EITC and Preparer Penalties

[S T]

A slightly different question
I do not prepare many EITC returns, try to keep them at a minimum.

Question - Can IRS assess preparer penalties for NOT filing for EITC claim on the original return and having the taxpayer file later when the IRS notice CP09 notice is received - "IRS statement - You may maybe eligible for a refund of up to $ amount.

Circumstances on this client, claiming HOH - which could be questionable as the parents have 50/50 custody - so far those questions have been answered- however, could be questionable - Taxpayer also has a Sched C - for a "multi-level" business - is showing a small profit.

Taxpayer (Mother) claiming the 13 year old son for 2013 - should be the father's rotation for claiming, we have no idea what he is doing tax wise - Father states he will not claim - but we all know how that can change.

If I ask for questions and documents needed for EITC - mother can not produce all - so I can not complete the preparer due diligence with any integrity or honestly, nor the tiebreaker rules, nor do I have any any of the documentation that has been stated on the recent reports of EITC Field Preparer Audits, so that will also be a paper documentation challenge.

I would be willing to prepare the Taxpayer (Mother's return) claiming HOH, and CTC, and NOT the EITC on the 2013 original filed return, and let the Taxpayer deal with the EITC issues later directly with IRS. Amount for 2013 is approximately $ 1,350 EITC.

However, I do not want to put myself as a preparer in jeopardy for NOT claiming and later receiving an IRS notice. I am definitely NOT comfortable claiming the EITC on the return.

Any suggestions or guidance??

I just might have to refer this client to an HRB or Liberty Tax Office or other preparer that prepares and equipped to handle an "EITC IRS audit" or advise the client the documentation and pitfalls that are associated with trying to claim the EITC.

Thanks

Sandy

[geekgirldany]

I do not see how you could receive any penalties from the IRS if you are doing your Due Diligence. She does not have enough documentation for you to be sure she qualifies for the EIC.

One of the Due Diligence Requirements is on Knowledge and states the following:
- Not know or have reason to know any information used to determine your client's eligibility for, or the amount of, EITC is incorrect, inconsistent or incomplete.

The information she has given you is incomplete. So to me (and others may disagree) that would make her ineligible for the EITC... at least for me preparing the return.

I had a somewhat similar situation to yours a few months ago. New client, Taxpayer been divorced for several years. Had always claimed a dependent and HOH. Decision is made that ex would claim the dependent for only one year and taxpayer would go back to claiming dependent. Came to me, I went through all the EITC tests. He had the documentation for EITC with school records, HOH was an 50/50 situation. I ask for additional information and explained the higher agi tie breaker rules. Client did not like me asking so many questions. I just broke it down how things would end up if I did not ask all I should plus what would happen if the IRS decided he was not entitled to the credit or even the filing status. I also told him to head to one of the franchise tax stores if he doesn't want me doing my job. He stuck with me.

I did not feel confident that he could prove EIC eligibility. I had done my due diligence and that is what I concluded. HOH was still up in the air but would not cause as many problems as EIC.... at least on my end.

End result, efiled the return no EIC, popped back that dependent had already been claimed. So ended up doing single. If I feel that by looking through all the documentation and asking all the questions, they are not allowed the EIC then I will not prepare the return with it.
If the IRS tells them they should have got the credit... then let them decide if taxpayer should receive it or not.

[buzzardbreath]

A great Idear !!

Here's a great idear!!

Take the earned income credit, and file form 8275 indicating a possible exception based on uncertain circumstances. Then let the IRS go after these deadbeat liars and leave you alone.

[ATSMAN]

The IRS requires us to do the due diligence and document it. If you determine based on your due diligence that the taxpayer has not provided you sufficient documentation to qualify for EITC, you may note that and not calculate EITC. I do not think there are any preparer penalties that apply if you can not complete your due diligence the way IRS wants you to do it.

2 years back the new GF of one of my regular clients showed up with him to get her tax return done for the first time! She claimed that she cleans houses in our area for $100 a piece and all income is cash. Claims to make around $8000 per year average. She could not provide any documentation for her business income, expenses and mileage and neither would she provide any bank statements etc. to substantiate her income. I told her I could not honestly complete the EITC check list and do the EITC return. Suggested she go to a free tax clinic in our area, or use Turbo Tax. Never heard from her again and I still have her BF as my client.

[TaxGuyBill]

What part of the EIC eligibility are you questioning?

If you are willing to file as Head of Household, you seem to be okay with that taxpayer is the custodial parent. That leaves the income. Is the taxpayer not able to give any evidence of the income, such as bank statements?

On the other hand, if you are uncomfortable with the situation, I would politely tell her so and suggest one of the chain stores.

[S T]

Thanks for the posts - issues are some documentation, same issues I had for 2012 and did not claim EIC -

IRS likes to send the EIC letters to clients - so I will let the client handle the EIC letter, and 2013 tax preparation will be probably the last year I prepare

Sandy

[buzzardbreath]

Made in Jest

Here's a great idear!!

Take the earned income credit, and file form 8275 indicating a possible exception based on uncertain circumstances. Then let the IRS go after these deadbeat liars and leave you alone.

Obviously, my post above was made in jest. You guys[gals] deserve better than that.

I guess I'm sick of the IRS letting this crowd go unmolested while the load the ammo up for us. One or two field audits in every county would let the word get around and only a fraction of these people would be prone to cheat.

[Burke]

IRS likes to send the EIC letters to clients - so I will let the client handle the EIC letter, and 2013 tax preparation will be probably the last year I prepareSandy

The reason they send those letters is that Congress mandated it because they thought not enough people were claiming the credit. I am sure the IRS would like to see it go away too. Think of the headaches and fraud that would disappear. The letters are only to advise that there is a likelihood they may qualify based on figures IRS has. Nothing is done if no EIC is subsequently not claimed.

[Snaggletooth]

Objective of Congress

Objective of Congress? I've been down that road before, and they don't care that there are cheaters, their objective is to simply use the EIC to pour as much money into the economy as possible. And Congress itself is actually paying it. A preparer friend of mine in Murfreesboro contacted his congressman, and the congressman told him he would look into the matter. After "looking into the matter" with other congressmen, this is what his explanation was. However, it is also the expectation of Congress that the burden of catching these "cheats" was upon tax preparers.

I helped this friend (a storefront) one year during the first week in February. I would suspect that 2/3 of the EIC were lying in whole or in part. My friend made them produce a SS#, and other than normal due diligence, there was little else he could do if they insisted on lying. It became obvious to me that some of these folks had been coached on how to answer the questions.

I think a better way to pour money into the economy is for workers to make more money, and be paid from the companies that are enjoying the fruits of this additional spending money. Instead, we have had two increases in the minimum wage in the last 20 years.