, up to and including the QuickBooks file, if one exists. I also understand that this discussion was about EIC audits but someone brought up the subject of confidentiality of the individual taxpayer's information.

[Black Bart]

Have you not been following the discussions on this subject in the NAEA magazine?...

Gosh! I haven't been following them either. Is it mandatory?

Not mandatory at all. But as an EA I would hope he/she/they are a member and do follow the information they provide. It can very eye opening at times. When the taxpayer signs and submits a tax return they are basically giving the IRS permission to request and inspect any documents that were used to provide the information included on the return, up to and including the QuickBooks file, if one exists. I also understand that this discussion was about EIC audits but someone brought up the subject of confidentiality of the individual taxpayer's information.

Sorry, but I couldn't resist the semi-snarky retort -- you have to admit it was a tempting target (besides, a schoolmasterly tone tends to get the blood up). Anyhow you gave (and usually give) straight answers, so thanks.

About the audit (think he said it was yesterday-hope it worked out for him); I don't think I would have slept much either under that gun. We once were doing about 250 EICs around here (no longer-clientele's aged/kids are gone), but not the same "hard-core" EIC clientele he's serving, just stable factory guys (factories are gone too-go NAFTA!) who qualified because wages were low locally.

Maybe he'll post the results; Sandy's right -- it's good information. But Roberts was probably right too, it's a good bet they'll keep sniping until they decide he's ok and, hopefully, third time's charm.

[mlinderEA]

Audit

The audit is this Wednesday and Thursday I think they will come till they find nothing.We are an easy target because of the volume of returns and that the day time preparers do so many returns.Also we are just out side DC and one of the largest independent firms in the area.Also I believe they do not like us operating out of a liquor store.Thanks for your kind words I will report the out come.

[ttbtaxes]

I decided two years ago not to do any tax return that has an EITC so there are no longer any in my flock. There were only two or three before. I just simply don't need the aggravation of an audit such as this. I wish you well with it.

[mlinderEA]

Eitc audit

Thanks for the good wishes.That is not possible for me since over half the returns I do have EITC on them.If you want to reassure your self that you did the correct thing look at the new 8867.It is like we are in court as a witness.

[JohnH]

Better to be a witness than a defendant.

[dkss]

Audit results?