Tax preparers who submitted incorrect or highly questionable Earned Income Tax Credit, or EITC, tax returns for their clients for the 2014 tax year might have received letters from the IRS in recent weeks.
The EITC Due Diligence letters were sent for information purposes only, according to the IRS. But, they will continue to monitor those tax preparers in the upcoming tax season to see if the quality of returns improves. Some of the issues that prompted letters were questionable income and expenses on Schedule C and qualifying children who don’t appear to meet requirements. Some letters notified preparers that the IRS was auditing some of their clients’ tax returns.
The IRS cautions tax preparers to follow EITC tax law to ensure returns are complete and correct. Penalties and other consequences for the preparer and the client are possible if issues are found.
There are four due diligence requirements that preparers must meet when preparing an EITC claim:
- Complete Form 8867 and submit it with every EITC return.
- Complete an EITC worksheet showing how you computed the EITC.
- Question the client if any information appears to be incorrect, inconsistent or incomplete. Document your questions and the client’s responses.
- Keep all required records including copies of documents you used to determine eligibility for or the amount of EITC.
For more information on the due diligence requirements, view this special IRS toolkit. The more you educate yourself, the more likely you are to avoid letters from the IRS in the future.