EIC due diligence requirements

[Pacun]

"The Regulations require that the tax preparer complete and retain an eligibility checklist (or alternative eligibility

record) and the computation worksheet (or alternative computation record), as well as a record of how

the information was obtained in the records (including the name of the person furnishing the information).

This information must be retained for each client claiming an earned income tax credit."

What are you keeping in order to comply with the due diligence requirements? Do you have your own documents or what worksheets are you keeping? Are you printing them or you are keeping a soft copy with the return?

[mcb39]

I fill out, print, and keep the paper in the clients' files. That would be Form 8867, Paid Preparer's Earned Income Credit Checklist. I do ask the client the question. I didn't think it was an option not to, but I don't really have a lot of these.

[Terry D EA]

I have a two page (front & back) client write-up form that I have used ever since this due dilligence thing came about in 1997. The form contains client demographic information,SS#, filing status; etc. On the back are all of the EITC questions including a jurat statement for the client to sign. I then use the 8867, print and keep it in the file as well. May seem like a little additional work or duplication but, when a new client comes in, the receptionist fills the form out which gives them a little start before they see me and gives me times to clean up my desk of any other sensitive client information before the next client comes in my office plus affords me two different forms of due dilligence. JMHO

[Janitor Bob]

My first client of the year ia an EIC client. Here is what I have from the paperwork he gave me:

1 live-in girlfriend, age 21, with zero income....She is his dependent

2 children, ages 4 and 1...dependents that qualify him for head of household and EIC, CTC, etc

2 W-2's.....total income $10,465

I cannot see hou someone could support a family of 4 on $10,465, so I have client confirm by e-mail that this is the extent of the family income. Client confirmed that this was indeed their only income.

I am not sure I believe the client. I suppose this is possible (with help from various govenment programs)....but what should I do to cover myself and make sure I have satisfied all Due Diligence requirements?

[Terry D EA]

JB,

The link below is a free online training module for due dilligence for EITC. This training will tell you how to handle a situation such as yours. You have to ask the client additional questions, document what you asked and what information you received from the client to verify that what he says is true to the best of your knowledge. In your situation, the W-2 forms presented plus a document showing the additional questions regarding income that you asked, with a client signature that acknowledging his source of income. Now if the client is hiding a W-2 form, then it is not on you and your documentation should be enough to protect you. Chances are, a client hiding income will show up when the IRS does income matching and should never affect you. But, in my humble opinion, CYA at all times.

http://www.eitc.irs.gov/training/welcome/

[Janitor Bob]

Thanks...I actually kept the e-mail from IRS regarding this webinar....I think I will watch it this evening

[kcjenkins]

My first client of the year ia an EIC client. Here is what I have from the paperwork he gave me:

1 live-in girlfriend, age 21, with zero income....She is his dependent

2 children, ages 4 and 1...dependents that qualify him for head of household and EIC, CTC, etc

2 W-2's.....total income $10,465

I cannot see hou someone could support a family of 4 on $10,465, so I have client confirm by e-mail that this is the extent of the family income. Client confirmed that this was indeed their only income.

I am not sure I believe the client. I suppose this is possible (with help from various govenment programs)....but what should I do to cover myself and make sure I have satisfied all Due Diligence requirements?

It's possible, but you do need to cover yourself by getting it writing from him. If he has unreported taxable income, that covers you, and if he has untaxed government benefits, gifts, etc, you are still covered. No need to assume the worst, tho, Uncle Sammy just loves to give EIC to this sort of situation.

[Janitor Bob]

I am actually suspicious that maybe somebody (client's parents) are living with them and paying rent, utilities, food, etc. If so, then the assistance would be considered support and,depending on their income, maybe taxpayer and children would be qualifying children of the client's parent. This would not only change EITC, but change client's entire return if he is (or could be) a dependent on his parent's return.

I hope I am wrong, and client has given me no reason to suspect this....I am just suspicious of the entire situation.

[Pacun]

If the client's parents are living with your client, that's not a problem because 1.- he made more than $10K, 2.- is older than 19 and most likely he is not a full time student. As a result, he will not be a qualifying child for them. If parents are providing food, it will be considered a gift and parents will have to file a gift tax return if needed. As long as the children live with the father and he is not claiming HH, he should be OK for EIC.

I think my reasoning is correct even if the parents of the mother are living and providing for mother and children. The children will be qualifying children of the father and the mother could be a qualifying child of her parents. Since they are not filing a joint return, even though the mother is a qualifying child of her parents, I think he is OK with EIC and doesn't need to claim girlfriend as dependent.

[Janitor Bob]

Thanks! I e-mailed client a list of questions addressing my suspicions on household members and total income. He replied stating that nobody else lived with them and the $10,500 was indeed the family's only source of income and only other support was food stamps

I have printed the e-mail response for my records to comply with due diligence requirements.

[kcjenkins]

Then you should be fine.