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EITC Procedures You Currently Use


Philip1117

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I don't accept any walk in customers. So the handful of EITC returns I do are existing customers and their family members.

I just follow the 8867 checklist and scan the following documents:

  • W2 and income documents other than W-2 forms
  • Income or expense documents that support Schedules C or F income including client prepared records of income and expenses
  • Interest income statements
  • Social Security cards of the dependents
  • School records
  • Court placement records, etc.
  • Release of dependent exemption
  • Notes of interview with taxpayer
  • If it is the first time I am doing an 8867, I print a copy and have them sign it for my records
  • Driver license of the taxpayer
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What documentation do you keep in order to be compliant with IRS? Do you have any special procedures that you have found useful?

Personally I ignore Form 8867. It puts NO additional requirements on preparers except retaining documents, and I scan everything for everybody anyway. This is another reason why high-end software is totally worth the extra cost for the increased productivity. Lacerte defaults to filling out the EIC worksheet and Form 8867 automatically from entries already made in the normal course of work.

I do a thorough interview based on the organizer, and pay no more attention to EIC than to the Child Tax Credit. I explain it if it shows up on the summary for current or prior year, or the client otherwise asks about it. I almost never include it even for planning purposes. I consider preparer complaints about EIC to be nothing more than the same old prejudice--that the working poor are lazy or worse and don't deserve a tax break.

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Personally I ignore Form 8867. It puts NO additional requirements on preparers except retaining documents, and I scan everything for everybody anyway. This is another reason why high-end software is totally worth the extra cost for the increased productivity. Lacerte defaults to filling out the EIC worksheet and Form 8867 automatically from entries already made in the normal course of work.

I do a thorough interview based on the organizer, and pay no more attention to EIC than to the Child Tax Credit. I explain it if it shows up on the summary for current or prior year, or the client otherwise asks about it. I almost never include it even for planning purposes. I consider preparer complaints about EIC to be nothing more than the same old prejudice--that the working poor are lazy or worse and don't deserve a tax break.

Shaking My Head in disbelief of such blatant, outright ignoring of the regulations, and posting it in a public forum to boot.

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>>> Lacerte defaults to filling out the EIC worksheet and Form 8867 automatically from entries already made in the normal course of work.

I think folks who are taking exception to what Mr. Pencil posted are overlooking the fact that Lacerte does it from the entries. I have never used Lacerte but if Lacerte is approved for e-filing then it must be doing it right otherwise the e-files would have been rejected.

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>>> Lacerte defaults to filling out the EIC worksheet and Form 8867 automatically from entries already made in the normal course of work.

I think folks who are taking exception to what Mr. Pencil posted are overlooking the fact that Lacerte does it from the entries. I have never used Lacerte but if Lacerte is approved for e-filing then it must be doing it right otherwise the e-files would have been rejected.

I want to know how that defense will work when the compliance auditor visits.

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>>> Lacerte defaults to filling out the EIC worksheet and Form 8867 automatically from entries already made in the normal course of work.

I think folks who are taking exception to what Mr. Pencil posted are overlooking the fact that Lacerte does it from the entries. I have never used Lacerte but if Lacerte is approved for e-filing then it must be doing it right otherwise the e-files would have been rejected.

The program cannot possibly know that Mr Pencil does a thorough interview to verify that the taxpayer is entitled to this credit. It cannot know that he requires the taxpayer to supply documentation, make copies of these document and verifies that they aren't "false documents".

My program also "fills in the boxes"....but at the end....unless it has some human input....showing that I worked on the 8867....the program won't e-file.

This is exactly what Mr Pencil would tell me if I posted that I ignored the 8867....and relied on a computer to do my work. :P

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This is exactly what Mr Pencil would tell me if I posted that I ignored the 8867

Perhaps "ignore" is the wrong word. I set up my software to file Form 8867, and it's on the invoice. I just do not specifically complete it in my normal process.

Still, you have a fair point. Generally I do strongly support the Instructions [as I recently did in the thread "2013 Publication 17--Ready"]. For example, I have been critical of preparers who do not want to list every individual trade on Schedule D/8949. On the other hand, I will use Line 21 for a community property wage adjustment, even though the instructions say Line 7. But the IRS knows about and expects this common alternate treatment, and I want the W-2 to match. In both these cases my purpose is to give accurate information in the way that will minimize audit risk to the client.

Form 8867 has no audit risk for the client. I don't usually bother with checking the boxes, because it would only take a few minutes to demonstrate due diligence if the IRS should ask to see the file. Are the documents even required? No, of course not. Nothing says so. In fact one of the boxes just indicates that you aren't checking any boxes!

The organizer questions and notes are all that is needed--exactly the same data already obtained for income and qualifying child. I don't audit my clients. I may need to clarify some points, but once I get answers that are reasonable and consistent the interview is complete. Unless I know or have reason to know the answers are false, I have no further obligation.

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I have to write where/how I obtained the info or my program won't allow me to e-file.

Okay, I'll take that as an answer. I'm not sure why your software makes you do that because there is no place on Form 8867 to write it. Maybe the IRS will adopt your software's limitations; then I too will refuse the engagement if I don't want to say where I got the information.

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>>make copies of these document and verifies that they aren't "false documents".<<

How do you verify that they are not false documents?

I have dealt with most of my clients for 10yrs so I am very aware their docs are not false. For example proof they child is clients I answer because the client told me and I have known them for multiple years and have no reason to think they are lying. EIC checklist is a blanket checklist that unfortunately applies to all taxpayers. I might have 2-3 a year and its due to massive depreciation write offs or some other issue. When you charge $500+ just to do a return and do not offer bank products or RAL's you tend to weed out those that would take advantage of the EIC system.

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This just in....

Subject: IRS Issuing Penalty Notices to Tax Preparers for Missing Forms 8867

________________________________________

Tax preparers who do not send Form 8867 with EITC returns are subject to a $500 penalty per return. IRS sent warning Letter 4989 to preparers who did not comply for tax year 2011, and, starting this month, IRS will be sending nearly 800 of those preparers notices of proposed penalties for continued failure to attach the form for tax year 2012 returns. Get details on EITC Due Diligence at www.EITC.irs.gov.

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My EIC checklist is pretty short.

1) Does client qualify for EIC?

2) If yes, give them the phone number for HRB.

I use the same approach. The only EIC return I do is for a mentally challenged person who earns a few bucks sacking groceries. I feel that, in his case, he deserves it unlike many freeloaders who work the underground economy and report just what it takes to get the maximum EIC.

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I either do a telephone or in person interview with the client, following the questions on the 8867. I know my EITC clients, but I explain to them that the IRS doesn't care that I know them, that I have to ask them these questions and get the documentation. When the client picks up the return, I have them sign the 8867 after I review their answers with them.

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We do an EIC engagement letter. Has their SS#, name and date they were in to have their taxes done. I go over the 8867 with them. The question aren't that hard. I don't do that many EIC returns, maybe 50 out of the 600 returns we do. I think the EIC engagement letter covers me. I tell them the gov't is cracking down and needs this information. If it's incorrect they may have to pay it back. They have no problem signing.

The key statement on the letter:

"Mr. Girard went over the questions on the Paid Preparer’s Income Credit Checklist Form 8867 with me for 2013. I had ample time to review the questions and to the best of my knowledge they are accurate."

August

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We do an EIC engagement letter. Has their SS#, name and date they were in to have their taxes done. I go over the 8867 with them. The question aren't that hard. I don't do that many EIC returns, maybe 50 out of the 600 returns we do. I think the EIC engagement letter covers me. I tell them the gov't is cracking down and needs this information. If it's correct they may have to paid it back. They have no problem signing.

The key statement on the letter:

"Mr. Girard went over the questions on the Paid Preparer’s Income Credit Checklist Form 8867 with me for 2013. I had ample time to review the questions and to the best of my knowledge they are accurate."

August

Is it possible to view or get a copy of your EIC letter?

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I am still trying to figure out how those tax preparers got their clients the EITC refund without filing a 8867? Why didn't IRS reject the return as incomplete?

Maybe because the IRS is on the hook to provide about $200 million in EITC penalties over the next ten years. The amount goes UP slightly each year; we aren't supposed to learn or get better.

[source - CBO Estimate of S. 1642 - Korean Free Trade Agreement http://www.cbo.gov/sites/default/files/cbofiles/attachments/s1642.pdf ]

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Another thing to keep in mind, if you require documentation for a few of your 8867 clients and not all, you fall into the "know or should have known" area of Circular 230. If you do not treat all 8867 clients with the same level of scrutiny, you are waving the red flag.

Karen Hawkins is a no-nonsense and totally aggressive person in these areas. She will pull your PTIN at the drop of a hat if she suspects such things. I heard her speak at the IRS Forum in Atlanta. She scares me!!

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