EIC record Retnetion Requirements

[Bjorn]

What do we need to keep in order to be pretty safe with the IRS as preparers for the welfare queens [and now kings too] on EIC.

I ask all the right questions but if push comes to shove what are people doing to protect themselves from the IRS against potential penalities. For what it is worth I've never heard of a normal preparer [not a thief] getting nailed with anything like this.

But, clients do lie to get their hands on big piles of money from other tax payers.

Thanks

[Ken]

Eic

Bjorn I keep a copy of everything my client gives me to prepare his or her taxes.

In the end its the taxpayers responsibility to prove what they are saying is true.

When they sign the return, they are taking responsibility for everything on the return.

When I sign the return, its with the assurance that I prepared it with the information given me by the taxpayer.

[jainen]

only tax preparers

>>clients do lie to get their hands on big piles of money from other tax payers<<

Other than Form 8867 to verify your due diligence, your review and retention of client's documents would be no different than for any other element on the return. Certainly clients lie about all sorts of deductions to get their hands on the even bigger piles of money they should otherwise have to contribute as their fair share.

I don't know why tax professionals hold and tolerate such views about this particular credit. Clients certainly love EIC. In the wider world it is also very popular. Tax authors always mention it favorably. Both political parties are completely committed to it, representing their corporate as well as individual constituents. It gets increased or expanded every year, and only tax preparers seem to object.

[TMI Moderator]

Bjorn I keep a copy of everything my client gives me to prepare his or her taxes.

In the end its the taxpayers responsibility to prove what they are saying is true.

When they sign the return, they are taking responsibility for everything on the return.

When I sign the return, its with the assurance that I prepared it with the information given me by the taxpayer.

It goes a little further. You're also stating under penalties of perjury that you believe the information is true and correct. If a client gives you a figure that doesn't make sense, you're not off the hook. If you have reason to believe there's a good chance the client is fibbing, you need to take steps to verify.

[Black Bart]

But,

...If you have reason to believe there's a good chance the client is fibbing, you need to take steps to verify.

but, but...they're always fibbing about something! Do you think...perhaps, maybe...a polygraph?

[ChEAr$]

Eic

31 years and counting.

Didn't like it then; don't like it now.

[TMI Moderator]

but, but...they're always fibbing about something! Do you think...perhaps, maybe...a polygraph?

The key here, in the context of "knowledge and belief," is "belief." If, based on your knowledge and experience in preparing tax returns, you have reason to believe something on the return is not true, you shouldn't sign it until you verify.

Knowing that for charitable contributions most people approximate or take a wild guess in most cases doesn't mean you have reason to believe that a particular client is giving a materially incorrect number when she says "I gave $1,260 to charity last year." You enter the number and don't worry about it.

On the other hand, having a client give you one receipt for a dropoff at Goodwill and saying he gave away $4,000 worth of used clothing would give you reason to believe the amount is likely incorrect.

It's a good faith deal. Take the client who comes in with a significant loss on their first year in business. Their records look solid, and you don't have any reason to believe they're making up numbers. You do the return. Same the next year. After not many years of big losses and no apparent emotional trauma evident with the client, you might start "believing" the numbers are not correct. Then you have to take steps to verify.

I had that very situation. The first couple of years I felt very sorry for this client who was losing his shirt (or so I thought). The third year I felt the need to inquire where he was getting all this money to lose. The explanation wasn't good for me, and I fired the client. I found out later the person had a thriving business with a bunch of employees I never knew about. I'm glad I got rid of that one the moment my "belief" was that he wasn't being honest. But that doesn't mean I have to audit every client I see.

[Bjorn]

EIC record retention

Do we need to copy social security cards or just look at them?

Do we need a drivers license?

What forms do I need to keep? I don't do paper very well so right now I keep anything with withholding on it and an 8879.
The rest is keyed into the system.
How are other nearly paperless people doing the welfare queens.