8867 and Record Retention for High EITC office

[GradyFinance]

Due to my area demographics (SoWe Georgia) I have a large number of EIC returns. Probably in the area of 60% of total returns. I am a 25 year preparer and I feel like I do a good Due Diligence job.
Only thing that concerns me is the record retention on filers claiming their own children. We do a good job screening our clients as to the legitimacy of EIC. MANY are repeat clients we've known for years. What documents should I be retaining for proof on these filers? I always make a copy of the SS card and question the taxpayer about residency. The IRS is cracking so hard on EIC fraud, I want to make sure I have my I's dotted and T's crossed, even if I go overboard and retain too much but requiring clients to bring in birth certs and school records seems a little much.
Thanks for all and any advice. What are yall keeping?
Ed Robinson

[rkhan71]

From IRS Webinar

See if you can glean enough information from this:

http://origin-qps.onstreammedia.com/origin/irsdocs/SL%20Area%20Folders/Western%20Area/PATH_Due_Diligence_(1_12_2017)_3-to-a-Page_HANDOUT.pdf

Main thing is keeping documentation of dependents who are pertinent to deducting - ss cards, id, and pertinent related info.

RFK

[David1980]

You're likely a target for due diligence audits due to the higher number of EIC tax returns done. I think most people worry about it more than they should but for heavy EIC practices it definitely makes sense to worry about it.

I would probably devise a worksheet that I had the taxpayers fill out and then for certain situations request further documents.

Think through how people cheat EIC and focus on the higher risk clients? Married husband and wife claiming their own son or daughter is pretty low risk. Divorced you get into residency questions since child likely spends time with mom and dad. Think about the type of income. W-2 pretty safe. Sch C or household help easily faked. I'd be very worried if I had a tax practice with a lot of non-son/daughter dependents for EIC with large numbers of non-W-2 income.

Whatever you decide to do, remember if you mark that you depended on something you must retain it. It's probably easiest to get into trouble marking off that you depended on certain documents and then when the IRS comes checking you have none of them.

Oh... I always wonder, what exactly does "SS card" help with when it comes to EIC due diligence? It doesn't prove relationship or residency?

[rkhan71]

Matching

Would think that SS Cards match to source of dependency - all related items that would tie it together. Not just a few pieces.

Regards,

[David1980]

It seems to me the only thing a SS card would show you is the name and SSN match. It does not show you that the child lives with the taxpayer, nor does it show that the child is related to the taxpayer. I guess it shows that the child exists and has a SSN. You just can't tell who the child is a child of or where the child lives.

I think there's a reason you won't find mention of a SS card on the 8867 or in the 8867 instructions.

[FEDUKE404]

EITC responsibilities

I've been around long enough to remember when there was NO EITC.

When I semi-retired from my main job some time ago, I got a job working for a friend who owned a "known name" franchise tax preparation business.

The EITC crowd amazed me. How many heads of household can live in one dwelling? (Don't worry about the paperwork/receipts that show "Mr/Mrs" .) Remember: MORE THAN six months is important! Soc Sec cards were passed around like baseball cards, since once you reached the limit (two at one time?) those "extras" didn't do you any good. And, of course, NO ONE ever received AFDC, welfare, etc. I remember one teenage girl who "baked cookies" and wanted to get on the bandwagon herself. Her entire "business records" were on a piece of paper torn from a small notepad.

It was obvious to all but the blind what was going on, as the folks got their huge "quickie" refunds and walked out the door happy as a lark. (There was even an on-premise check-cashing site.) But you can't tell a client, "Sir. . .I think you're lying through your teeth!" so you just move on.

I can only imagine how things are in today's EITC mills. I'm so glad all of that exposure is far behind me!

FE

[GradyFinance]

It seems to me the only thing a SS card would show you is the name and SSN match. It does not show you that the child lives with the taxpayer, nor does it show that the child is related to the taxpayer. I guess it shows that the child exists and has a SSN. You just can't tell who the child is a child of or where the child lives.

I think there's a reason you won't find mention of a SS card on the 8867 or in the 8867 instructions.

But the IRS Does mention SS cards on the eic due diligence webinar. Which is one reason I'm confused.
Besides requiring ALL filers to bring shot records,school records, etc., how else can I document the child is
Actually a resident of their household, at least to the satisfaction of the IRS ?

[David1980]

But the IRS Does mention SS cards on the eic due diligence webinar. Which is one reason I'm confused.
Besides requiring ALL filers to bring shot records,school records, etc., how else can I document the child is
Actually a resident of their household, at least to the satisfaction of the IRS ?

There's no requirement to have ALL filers bring shot records, school records, etc... You could make a business decision to do so. It may be overly cautious but perhaps it's worth that level of caution when 60% of your clients are EIC.

Personally I don't think I would require it of ALL clients, even if 60% of my practice was EIC. I would definitely do a worksheet of some sort that I'd have the taxpayers fill out. And I'd lean towards being cautious in requiring documentation more often than I would if EIC clients were the exception and not the majority of my practice. The 8867 and instructions do a decent enough job at covering the rules. See "You have complied with the due diligence requirements set forth in Treasury Regulations for the EIC..." on page 2 https://www.irs.gov/pub/irs-pdf/i8867.pdf

That doesn't mean you have to ask every client for every document. Decide where your comfort level is. You're ultimately the one dealing with the per return per credit penalties if a compliance audit goes badly. If you do decide to use SS cards for either the relationship or residency of dependents I do suggest you consider how you will answer the question from the auditor "How does this piece of paper prove the relationship and/or residency of the child?"

[MDEA]

8867

I also do a high number of EITC returns and have also had 3 EITC audits last one six years ago. I have all clients fill out a form plus sign a copy of the 8867. I also limit each prepare r to 150 EITC returns. If they are not their children I get birth certificates showing how related. If court ordered copies of court papers.

[GradyFinance]

I also do a high number of EITC returns and have also had 3 EITC audits last one six years ago. I have all clients fill out a form plus sign a copy of the 8867. I also limit each prepare r to 150 EITC returns. If they are not their children I get birth certificates showing how related. If court ordered copies of court papers.

I do have a pretty detailed info sheet that I have clients fill out each year. I have attached a copy. Would you all take a look and see what you think. I had to change the format to get it to fit. It looks much better as a word doc.

[RetiredIRS]

Due to my area demographics (SoWe Georgia) I have a large number of EIC returns. Probably in the area of 60% of total returns. I am a 25 year preparer and I feel like I do a good Due Diligence job.
Only thing that concerns me is the record retention on filers claiming their own children. We do a good job screening our clients as to the legitimacy of EIC. MANY are repeat clients we've known for years. What documents should I be retaining for proof on these filers? I always make a copy of the SS card and question the taxpayer about residency. The IRS is cracking so hard on EIC fraud, I want to make sure I have my I's dotted and T's crossed, even if I go overboard and retain too much but requiring clients to bring in birth certs and school records seems a little much.
Thanks for all and any advice. What are yall keeping?
Ed Robinson

I agree that the rules are vague on the due diligence requirements and are not precise at all. I have delivered the same presentation listed earlier in the string, and the one point I emphasized when giving this was the fourth bullet on side 9: additional inquiries. The interview process should be with open ended questions, and if different than the 8867 questions, write them down along with the responses.

Doing your own checklist is helpful, but is not the best evidence in a Due Diligence Audit. It is important to show you verified what is not shown in the documentation. Even just making notes on the answers is better than nothing.

In a prior thread, the question was asked “do I record personal knowledge” and the answer is absolutely. There is never a guarantee a RA will accept that, but I would certainly be confident it would win in an Appeal (I just read a tax court case where the judge relied heavily on the testimony of the taxpayer citing a prior case precedent about the same). If you require documentation of your other clients you need to be consistent with this one as well, but adding your personal knowledge to your file only makes your due diligence records stronger. Remember that what the IRS is looking for is doing your best to get to the truth.