IRS Answers Common Early Tax Refund Questions

The IRS yesterday posted to their website a news release that addresses common questions that they have heard regarding this season’s delay in refunds for federal returns that are claiming the earned income tax credit and/or the additional child tax credit.

This release (IRS Answers Common Early Tax Season Refund Questions and Addresses Surrounding Myths) is a good resource for preparers who receive questions from their affected clients and includes the following:

•      3 YouTube videos (available in English and Spanish) explaining the delay and the IRS refund process
•      Common Myths about the delay in refunds
•      Information about “Where’s My Refund?”

IRS Announces 2017 Tax Filing Season Start Date

The 2017 Filing Season will begin on Monday, January 23, 2017 the IRS announced today. In its news release, the IRS also reminded taxpayers who will be claiming the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC) to expect a longer wait for their tax refunds.

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017.

Click here to read the full IRS news release.

Federal Tax Law Changes that will Affect 2016 Federal Returns

Beginning with the 2017 filing season, refunds for tax returns that claim EITC or the Additional Child Tax Credit will be held until February 15. Read more . . .

Earned Income Tax Credit (EITC)

• Taxpayers can no longer file an amended return to claim the EITC for any year a qualifying child did not have a Social Security Number.
• Taxpayers whom the IRS finds have fraudulently claimed the credit can now be barred from claiming EITC for 10 years.
• Read More . . .

Child Tax Credit and American Opportunity Education Credit

• These two credits are now subject to the same due diligence requirements as EITC. This is reflected on the revised 2016 Form 8867 (Preparers Due Diligence Checklist). This also means that the Form 8867 must be attached to tax returns that are claiming the Child Tax Credit and/or the American Opportunity Credit.
• The IRS can bar a taxpayer from claiming the Child Tax Credit and American Opportunity Education Credit for two years if they have determined the individual has intentionally disregarded the rules for claiming either of these two credits.
• Read More . . .

Due Dates for Federal Corporate and Partnership Returns

• C Corporations (Form 1120)
  • Calendar year end - April 15
  • Fiscal year end - 15th day of the fourth month after the year end
• Partnerships (Form 1065)
  • Read More . . .

Click here to read the entire CrossLink Tax Update that includes further information about the changes made to federal tax laws that will affect tax returns for the 2017 filing season.

Revised Form 8867 and the Expansion of Preparer Due Diligence Requirements

The IRS has released a draft of the newly revised and renamed Form 8867 (Paid Preparer’s Due Diligence Checklist). The changes are a result of the expansion of the paid preparer’s due diligence requirements (as included in the PATH Act) to cover the Child Tax Credit and the American Opportunity Education Credit as well as the Earned Income Tax Credit.

As a result of the expansion of the due diligence requirements, the Form 8867 has been revised as follows:

• Renamed to “Paid Preparers Due Diligence Checklist.” Was named the Paid Preparer’s Earned Income Credit Checklist.
• The questions related to qualifying children have been moved from the form to a related worksheet. These questions must still be asked, however, they will not be submitted to the IRS. The requirement to ask these questions are covered in question 2 of the revised 2016 Form 8867.
• Click here to read the full article on the CrossLink website.

Read the full article on the CrossLink website.

IRS Resources for the Earned Income Tax Credit

As the 2014 filing season draws near, now is a good time to be reminded about the IRS EITC Central website and what valuable information it has to offer preparers that are completing returns claiming the Earned Income Tax Credit.

Here is an example of some of the useful information it contains:

• Frequently Asked Preparer Questions
  These frequently asked preparer questions have been categorized into eight areas to help the preparer narrow down what they are interested in. The categories are Age, Relationship and Residency, Basic Qualifications, Due Diligence, Earned Income, Divorced and Separated Parents, Fraud, Qualifying Child of More than One Person, and Other EITC related questions.
  When you click on a topic area it will display the preparer question and the IRS answer. As part of the answer the IRS has highlighted the newest due diligence requirements that were finalized at the end of 2011.
• Preparer Due Diligence
  This section provides links to IRS EITC due diligence law and regulation explanation, the importance of Form 8867 (Paid Preparer's Earned Income Tax Checklist), the consequences of filing incorrect EITC returns, and other resources for the preparer to review that are related to their due diligence requirements when preparing returns that claim the Earned Income Tax Credit.
• IRS EITC Preparer Compliance Activities
  Included in this category is information about what the IRS is doing to educate preparers on the most common EITC errors and what compliance activities the IRS is performing.
• Hot Topics for Return Preparers
  Hot Topics provides preparers with information on what the IRS is presently doing in the EITC area. Here, you will find the latest information about the IRS educational letters and visits that take place each fall, information about due diligence audits that take place each fall, and more.
• EITC Training and Videos
  The IRS provides the following training programs and videos to help educate preparers on what their earned income tax credit due diligence requirements are:
• IRS EITC Due Diligence Training Module
• Due Diligence Videos
• IRS EITC Schedule C and Record Reconstruction Training
• Other Educational Opportunities

IRS Outreach and Compliance Efforts for Education Credits

As part of a broader strategy to increase oversight on refundable tax credit claims, the IRS has begun to look more closely at claims for the American Opportunity Credit (AOTC) — one of the two education credits on Form 8863. As part of this effort, the IRS is expanding their educational outreach to taxpayers and preparers as well as increasing their scrutiny of returns that are claiming this credit.

Outreach Efforts to Preparers

The IRS has added a new section to their EITC Central website for Other Refundable Credits. One part of this new section is devoted to the AOTC and the Lifetime Learning Education Credit (LLC).

On the What You Need to Know about AOTC and LLC page, the IRS has provided the following to assist return preparers in understanding the American Opportunity and Lifetime Learning Education credits:

• Explaining the eligibility requirements, Form 1098-T, Form 8863, and how to avoid the most common errors related to the American Opportunity Credit.
• Links to relevant publications, forms, and instructions.
• Information on what questions a preparer should ask their customers about refundable credits.
• Education benefit videos.

Compliance Efforts

In an effort to reduce the number of errors that the IRS believes are occurring on returns that are claiming the American Opportunity Credit (AOTC), they have started to do the following:

• Implemented an Automated Questionable Credit Program to more closely review claims for which the AOTC is claimed for a student whose age is not typical of someone attending college before the refund is issued. This is mainly directed to claimants that are under age 13.
• Selecting returns for examination that are claiming the AOTC where the student(s) age is not typical of someone whom attends college.
• Sending educational letters to taxpayers explaining the eligibility requirements for the credit.

For preparers, the IRS will begin to focus their efforts on tax preparers who are preparing 25 or more returns that have claimed the AOTC and where it appears that the preparers have had errors associated with these returns as follows:

• Send educational letters to the preparers explaining the eligibility requirements for the credit.
• Modify the selection process for the Automated Questionable Credit Program to target more taxpayer returns that have been completed by preparers whom the IRS has determined are at high risk for completing inaccurate AOTC claims.

IRS Earned Income Tax Credit Compliance Efforts for Upcoming Filing Season

In a continuing effort to improve Earned Income Tax Credit (EITC) preparer due diligence, the IRS will be performing the following educational and due diligence audit activities this fall and during the 2014 Filing Season.

The IRS continues to use a risk based scoring model to classify preparers of EITC returns. Based on this score, a preparer may be subject to one of the following:

• Warning Compliance Letter 
  The IRS will send approximately 11,000 letters regarding specific errors that they observed on 2012 returns to medium risk preparers prior to the filing season that will include the following:
  • Inform the preparer that they may have submitted inaccurate returns
  • State the primary EITC issues the IRS observed
  • Explain the consequences to the taxpayer and preparer for filing inaccurate EITC returns
  • List what their due diligence requirements are
These letters are designed to help the preparers file more accurate EITC returns in the future. The IRS will be monitoring these preparers as the 2014 Filing Season begins and may do a follow-up with these preparers if they do not see improvement. This action may be a phone call, additional warning letter, or due diligence audit.
See Reaching Out To Preparers on the IRS EITC Central website for more information and to see examples of the letters.
• Educational Visit
  
  This fall, an IRS agent and criminal investigator will conduct educational visits to preparers whom the IRS believes have filed EITC claims with a high chance of error. The goal of these visits is to help preparers understand what the errors were and how to avoid them. They will also discuss the consequences of filing inaccurate returns and what their due diligence requirements are.
  No penalties are assessed during these visits; however, the IRS will be closely monitoring EITC returns filed by these preparers during the 2014 Filing Season. If the IRS does not see improvement the IRS will conduct a due diligence audit during the filing season.
  See Visiting Preparers Filing Highly Questionable Returns on the IRS EITC Central website for what occurs during these visits.
• Due Diligence Audits
  
  The IRS will again be conducting around 1,000 due diligence audits with 700 standard audits performed during the fall of 2013 based on 2012 EITC returns, and 300 real-time audits will be performed during the filing season based on 2013 EITC returns.
  The IRS conducts a due diligence audit on preparers whom they consider to be filing a large number of highly questionable EITC claims.
  See Auditing for Due Diligence Compliance on the IRS EITC Central website for more information on what occurs during a EITC due diligence audit.
  Since a Real-Time Due Diligence audit has some differences from the standard due diligence audit, see the Real Time EITC Preparer Pilot page on EITC Central website for what these differences are.

To learn more about the IRS EITC compliance program see the following on the IRS EITC website:

• EITC Preparer Compliance — Targeted, Tailored and Tiered
• EITC Preparer Due Diligence

2013 EITC Awareness Day: 1 in 5 eligible do not claim the credit

Did you know that one in every five eligible people do not claim the Earned Income Tax Credit? That adds up to millions of taxpayers leaving up to $5,891 on the table.

According to the IRS, National Earned Income Tax Awareness Day is a one-day media event designed to reach out to a broad range of taxpayers who may be eligible and segments that typically under-claim.

This year's IRS EITC Awareness Day is one week away on Friday, January 25th, 2013. You can play a critical support role that will benefit your customers and ultimately your business.

The IRS suggests the following actions that your business can take:

• Issue a news release
• Send a letter to the editor of your local paper
• Appear on radio talk programs
• Conduct news interviews
• Tweet
• Blog
• ... and more

Follow the link below to see a list of key talking points and other resources.

http://www.eitc.irs.gov/ptoolkit/awarenessday/

IRS Update: IRS EITC Preparer Compliance Update

The IRS is making changes to their ongoing EITC compliance efforts for the upcoming year. Beginning this month (October 2012), EITC return preparers that have been identified by the IRS as “at risk” for filing returns with EITC errors will receive compliance letters, educational visits, or be subject to a due diligence audit.

The IRS uses a risk-based scoring model to determine which preparers of EITC returns warrant one of the following types of actions from the IRS:

• Soft Compliance Letter - During October 2012 and November 2012 the IRS will be mailing 3,000 compliance letters to new and low-to-medium risk EITC preparers. Read More
• Knock and Talk (Educational Visit) - During December 2012, the IRS will conduct 100 educational visits to preparers whom the IRS has identified as filing highly questionable Tax Year 2011 EITC returns. Read More
• Due Diligence Audit Visit - Due diligence audits are performed on preparers whom the IRS has identified as being at the highest risk of preparing questionable EITC returns. Read More

Click here to read the entire CrossLink Tax Update that includes further information on IRS EITC Preparer Compliance.