New - Document Retention

[Snaggletooth]

Just returned from a seminar and overheard others (including instructor) making reference to the new 8867.

Discussion followed where you may no longer mark that you have noted certain documentation requirements. Instead you must actually KEEP a copy of these documents on file or now be subject to penalties.

If you have heard anything about this, please respond.

Never mind that it might be a good idea anyway and that many of you are doing this. I'm not so much worried about fraud, but needlessly extending appointments and asking for copies of things the client doesn't bring with them. I also think the IRS is crossing the line between due diligence and actually AUDITING the taxpayer. I resent doing their job for them because they won't get out in the field and stop some of this fraud themselves.

[Jiggers]

New Form 8867 for 2016:

https://www.irs.gov/pub/irs-dft/f8867--dft.pdf?_ga=1.117198726.1242161380.1433973064

New Instructions for Form 8867 for 2016:

https://www.irs.gov/pub/irs-dft/i8867--dft.pdf?_ga=1.84371225.1242161380.1433973064

These are the draft versions. Covers more than just EIC.

[TAXNJ]

New Form 8867 for 2016:

https://www.irs.gov/pub/irs-dft/f8867--dft.pdf?_ga=1.117198726.1242161380.1433973064

New Instructions for Form 8867 for 2016:

https://www.irs.gov/pub/irs-dft/i8867--dft.pdf?_ga=1.84371225.1242161380.1433973064

These are the draft versions. Covers more than just EIC.

Still in Draft form and comments welcomed. Hopefully many Tax Associations are commenting in the negative about this proposed new regulation.

[kathyc2]

Still in Draft form and comments welcomed. Hopefully many Tax Associations are commenting in the negative about this proposed new regulation.

The mandate came from Congress. It's going to end up with higher processing fees on those with the less means to pay it.

[David1980]

Discussion followed where you may no longer mark that you have noted certain documentation requirements. Instead you must actually KEEP a copy of these documents on file or now be subject to penalties..

This was already the case with EIC, see form 8867 line 26. If you mark off that you relied upon something and do not have a copy of it you could be assessed the penalty if you ever went through a compliance audit. The new 8867 expands the due diligence requirements to AOC/CTC.

[kathyc2]

This was already the case with EIC, see form 8867 line 26. If you mark off that you relied upon something and do not have a copy of it you could be assessed the penalty if you ever went through a compliance audit. The new 8867 expands the due diligence requirements to AOC/CTC.

I was thinking that we needed to get a 3rd party document as to residence for each child claimed for EIC. Looking further, it looks like that may not be true? Checking yes on box 5 of new form and then not listing documents looks to be the same as "did not rely on documents but made notes in file" on older versions of 8867. IOW, if we ask client if child lived with them and they say yes, just making a note of that in file is sufficient? If we have no reason to not believe them then we don't need to get a 3rd party doc?

[David1980]

I was thinking that we needed to get a 3rd party document as to residence for each child claimed for EIC. Looking further, it looks like that may not be true? Checking yes on box 5 of new form and then not listing documents looks to be the same as "did not rely on documents but made notes in file" on older versions of 8867. IOW, if we ask client if child lived with them and they say yes, just making a note of that in file is sufficient? If we have no reason to not believe them then we don't need to get a 3rd party doc?

That's how I understand it, yes. You aren't required to rely upon any documents (hence why the new 8867 has "if any" and the old 8867 has "did not rely on documents".)

"You may not ignore the implications of information provided to, or known by you, and must make reasonable inquiries if information provided to you appears to be incorrect, inconsistent, or incomplete. You must make reasonable inquiries if a reasonable and well-informed tax return preparer knowledgeable in the tax law would conclude that the information provided to you appears to be incorrect, inconsistent, or incomplete."

This doesn't mean you have to ask for proof from every taxpayer and if you aren't relying upon documents there's no need to retain the documents that you didn't rely upon. Of course, if the information is incorrect, inconsistent, or incomplete you probably should get some documents to support the credit(s). Some preparers might choose to be overly cautious and obtain documentation for every return with one of the credits.

[Snaggletooth]

Good Discussion on This One

Thanks to all who have participated.

The one item which arouses more of my attention than anything else is the question which asks "Does the income appear to be sufficient to support the taxpayer and qualifying children." In some cases, I have actually answered "No" but Drake does not remove EIC if I answer this way.

With the cost of living, rent, and babysitting rising so high nowadays, I see a number of tax returns where it is virtually impossible to support on paltry dollars reported on W-2s. This question gives me more problems than the requirements for residence, school, whatever.

Drake provides a fourth EIC menu, allowing an unformatted explanatory statement. Sometimes a reported income impossible to support can be explained there, such as nontaxable child support, welfare, free rent, etc.