due diligence requirements

[perry]

I now see that the same due diligence requirements that apply to EIC will apply to child tax credit and American Opportunity Credit. Wondering how others are/will approach this. For child tax credit a copy of birth certificate should verify relationship and age but requirement of child living with taxpayer over half of year might take more work. Also if the dependent does not have any or much income the support issue shouldn't be a problem. As far as AOC would have back years returns on file for current clients to verify the 4 years. New clients might need to provide prior 4 years for verification (or less if child is under 21). If child under 21 think it is safe to assume they have not been in college, etc for 4 years but will need to know how many years AOC has been taken for future. For felony drug conviction, might have to ask and take word of client? Do we need to get this in writing or signed? Trying to decide what I am going to require, etc and let clients know this in year end letter/packet otherwise I could see situations where most of returns would require a second appointment. Thanks in advance for the response.

[Rapid Robert]

I now see that the same due diligence requirements that apply to EIC will apply to child tax credit and American Opportunity Credit. Wondering how others are/will approach this. For child tax credit a copy of birth certificate

When has it ever been part of EIC due diligence to require taxpayer presentation, or preparer collection, of source documents? I thought all you had to do was fill out the Form 8867 and document the questions you asked, and the answers received, regarding anything that appears inconsistent, inaccurate, or incomplete. A typical question would be, if the dad has custody of an infant child, why doesn't the mom have custody?

Why not leave it up to IRS to request source documents if they feel the need to do so?

[TAXNJ]

Somewhat

When has it ever been part of EIC due diligence to require taxpayer presentation, or preparer collection, of source documents? I thought all you had to do was fill out the Form 8867 and document the questions you asked, and the answers received, regarding anything that appears inconsistent, inaccurate, or incomplete. A typical question would be, if the dad has custody of an infant child, why doesn't the mom have custody?

Why not leave it up to IRS to request source documents if they feel the need to do so?

Somewhat correct. However, for what is it is worth, if you do ask to see proof you must keep a copy with client's file (stated at an IRS seminar by IRS agent speaker)!

[DonB]

I now see that the same due diligence requirements that apply to EIC will apply to child tax credit and American Opportunity Credit. Wondering how others are/will approach this. For child tax credit a copy of birth certificate should verify relationship and age but requirement of child living with taxpayer over half of year might take more work. Also if the dependent does not have any or much income the support issue shouldn't be a problem. As far as AOC would have back years returns on file for current clients to verify the 4 years. New clients might need to provide prior 4 years for verification (or less if child is under 21). If child under 21 think it is safe to assume they have not been in college, etc for 4 years but will need to know how many years AOC has been taken for future. For felony drug conviction, might have to ask and take word of client? Do we need to get this in writing or signed? Trying to decide what I am going to require, etc and let clients know this in year end letter/packet otherwise I could see situations where most of returns would require a second appointment. Thanks in advance for the response.

11/13/13-- Sources at the IRS have confirmed that Form 8967 (due diligence for Child Tax Credit) has been made obsolete and removed from IRS.gov as a result of a recent policy decision.

Is there something new for DD on CTC?

[David1980]

The joy of congress passing tax law bills in the last half of December!

I've never seen the EIC due diligence requirements to be about filling out a form. The form being just a tool to help meet the requirements. To that end, I don't think I need a form to fill out for due diligence on child tax credit or education credit. I know what the requirements are to claim them. I already ask questions regarding those requirements in order to prepare a correct return.

With the change, I'll start writing down those questions and answers. And if the information appears inconsistent, inaccurate, or incomplete obtain additional documentation and keep copies of said documentation.

When the IRS makes a form available to be filled out for due diligence I'll fill it out of course.

I now see that the same due diligence requirements that apply to EIC will apply to child tax credit and American Opportunity Credit. Wondering how others are/will approach this. For child tax credit a copy of birth certificate should verify relationship and age but requirement of child living with taxpayer over half of year might take more work. Also if the dependent does not have any or much income the support issue shouldn't be a problem. As far as AOC would have back years returns on file for current clients to verify the 4 years. New clients might need to provide prior 4 years for verification (or less if child is under 21). If child under 21 think it is safe to assume they have not been in college, etc for 4 years but will need to know how many years AOC has been taken for future. For felony drug conviction, might have to ask and take word of client? Do we need to get this in writing or signed? Trying to decide what I am going to require, etc and let clients know this in year end letter/packet otherwise I could see situations where most of returns would require a second appointment. Thanks in advance for the response.

"requirement of child living with taxpayer over half of year might take more work" - same work that'd already be done for EIC.
"Do we need to get this in writing or signed?" - I know other preparers do things like have the taxpayer sign the 8867. I've never seen the point in that, why have a taxpayer sign a preparer's checklist. Personally I don't have the taxpayer sign anything regarding the questions/answers I ask for EIC due diligence - I'd expect the CTC/AOC to fall under the same requirements as the EIC due diligence in that regard.

[taxea]

each year I update my client checklist/questionaire and worksheets to reflect the necessary due diligence. These are completed by the client and retained in their respective file. If there is EIC on the return, I have the client review and initial each page of the 8867 and sign the final page. This is also retained in their file
.
IMO the client has the final responsibility for what is on the return. If the IRS has any questions/concerns it is the TP's responsibility to prove that the info I was provided was true and accurate. If I did more than I already do then I would be "auditing" every bit of information provided and that is not required by the IRS (yet).

I know what documents to ask for/keep. I know what questions to ask and have been in this business long enough to be able to judge the truthfulness of the client. If I am uncomfortable or don't feel the potential client is being upfront I show them the door.

i.e. If they tell me they have self-employment and provide copies of 1099misc along with a completed worksheet showing nonk-1099 income, expenses, mileage log and equipment I prepare the return. It is not my responsibility to go to the alleged business location to verify it exists, anymore than it is my responsibility to audit their books for accuracy of what they reported to me.

[Rapid Robert]

The joy of congress passing tax law bills in the last half of December!

The change in due diligence begins with 2016 tax year, so you won't have to deal with for over a year from now.

[Snaggletooth]

8867 should suffice

Like Rapid Robert, I don't know why everyone is going ape over this. It should suffice that we observe the form 8867 and follow the road map. If IRS wants us to deal in information, they should specify in their tax forms what is necessary. If Form 8867 does not require us to keep file cabinets full of corroborating evidence not mentioned on their 8867, then why should we do that?

If they wish to make Due Diligence statutory, they need to be specific, as all statutory laws are.

Having said this, be advised that Form 8867 is now required to be submitted with the tax return, and not just kept as a preparer worksheet.

[kathyc2]

I would like to think that we are all ethical enough that we do "due diligence" to ensure the returns we prepare are accurate whether or not "mandated" to do so.

[perry]

I now see that the same due diligence requirements that apply to EIC will apply to child tax credit and American Opportunity Credit. Wondering how others are/will approach this. For child tax credit a copy of birth certificate should verify relationship and age but requirement of child living with taxpayer over half of year might take more work. Also if the dependent does not have any or much income the support issue shouldn't be a problem. As far as AOC would have back years returns on file for current clients to verify the 4 years. New clients might need to provide prior 4 years for verification (or less if child is under 21). If child under 21 think it is safe to assume they have not been in college, etc for 4 years but will need to know how many years AOC has been taken for future. For felony drug conviction, might have to ask and take word of client? Do we need to get this in writing or signed? Trying to decide what I am going to require, etc and let clients know this in year end letter/packet otherwise I could see situations where most of returns would require a second appointment. Thanks in advance for the response.

I noticed this due diligence item on the NATP summary of the tax extender law. It was listed under the permanent changes/extensions with no date, etc. I have since received info from Kiplinger and The Tax Book that both state this requirement is in effect for years beginning after December 31, 2015. So this will affect next year. On the EIC, I made a decision for me & my office a number of years ago that I am going to verify items for the EIC and get and keep copies of what clients give me to verify these items. I have seen other returns where page 4, part V, question 26 of the 8867 is checked "did not rely on any documents". I personally think this is a dangerous way to fill out the 8867 and have gotten that same response at seminars I have taken, etc. I know I probably do more in this area than I need to, but again, that is the decision I have made for me & my office. Part of this is I have learned at seminars that the IRS can levy a $500 fine for each EIC return that they think did not do the required due diligence and then the tax preparer's next step, if they feel they did the due diligence, is to go to court and prove it and try to get the fine removed. So I am trying to avoid getting in that situation. That all being said, I am glad to find out that we have a year to get more info and decide what steps we are each going to take, if any, to satisfy these new requirements. Thanks again for all your responses, it is good to find out what others think and their take on laws, etc.