QUESTIONS & ANSWERS
The IRS has stepped up its efforts to ensure only those eligible receive credits. That means more paperwork and diligence on the part of tax payers and tax preparers alike.
Q: What is the purpose of the new rules?
A: The IRS has responded to invalid tax credit claims that result in the government making payments that taxpayers are not entitled to. The new rules are meant to ensure greater accuracy in the system so that only qualifying taxpayers receive tax credits.
Q: What are the most common claim errors?
A: The IRS reports that over 60% of EITC errors come from: Claiming a child who does not meet the age, relationship, or residency requirement; filing as single or head of household when married; incorrectly reporting income or expenses; and submitting incorrect Social Security numbers.
Q: What are the “due diligence” requirements all about?
A: They require tax preparers to gather more information from clients and make further inquiries when evidence suggests that a client may not be entitled to a credit.
Q: What information will I need to provide?
A: We have provided checklists for Earned Income Tax Credit, Child Tax Credit, Additional Child Tax Credit and American Opportunity Tax Credit claims. We may also need to ask you additional questions if we conclude any information you have provided is incomplete, inconsistent or incorrect (questions such as marital status, head-of- household, a child’s residence, etc.). Your input will be used to complete a due diligence form (Form 8867) for each claim and will be submitted along with your tax return.
Q: What records are kept by E.P. Tremblay?
A: We are required to keep for 3 years copies of Form 8867, worksheets used to determine credits, records of additional questions and answers you provide, additional documents you provide, and additional information.
Q: What are the penalties for making an improper claim for tax credits?
A: Taxpayers can be barred by the IRS from filing for future tax credits for up to 2 years. For fraudulent claims, taxpayers can be barred for up to 10 years.
Q: What are the penalties for tax preparers who fail to meet the due diligence requirements?
A: They are subject to fines of $510 per credit, up to $1530 per tax return.
Q: What are the rules if I plus one or more taxpayers want to claim the same child for EITC purposes?
A: “Tie-breaker” rules apply. The first rule is that the child’s parent has the first right. If more than one parent is claiming the child, then the parent with whom the child lived longest during the tax year can claim the child. If the time was equal, the parent with the highest adjusted gross (AGI) income can claim the child. (If the parents are not married, they can choose who can claim the child regardless of earnings). If no taxpayer is the child’s parent, the one with the highest AGI can claim the child. Any claimant who has a higher AGI than the parent can claim the child.