IRS Calls Practitioners over EITC Claims

February 20, 2013 | Tax Laws

IRS Calls Practitioners over EITC Claims

The Earned Income Tax Credit, often called the EITC, is a tax credit that can help taxpayers keep more of what they earn.  It is a refundable federal income tax credit for individuals and families who earn low or moderate income.  When the EITC exceeds the amount of tax owed, there is a refund for taxpayers who claim and qualify for the credit.  In order to qualify, you must file a tax return and meet a set of requirements.

The EITC credit is complex to fill out and many taxpayers who can qualify for these credits seek professional help.  For tax professionals, there are set requirements to ensure that the EITC is not taken advantage of. The Internal Revenue Code set EITC Due Diligence requirements and there are penalties for failure to comply with them.  The code states, “Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the credit allowable by section of law shall pay a penalty of $500 for each such failure.”

The IRS is closely monitoring EITC claims, and penalizing preparers, even if they are tax experts.  The EITC penalty applies to each time a tax return preparer failed to exercise due diligence in determining taxpayer eligibility for or the amount of an EITC.  There is no limit to the number of penalties a preparer may receive, and if a tax preparer does not take the penalties seriously they can have their Registered Tax Return Preparer designation and/or Authorized IRS e-file provider status revoked.

Recently, some practitioners have reported that they received a phone call from the IRS.  It is understood that the IRS call was a reminder to practitioners of their EITC due diligence, and that some returns filed were incomplete.  One way a tax preparer would be likely to receive a letter or phone call from the IRS is by not submitting Form 8867 with the EITC form.

Every EITC return must have Form 8867 submitted with it to avoid the penalties. This needs to be done both for returns filed electronically, and returns filed on paper. Form 8867, ‘Paid Preparer’s Earned Income Credit Checklist’, which records the information required to claim the EITC.  The checklist must be filled out properly based on taxpayer information

The other component to the EITC is that the tax preparer must show due diligence. There are four due diligence requirements; complete and submit eligibility checklist, computing the credit, knowledge and keeping records.  A large part of the due diligence is that the Tax Preparer must ask additional questions if the information the client gives seems inconsistent or incorrect.  It is the responsibility of the tax preparer to understand the law and ensure that the right questions are being asked to get all the relevant facts.  An experienced tax expert knows how to determine if the taxpayer is eligible for an EITC, and the amount of EITC the taxpayer will be owed.




Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]