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More Due Diligence for 2018 returns

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    More Due Diligence for 2018 returns

    Just when you thought it could not get any worse!
    (BTW: These rules apparently do not apply to "self-prepared" returns. . .only to those of professional preparers.)

    Excerpt from a current tax newsletter:

    Tighter rules will apply to preparers of returns for head-of-household filers, starting with 2018 tax returns due in 2019.
    Preparers will have to document how they determined that a taxpayerís head-of-household filing status was valid, similar to the rules that now apply to returns claiming the earned income credit, the child credit and the American Opportunity Tax Credit.
    IRS is revising Form 8867 to include a due diligence checklist for the credits and head-of-household filing status.
    Preparers who donít attach the form to 2018 returns are subject to a penalty of $520 for each failure. The fine, which is indexed to inflation, will go up in later years.


    FE

    #2
    Fortunately, the due diligence for HoH is almost the same as that for the Child Tax Credit. Only additional items I can think of is to document taxpayer is not married or has lived apart from spouse for last six months of year, and that taxpayer paid half or more of cost of the household. Oh, and you have to document that the dependent is also not married. How do you prove a child is not married?!

    California has had HoH due diligence requirement for many years, it shouldn't be any more of a PITA on the federal side than the existing requirements in my opinion.

    Comment


      #3
      And, coming soon to a tax office near you. . .

      Originally posted by Rapid Robert View Post
      Fortunately, the due diligence for HoH is almost the same as that for the Child Tax Credit. Only additional items I can think of is to document taxpayer is not married or has lived apart from spouse for last six months of year, and that taxpayer paid half or more of cost of the household. Oh, and you have to document that the dependent is also not married. How do you prove a child is not married?!

      California has had HoH due diligence requirement for many years, it shouldn't be any more of a PITA on the federal side than the existing requirements in my opinion.
      . . .preparer is required to view / save copy of a valid marriage license for anyone filing as MFJ.

      FE

      Comment


        #4
        That's when we need to revolt......

        Comment


          #5
          Organized Resistance

          We are actually doing the audit function for them, although they deny it.

          They can't throw 200,000 tax preparers in jail. Or we could just quit. NAEA and NATP need to come up with a solution that has teeth in it.

          Comment


            #6
            I've got the solution

            We personally visit each household to determine their filing status. Now, this takes a degree of subtlety because you will want to visit them on a regular work day, and their day off, in case their "husband" or "wife" shows up; then you can bust them and disallow the HOH status.

            Also, I would take note (maybe pictures) of say, children's rooms, coloring books, photos of family on the wall, etc. And, you will want to go through the client's bank statements and credit card statements to determine if the level of support matches what you are claiming on the return.

            If all else fails, regarding the HOH status as it relates to "qualifying child", you may want to take a blood test of all family members present during the home visit, and to go that extra mile, take the test to a lab or other independent company (think Ancestry.com or 23 and me) to obtain official third party results.

            Lastly, to really prove HOH, you need to check their Facebook history to determine if there are any baby daddy's lurking about that truly provide over half the support of the child/dependent. And, you might want to spend some time hanging around the local bars/restaurants to see if you can pick up anything from friends/acquaintances that would discredit the HOH status of the client.

            I project this shouldn't cost, including mileage/time, anymore than say, $1,500 to $2,000 per client; not bad!!! Just think, the return fee is $250, so you are getting close to breaking even......you know, I would just chalk up the loss of revenue to due diligence and making me sleep better at night.
            Last edited by DaveinTexas; 07-30-2018, 10:23 AM.
            Circular 230 Disclosure:

            Don't even think about using the information in this message!

            Comment


              #7
              Originally posted by DaveinTexas View Post
              .you know, I would just chalk up the loss of revenue to due diligence and making me sleep better at night.
              Yes, it's easy to make fun of this requirement. Which was not the idea of the IRS.

              What is not being mentioned, is that rather than focus on penalizing preparers for not having X pieces of paper in their files, what they are really trying to do is just get paid preparers to actually pay attention to all the rules for determining dependency and various filing statuses and credits. Even though the Uniform Definition of a Child rules were created 13 years ago, I'd wager a very large percent of so-called professionals still don't really understand or apply the rules correctly. Just look at the recent thread here where it was clear that some still don't even fully understand the formula for the standard deduction of a dependent! (which hasn't changed in many years).

              I'd be very surprised if someone who filled out the due diligence form is going to be dinged because they don't have a copy of the marriage certificate; what they would be dinged for is not even asking the question.

              Comment


                #8
                Surely I jest

                Originally posted by Rapid Robert View Post
                Yes, it's easy to make fun of this requirement. Which was not the idea of the IRS.

                What is not being mentioned, is that rather than focus on penalizing preparers for not having X pieces of paper in their files, what they are really trying to do is just get paid preparers to actually pay attention to all the rules for determining dependency and various filing statuses and credits. Even though the Uniform Definition of a Child rules were created 13 years ago, I'd wager a very large percent of so-called professionals still don't really understand or apply the rules correctly. Just look at the recent thread here where it was clear that some still don't even fully understand the formula for the standard deduction of a dependent! (which hasn't changed in many years).

                I'd be very surprised if someone who filled out the due diligence form is going to be dinged because they don't have a copy of the marriage certificate; what they would be dinged for is not even asking the question.
                Of all the tax laws/regs/rules, these are the most confusing. I'd rather read up on Subchapter K for hours on end than to have to "try" to explain why a client can't claim their 27 year old "student" that earns $7,000 a year and still lives at home. So frustrating. I have to look up the rules in TaxBook everytime because when I think I might know, I always seem to doubt myself. Something needs to be done; I don't have a valid solution, hence my jest(ing)!
                Circular 230 Disclosure:

                Don't even think about using the information in this message!

                Comment


                  #9
                  The most simple solution that I enacted was to raise my fee for EIC returns a few years ago to $500. Just to get rid of the few I had.

                  I don't do those type of returns and do very few 1040A returns.

                  And I don't have any HOH clients at the present time.

                  I do have a few that have that child tax credit and tuition credits and my fees are increased significantly for each one of them.
                  Jiggers, EA

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