IRS Compliance audits and suggestions for compliance

[Redneck]

Vehicle

Does your client own the vehicle they drive up in I can only *** - U - ME so

[taxea]

Does your client own the vehicle they drive up in I can only *** - U - ME so

I inherited a BMW....does that make me suspect? I agree that if something smells fishy it probably is but, your usual interview with the client should weed out the "fish". If you are still uncomfortable, more questions are appropriate. Like the favorite potential client who, during the interview, keeps looking at the ceiling for the amounts you are asking for. If he is looking to the left he is lying.

[Bees Knees]

Come on, Bees, he was just giving an example of when you know the information from your client might not be complete!

Lets put all this into context:

The statement is made that for EIC due diligence, having the client write down the information in their own hand writing is a good idea.

Then the statement is made that a client’s self testimony is not enough, because it is self serving.

Then the statement is made that yes, a client’s self serving testimony is in fact enough, according to a question on the 8867.

Before we go off into all kinds of hypothetical situations, perhaps the moral of the story is, stop knowing too much. I’ll bet every single tax return we all do could potentially be wrong, if we were to go over to our client’s house and conduct $5,000 worth of auditing services. Yes you can find suspicion in just about any scenario. But for the fee you charge, do you really want to learn that much?

Think about it…wouldn’t it be more beneficial and easier for you as a tax preparer, if all you knew about your client was what was on that hand written piece of paper they hand you? That’s all the IRS requires, unless you have reason to suspect something more. You can’t possibly have any reason to suspect something more, unless you start to ask too many questions.

[Bees Knees]

If we are all so scared about EIC due diligence, perhaps the best thing to do is pull out the 8867, have the client sit behind a screen, don’t look at him or her, instruct the client to only answer 8867 questions directly…no elaborating… and do the return accordingly.

It seems to me, the grey area and potential preparer penalty situation comes about when we see them drive up in a BMW and they proceed to try and qualify for EIC. Wouldn’t it be easier for us to avoid the penalty if we did not know they drove a BMW?

That’s the point I’m trying to make. Stop knowing so much about your client, and we shouldn’t have to dive into those grey areas of whether or not we proceeded into the deep abyss of too much information. If you do in fact know too much, then you better be prepared to make photo copies of their birth certificate, Social Security Cards, School records, bill of sale for all their vehicles, pictures of the inside of their house showing how big their flat screen TV is, interviews with friends and neighbors, and the fee you pay to have a private detective go through their garbage....That’s the path you must go down if you learn too much about your EIC clients.

[smithtax]

Authoritative Cites

For the "knowledge" requirement


Reg §1.6995-2(b)(3):

http://www.law.cornell.edu/cfr/text/26/1.6695-2

IRB 2012-11:

http://www.irs.gov/irb/2012-11_IRB/ar09.html

Chief Counsel Memorandum:

http://www.irs.gov/pub/lanoa/pmta00539_7171.pdf

[taxea]

To my mind giving the client a blank copy of all pages and having same answer the questions and signing the form in his/her own hand is the best due diligentance available. This is also why I give them worksheets for all forms used on the return. The answers are provided in their hand which means they intentionally input the figures on my form. The only documents I get from the client are the third party reports/documents. No invoices, no receipts, no misc papers where the information has already been provided on the worksheets. I just tell them to keep all those things and file them in the client packet when it is given to them.