EITC Due Diligence (Course Id 871)

Taxes - Taxes for Course Id 871

The Earned Income Credit (EIC) is a refundable tax credit that has a significant impact on United States revenue. It is also the source of a disproportionately large number of errors in tax returns in which a claim for it is made. In a recent year, 150.3 million individual federal tax returns were filed, and more than 27.4 million—18.2% claimed the Earned Income Credit [1]. Based on that percentage, it would not be unexpected that, in the years ahead, approximately one taxpayer in every five will claim the EIC. Approximately 70% of federal income returns claiming the earned income credit are prepared by professional tax return preparers.

This course briefly summarizes the earned income credit rules, examines the common errors committed when claiming the credit, discusses the EIC due diligence requirements imposed on professional tax return preparers, and identifies the sanctions to which preparers and their employers may be subject for a failure to meet expected due diligence requirements.

NASBA QAS - Text - NASBA Registry - IRS Enrolled Agents - 871

Course Learning Objectives

• Recognize the earned income credit eligibility rules;
  
• List the common errors committed in connection with claiming the earned income credit;
  
• Describe the consequences for the taxpayer of the IRS’ disallowance of the earned income credit;
  
• Identify the tax return preparer’s earned income credit due diligence requirements; and
  
• List the sanctions that may be applied on a tax return preparer and his or her employer for a failure to meet due diligence requirements.

Chapter 1
Earned Income Credit Rules

• Recognize the earned income credit eligibility rules that apply to all taxpayers, that apply to taxpayers who have a qualifying child, and apply to taxpayers without a qualifying child;
  
• List the most common earned income credit errors and their potential problem areas; and
  
• Identify the additional questions tax preparers need to ask if taxpayer-provided information appears incorrect, inconsistent or incomplete.

Chapter 2
Due Diligence Requirements

• List the due diligence requirements a tax return preparer must meet when preparing a tax return claiming the earned income credit;
  
• Recognize the records a tax return preparer is required to keep to support a client’s claim for the earned income credit;
  
• Identify the penalties that may be imposed on a tax return preparer for failing to comply with due diligence requirements when preparing a client’s tax return claiming the earned income credit;
  
• Recognize the sanctions that may be imposed on an employer whose employee fails to comply with EIC due diligence requirements; and
  
• Identify the additional requirements imposed on taxpayers claiming the EIC following disallowance and the exceptions to those requirements;

Course Learning Objectives

Introduction to the Course

Chapter 1 - Earned Income Credit Rules

Learning Objectives

Introduction

Nature of the Earned Income Credit

Earned Income Credit Eligibility

Eligibility Rules Applicable to Everyone

Eligibility Rules Applicable to Taxpayers with a Qualifying Child

Eligibility Rules Applicable if Taxpayer Does Not Have a Qualifying Child

Earned Income Credit Age Requirement

Common Earned Income Credit Errors

Earned Income Credit Errors Involving Qualifying Children

Qualifying Child Requirements

When a Child is Disabled

When Two Taxpayers Claim a Qualifying Child

Tie-Breaker Rules

Earned Income Credit Errors Involving a Client’s Filing Status

Single Filing Status

Separated Spouses

Head of Household Filing Status

Married Persons Living Apart

Earned Income Credit Errors Involving Income Reporting

Earned Income Credit Errors Involving Social Security Numbers

Taxpayers with Qualifying Children who Fail to Meet Identification Requirements

Summary

Chapter Review

Chapter 2 - Due Diligence Requirements

Learning Objectives

Introduction

The Statutory Requirement for Due Diligence – IRC §6695

Specific Requirements Applicable to EIC Due Diligence

Paid Preparer’s Due Diligence Checklist – IRS Form 8867

Due Diligence Questions to Ask to Avoid Qualifying Child Errors

Avoiding Filing Status Errors

Avoiding Income Reporting Errors

Avoiding Social Security Number Earned Income Credit Errors

Paid Preparer’s Due Diligence Checklist Best Practices

Taxpayer Interview Best Practices

Figuring the Amount of the Earned Income Credit

Calculating Earned Income for EIC Purposes

Taxpayers Not Self-Employed, Statutory Employees, Clergy or Church Employees

Self-Employed Taxpayers, Statutory Employees, Clergy and Church Employees

Computation Best Practices

Know the Law and the Client

When Should a Preparer Ask Additional Questions – Examples

Knowledge Requirement Best Practices

Record Maintenance

Record Maintenance Best Practices

Failure to Meet Due Diligence Requirements

Consequences for the Tax Return Preparer

Consequences for the Preparer’s Employer

Consequences for the Client of EIC Disallowance

Disallowance Due to Reckless or Intentional Disregard of EIC Rules

Disallowance Due to Fraud

Claiming EIC after Disallowance

IRS Form 8862 Timing

Filing IRS Form 8862

Exceptions

Summary

Chapter Review

Glossary