Client ID requirements

[StevenL]

I have been preparing tax returns for about 18 years now and have not required my clients to provide any kind of identification or their social security card (except in certain situations i.e. EITC). However,now with all the problems with identity theft and increased IRS scrutiny of tax preparers I felt it would be best to start asking for picture ID and social security cards to verify client identities and to keep a copy with the clients records but I had a new client ask me why I needed a copy of her social security card because her previous preparers had not ask for this information and in fact, when I looked up IRS requirements for clients providing this information I found nothing that says we're required to provide it or that we have to ask for it.

So I'm asking; do you require your clients to provide picture id and social security card and do you make copies of them to keep with their records? also does anyone know if the IRS requires us to get and keep this information from our clients?

Thanks for your help

[taxtrio]

I am protecting myself and keeping a "permanent file" for my clients as of this year. Getting picture I.D. (Drivers License or Passport) and Soc Sec Card.

for taxpayer and spouse. If they are receiving Soc Sec Benefits I am putting a copy of the 1099SSA in lieu of Soc Sec Card.

For children: Soc Sec Card and Birth Certificate.

Once I have the above documents in my "permanent file" for them I won't need them to bring it again.. Except for new member of family.

Then proof child lived with them for the tax year. Something with the Parent's name & Address and childs name. That I will have to update each year.

Most of my clients are OK with this as they don't want me to have 500.00 fines for lack of information. I have all their data in my computer anyway.

Just need actual documents to back-up information.

I put the request for this in my letter to them in January. One client objected to me keeping a copy in a locked file. I offered to scan into my computer.

She felt "safer" with that option! Whatever works!

There were two independent tax preparers here in Michigan that were audited by IRS for EIC documents.

and each business was fined 10,000.00 for not having copies of the client's drivers license and soc sec cards.!

I'm not taking the chance.

[Jack from Ohio]

I am required to be able to prove the identity and SS# of any taxpayer and/or dependents that are listed on the return. Drivers License and/or SS card are minimum requirements for me now. Only need to do it one time and it stays in their folder.

Circular 230 makes me responsible for the identity of anyone on a tax return I prepare.

[Terry D EA]

I have always done this for clients who were getting a RAL or some other bank product and my hispanic clients in case there were name issues. I guess I better obtain this information for all clients.

[B. Jani]

Most of my clients are from my insurance business so I do have all the identity info. I only accept referral and new client must provide last 3 years of tax return copy and driver license. If they do not like it, I decline them.

[Jack from Ohio]

I have always done this for clients who were getting a RAL or some other bank product and my hispanic clients in case there were name issues. I guess I better obtain this information for all clients.

If you are subject to a compliance audit and you are not doing it for all clients, the auditor can conclude that you suspected something about those that you made provide ID, and suggest that you know more than you reported. Therefore, if you do it for one, you must do it for all to be in compliance.

[KINGCHUCK1971]

I keep copies of DL or state ID for the tax payer. Copies of birth certificate and social security card for the children. Medical or school information for residency for the children. Also I get new copies of the tax payer DL or ID if it expired. The bank products want current ID or DL in order to get the service for your client.

[StevenL]

Thanks for all the great answers. I appreciate your help on this topic; but I'm still trying to determine if the IRS requires us to keep a copy of our clients identification and/or social security cards in our records. I've looked through Circular 230 but didn't see anything (but, knowing me, I probably read right past it and missed it completely! ) If there is such a requirement could someone please provide a link or let me know where I can find this information. Thanks again, for all your help!

[Jack from Ohio]

Thanks for all the great answers. I appreciate your help on this topic; but I'm still trying to determine if the IRS requires us to keep a copy of our clients identification and/or social security cards in our records. I've looked through Circular 230 but didn't see anything (but, knowing me, I probably read right past it and missed it completely! ) If there is such a requirement could someone please provide a link or let me know where I can find this information. Thanks again, for all your help!

If you prepare a return for someone who is not the person they say they are, sign it at the bottom, you are declaring that all on the return is complete and accurate. How can you sign that if you cannot verify their identity and that the SS# you have used is correct.

Why would you NOT want to verify identity? I am missing that whole train of thought.

[kcjenkins]

Thanks for all the great answers. I appreciate your help on this topic; but I'm still trying to determine if the IRS requires us to keep a copy of our clients identification and/or social security cards in our records. I've looked through Circular 230 but didn't see anything (but, knowing me, I probably read right past it and missed it completely! ) If there is such a requirement could someone please provide a link or let me know where I can find this information. Thanks again, for all your help!

I think the relevant sections of CIR 230 would be § 10.20 through § 10.22.

[Mr. Pencil]

does anyone know if the IRS requires us to get and keep this information from our clients?

I know if the IRS requires us to get and keep this information from our clients. The IRS does NOT require us to get and keep this information from our clients. Even for EIC and other due diligence rules, you have no legal or ethical requirement to routinely demand verification of anything. In fact, whenever you do receive a document your liability goes up, because you are then responsible for assessing its validity.

Circular 230 specifically shields you from that requirement and that liability. It says,

"A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete."

[jklcpa]

Thank you, Mr Pencil.

I've been reading this topic and trying to picture me asking some of my existing clients for their driver licenses, birth certificates, and SS cards. Some of my clients I've known for 50 years, I went through school with their children, and have been preparing their returns for 30 years. Now I'm supposed to verify that they are who they say they are?

[Jack from Ohio]

Thank you, Mr Pencil.

I've been reading this topic and trying to picture me asking some of my existing clients for their driver licenses, birth certificates, and SS cards. Some of my clients I've known for 50 years, I went through school with their children, and have been preparing their returns for 30 years. Now I'm supposed to verify that they are who they say they are?

You would have to prove to a compliance auditor that you can verify that you know they are who they say they are. Your word alone will be worthless.

[JohnH]

You would have to prove to a compliance auditor that you can verify that you know they are who they say they are. Your word alone will be worthless.

Does this apply to all returns filed, or only to returns claiming EIC?

[Jack from Ohio]

Does this apply to all returns filed, or only to returns claiming EIC?

If you apply the standards to only your EIC clients, then you raise the suspicion that you may know more than you have reported. Otherwise, why did you do it for only your EIC clients?

Must be applied across the board.

[JohnH]

OK. So my solution is not to prepare EIC returns.

[Mr. Pencil]

OK. So my solution is not to prepare EIC returns.

Whatever. I stand by my previous post.

[taxxcpa]

It looks like the IRS has succeeded in making a lot of tax preparers paranoid.

You are guilty until proven innocent.

[Jack from Ohio]

It looks like the IRS has succeeded in making a lot of tax preparers paranoid.

You are guilty until proven innocent.

If you ever listen to a seminar put on by Karen Hawkins at an IRS Forum, you will understand why I say what I say. She has no one to answer to and considers all preparers to be crooked and deceitful.

Just ask anyone who has heard her presentation about preparer professional responsibility and you will hear them say the same thing.

Her title is: Director, Office of Professional Responsibility at Treasury Dept. Internal Revenue Service. I know of preparers that had EFIN and PTIN cancelled without any warning, hearing or other advance notice. The paper process to appeal takes months and months....

Play loose and easy if you will, with that W_t_h at the head of that department, no one is safe.

[MAMalody]

Since the OP was referring to EIC, Form 8867 indicates you can mark "Did not rely on any documents" or "Did not rely on any documents, but made notes in file." Would this work for you?

[Jack from Ohio]

No it does not work for me. I have a very established method of verifying identity of each of my clients and their dependents as well as documenting that any children are truly able to be claimed by them.. No ID and/or information, no tax return. Not a single person has complained. 3 years now, same process every year. No complaints. Everyone simply complied.

I guess if you have clientele that are feared of their identity being established or verified, your experience may be different.

My office would pass the compliance audit my Ms. Hawkins. I would love for them to audit me.

[michaelmars]

NO Jack, you don't want them to audit you, since when is being right make you safe from the government?

[Terry D EA]

I got to stick with Mr. Pencil on this one. I did read that portion of circular 230 and have always based my client interview on those circumstances. While the new due diligence rules are good in my opinion, the only real requirement is the 8867 for EIC. As was previously said, I have clients that I have been serving for the last seventeen years, I know them and they have established a pattern of claiming the same kids until they turned 17. I make my notes and check did not rely on any documents. So for now,I sticking with what I have been doing.

[Jack from Ohio]

I got to stick with Mr. Pencil on this one. I did read that portion of circular 230 and have always based my client interview on those circumstances. While the new due diligence rules are good in my opinion, the only real requirement is the 8867 for EIC. As was previously said, I have clients that I have been serving for the last seventeen years, I know them and they have established a pattern of claiming the same kids until they turned 17. I make my notes and check did not rely on any documents. So for now,I sticking with what I have been doing.

As long as you convince the compliance auditor that your word is solid documentation, your plan is fine.

[Pacun]

I am with Jack on this one.

Have you read circular 230 where it says that the tax preparer will do as instructed by the IRS or the office of compliance? Circular 230 was prepared years ago and they will not update it with every single detail. The IRS has made it clear that you not only need documents but also worksheets and notes on every EIC, schedule C, Schedule A. I believe that you have to document everything for each child tax credit and ANY refund claim.

Have you read the other's preparers experiences with office audits? Paranoia is not on our vocabulary but "materiality" and "compliance" are. The $500 penalty per incident is material.

My one-block-away competition has been audited and the first time the IRS imposed 8K fine on 16 EIC where he didn't have enough documentation. They fined him in November. How many of us can fork out 8K in November?

Jack, you don't want an IRS agent to be breathing on your neck when you interview your clients. That's what they do in some instances. How nervous will you be? What perception will your client have on you if the IRS is in your office? Jack, what will you win if you office is audited? It is like, we will put you in the tiger's cage and if you make it alive, we are going to give you a penny as a prize.