New Due Diligence for Child Tax Credit Education Credit

[Tax Prep by Deb]

I was curious as to what extra forms we would have to fill out for due diligence this year for the other two credits and it appears that they have combined everything onto the same form we use for due diligence for the Earned Income Credit.  Glad each did not have their own form.

State of California has EIC starting in 2015 and requires the same type of due diligence as Fed but we had to fill it out separately to claim the state credit, was a total pain because we had already answered the same questions for the fed.

[Jack from Ohio]

17 minutes ago, Tax Prep by Deb said:

I was curious as to what extra forms we would have to fill out for due diligence this year for the other two credits and it appears that they have combined everything onto the same form we use for due diligence for the Earned Income Credit.  Glad each did not have their own form.

State of California has EIC starting in 2015 and requires the same type of due diligence as Fed but we had to fill it out separately to claim the state credit, was a total pain because we had already answered the same questions for the fed.

Have you looked close at the new "due diligence" documentation requirements for the new 8867?  Very invasive and seems to indicate that we are responsible for all answers.  Just read it closely and you will see what I mean.

[Catherine]

34 minutes ago, Jack from Ohio said:

Very invasive and seems to indicate that we are responsible for all answers.

Responsible, need to documents AND save copies of client documents, and WE get fined if clients' data is wrong.  At various conferences the IRS reps keep saying "we know you're the good guys!" but the crap coming out of DC puts the lie to that.

[Pacun]

I have been doing that for EIC. A lot of my clients get that credit so doing it for the other two credits will be easy. I keep school records, birth certificate if children are 5 or above. If they are not in school, I keep their vaccination records and insurance cards. Some of them have free insurance (better than yours and mine) from the state or Federal so I keep those records too. So now, I have to do the same for those who only qualify for the child tax credit or additional child tax credit. For educational credit, I have always kept 1098s and payment records.

I have asked for 1098s and proof of payments because during an audit I have to show the IRS where the numbers came from.

I heard before that some preparers on this community reject EIC clients, so now their rejection rate will be increased.  Soon, we will have to audit returns before sending to the IRS. On top of that, by doing everything electronic we have helped with the clerical duties at the IRS centers.

Ironically, the big abusers are preparers who mail in their forms, don't register with the IRS, don't have a PTIN, and they don't sign the returns.  There is a guy (and assistants/associates) who was here in DC doing that and more, DC was on his case so he moved to MD and he has been in business for YEARSSS.  He has a 24 hours tax preparation business during tax season and people make appointments at 3:00AM they end up waiting hours before they get in front of this preparer.  Vans full from people come from NY and other places to have their taxes prepared there.

[Jack from Ohio]

7 minutes ago, Pacun said:

I have been doing that for EIC. A lot of my clients get that credit so doing it for the other two credits will be easy. I keep school records, birth certificate if children are 5 or above. If they are not in school, I keep their vaccination records and insurance cards. Some of them have free insurance (better than yours and mine) from the state or Federal so I keep those records too. So now, I have to do the same for those who only qualify for the child tax credit or additional child tax credit. For educational credit, I have always kept 1098s and payment records.

I have asked for 1098s and proof of payments because during an audit I have to show the IRS where the numbers came from.

I heard before that some preparers on this community reject EIC clients, so now their rejection rate will be increased.  Soon, we will have to audit returns before sending to the IRS. On top of that, by doing everything electronic we have helped with the clerical duties at the IRS centers.

Ironically, the big abusers are preparers who mail in their forms, don't register with the IRS, don't have a PTIN, and they don't sign the returns.  There is a guy (and assistants/associates) who was here in DC doing that and more, DC was on his case so he moved to MD and he has been in business for YEARSSS.  He has a 24 hours tax preparation business during tax season and people make appointments at 3:00AM they end up waiting hours before they get in front of this preparer.  Vans full from people come from NY and other places to have their taxes prepared there.

You need to read the questions and the NEW documentation requirements on Form 8867.  Then see if you think it is just a few more things to document.

[Pacun]

I get as much documentation as possible.. I mentioned the bare minimum. I also prepare a document like this and the client signs IN BLUE it if they agree with what I have written down. I use the last page of 8867 for these question and keep it for my records.

 

These are sample questions that I print out and people sign:

 

Information provided by Rosa del Carmen Montecristo Moreno on 12/19/2016 at the office.

I see you have two children based on the documents you have presented to me. What are their names? Rosa and Carmen
Were your children in the united states in 2016?
How many months?
How many months did your children live with you in 2016?
were they in school?
do you have documentation to show they were in school?
What school do they attend?
What grades?
Were you married at the end of 2016?
Who else lives with you and your children in your household?
Are these two children from the same father?
Where is the father of Rosa?
Did you live with the father of Rosa in 2016?
Is he going to claim her on his taxes?
How do you know that information?
Where is the father of Carmen?
Did you live with the father of Carmen in 2016?
Is he going to claim her in his taxes?
How do you know that information?
Besides your W-2 or income you have reported to me, did you make extra money?
How can you three people live with $30K a year?
Did you get child support in 2016?
Did you get a refund from the IRS and State in 2016 for tax year 2015?
What did you do with that money? (most people use it for their families support. Keep in mind that they make little money)
Did you support your children?
Did your children work?
How much did they make?
Do you have their W-2s?
What did they do with the money they make?
Based on the information and documents you have provided, you don't qualify for HH or you do qualify  for HH, is there any other information that you want to share regarding support from you to your children?
Do you have health insurance?
How did you get it?
Are you children in your policy? Government agencies some times require them to register every 6 months and this is proof that the children are in the US during the tax year.
Do you have dental or medical records for your children?
 

_____________________________________                        ___________________
Signature                                                                                     Date
 

These are only some of the questions I ask. Depending on their answers, I follow up with more questions not listed here.

By the way, I ask these questions not necessarily in this order, I type them as I remember them. I like that form (8867) because then I have to type each question each time since you could only paste one line at a time. I also like it because I don't want to have a one document fits all and that's why I don't have a format for the questions.The only thing I keep in mind is to group them. Physical presence questions for children during tax year, support, relationship, income, marital status, people who live in the household. When the children are present in my office, I make a note of it, it might not help me this year but it will be in my records just in case I need them for the next tax year. When children are present, I asked what school they go to and what grade. I speak English to them and they better for answering these questions. If children are not school age, I ask them about daycare documents, vaccinations, and any other documents.
 

[BLACK BART]

 

4 hours ago, Jack from Ohio said:

You need to read the questions and the NEW documentation requirements on Form 8867.  Then see if you think it is just a few more things to document.

https://www.irs.gov/pub/irs-pdf/f8867.pdf

Many posters here say they do few or no EIC returns and the old 8867 was annoying but not a major PIA; however, I think several of us still do CTC/AOTC returns.  You're exactly right - that form was duck soup compared to this new combo-monstrosity which could be substituted for an NYPD Blue interrogation. Quite interesting is the question "Have you determined that the taxpayer has not released the (8332) claim to another person?" Well, I can ask, but if the answer is "yes" with an unconvincing facial expression, would I be required to track down the other party?  Another attention-getter was page two's blunt-trauma ending statement: If you have not complied with all...you may have pay a $510 penalty for each credit...".  

3 hours ago, Pacun said:

I get as much documentation as possible.. I mentioned the bare minimum. I also prepare a document like this and the client signs IN BLUE it if they agree with what I have written down. I use the last page of 8867 for these question and keep it for my records.

 

These are sample questions that I print out and people sign:

 

Information provided by Rosa del Carmen Montecristo Moreno on 12/19/2016 at the office.

I see you have two children based on the documents you have presented to me. What are their names? Rosa and Carmen
Were your children in the united states in 2016?
How many months?
How many months did your children live with you in 2016?
were they in school?
do you have documentation to show they were in school?
What school do they attend?
What grades?
Were you married at the end of 2016?
Who else lives with you and your children in your household?
Are these two children from the same father?
Where is the father of Rosa?
Did you live with the father of Rosa in 2016?
Is he going to claim her on his taxes?
How do you know that information?
Where is the father of Carmen?
Did you live with the father of Carmen in 2016?
Is he going to claim her in his taxes?
How do you know that information?
Besides your W-2 or income you have reported to me, did you make extra money?
How can you three people live with $30K a year?
Did you get child support in 2016?
Did you get a refund from the IRS and State in 2016 for tax year 2015?
What did you do with that money? (most people use it for their families support. Keep in mind that they make little money)
Did you support your children?
Did your children work?
How much did they make?
Do you have their W-2s?
What did they do with the money they make?
Based on the information and documents you have provided, you don't qualify for HH or you do qualify  for HH, is there any other information that you want to share regarding support from you to your children?
Do you have health insurance?
How did you get it?
Are you children in your policy? Government agencies some times require them to register every 6 months and this is proof that the children are in the US during the tax year.
Do you have dental or medical records for your children?
 

_____________________________________                        ___________________
Signature                                                                                     Date
 

These are only some of the questions I ask. Depending on their answers, I follow up with more questions not listed here.

By the way, I ask these questions not necessarily in this order, I type them as I remember them. I like that form (8867) because then I have to type each question each time since you could only paste one line at a time. I also like it because I don't want to have a one document fits all and that's why I don't have a format for the questions.The only thing I keep in mind is to group them. Physical presence questions for children during tax year, support, relationship, income, marital status, people who live in the household. When the children are present in my office, I make a note of it, it might not help me this year but it will be in my records just in case I need them for the next tax year. When children are present, I asked what school they go to and what grade. I speak English to them and they better for answering these questions. If children are not school age, I ask them about daycare documents, vaccinations, and any other documents.
 

 You're a better man (or woman) than I am.  I ask for a report card, an insurance card, and a medical bill with their name and address on it.  But if I go with the new marching orders, then IRS really can accurately describe me as their "partner".

[SaraEA]

How long does it take you to complete an EITC return?  Those are a lot of questions.  We do very few EITC returns but have many with the CTC (a few with ACTC).  I think we are in a worse position than most because we know almost all of our clients, remember when their kids were born or how happy they were when they got into their first choice college, so we may tend to skim over those due diligence requirements because we already know the answers.  Now even that's not enough, we have to have documentation.  Prices going up.......

The AOC will be the worst because we have to have the account payment transcripts.  I usually only request those when there is an audit letter (quite common where there are 529 plan withdrawals and education credits claimed).  Now we'll have to see them for everyone.  They are not easy to decipher.  Would anyone just accept the 1098T when there is like $35k tuition billed and $5k in scholarship?  I am so mad at IRS for giving the schools another year before they have to fill in the "expenses PAID" box.  They've already had nearly 20 years to get their computers reprogrammed.   

[Jack from Ohio]

23 hours ago, Pacun said:

I get as much documentation as possible.. I mentioned the bare minimum.

These are only some of the questions I ask. Depending on their answers, I follow up with more questions not listed here.

By the way, I ask these questions not necessarily in this order, I type them as I remember them. I like that form (8867) because then I have to type each question each time since you could only paste one line at a time. I also like it because I don't want to have a one document fits all and that's why I don't have a format for the questions.The only thing I keep in mind is to group them. Physical presence questions for children during tax year, support, relationship, income, marital status, people who live in the household. When the children are present in my office, I make a note of it, it might not help me this year but it will be in my records just in case I need them for the next tax year. When children are present, I asked what school they go to and what grade. I speak English to them and they better for answering these questions. If children are not school age, I ask them about daycare documents, vaccinations, and any other documents.
 

You really should read the new Form 8867.  I think you are missing many things in order to be compliant...

[Gail in Virginia]

It would never happen, but I am so tired of being the unpaid auditor for the IRS that I dream of all professional preparers deciding one year that they just aren't going to put up with this nonsense and quitting.  I don't think the system can get along without us anymore, and I would love to have a strike to force the IRS to acknowledge that.  Aren't any of our professional organizations doing anything to fight the IRS on these onerous due diligence requirements?  If I ask my client about their circumstances, I should not have to make them prove their living arrangements and their children's living arrangements to me. 

Just my rant for the day.

[Pacun]

Sarah,

You are right, it seems to take a long time for those question but remember, that most questions are yes or no or simple answers. Once you do it 100 times, the relevant questions are in your mind. Also remember that when they are MFJ, all you have to do is to prove relationship, proof that the live with them for more than 6 month and the process is quick.

What I hate is when people have a EIC for $7, I would rather pay those $7 from my tip jar vs preparing the EIC forms, questions and documents. Of course I cannot leave those $7 out because then the tax return will not be complete and accurate.

Gail,

No we are talking, why will you audit returns for the IRS when your new client brings you open years tax returns prepared by another preparer? I have enough work to cover my back (end of it) on the returns I have prepared and I don't have time to check open years when someone else did the work. 

"Just my rant for the day"
Adapted from Gail In Virginia ATX Forum, Dec 21, 2016

I hope my bibliography is accurate using ALA.
 

[Lion EA]

I don't audit, current or past years or prior preparer.  But, I have to read the prior returns of a new client to see if they have a capital loss, NOL, how many times they took the AOC, who the partners/shareholders/beneficiaries are on 1065s/1120Ss/1041s, whether the person sitting at my desk has been the tax matters partner/executor, compare year-to-year to give me clues what might be missing, get the EIN of the childcare provider, are paying back that homeowner's credit, did they already use up the lifetime energy credit, get depreciation schedules, what was their state refund/did they itemize/compute how much is taxable so looking at prior year AMT, and on and on.  I'm not looking for mistakes.  I'm looking for information to prepare the most complete and accurate returns for my client this year.

[RitaB]

1 hour ago, Lion EA said:

I don't audit, current or past years or prior preparer.  But, I have to read the prior returns of a new client to see if they have a capital loss, NOL, how many times they took the AOC, who the partners/shareholders/beneficiaries are on 1065s/1120Ss/1041s, whether the person sitting at my desk has been the tax matters partner/executor, compare year-to-year to give me clues what might be missing, get the EIN of the childcare provider, are paying back that homeowner's credit, did they already use up the lifetime energy credit, get depreciation schedules, what was their state refund/did they itemize/compute how much is taxable so looking at prior year AMT, and on and on.  I'm not looking for mistakes.  I'm looking for information to prepare the most complete and accurate returns for my client this year.

You complete me.

[Lion EA]

I'm going to take that as a compliment !!