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.

IRS Update: EITC Warning Letters and Self-Employed Deductibility of Medicare Premiums

IRS Warning Letters for Tax Preparers Who Did Not Submit Form 8867 with EITC Returns

Beginning this filing season the Internal Revenue Service (IRS) requires that any tax return claiming EITC that is completed by a paid preparer must have the Form 8867 (Paid Preparer’s EIC Checklist) attached to it. The failure to comply with this requirement means that the paid preparer is not meeting their due diligence requirements and is therefore subject to a $500 penalty for each tax return that does not have Form 8867 attached to it.

The IRS has begun sending out warning letters to preparers who have submitted Tax Year 2011 EITC tax returns without attaching Form 8867. This letter warns the preparer that they did not meet their due diligence requirements in 2012. The IRS will not assess any penalties for the 2012 Filing Season. Click here to read more.

Self-Employed Taxpayers Can Deduct Medicare Premiums

The IRS Office of Chief Council has advised IRS attorneys that self-employed taxpayers may deduct Medicare premiums when calculating the self-employed health insurance deduction on Form 1040, line 29.

This reverses the IRS stance held before 2010 when the IRS stated that self-employed taxpayers could not include any Medicare premiums in the self-employed health insurance deduction. This decision also expands what the IRS permitted in 2011, allowing self-employed taxpayers to include only Medicare Part B premiums when calculating the self-employed health insurance deduction.

Click here or to read the entire CrossLink Tax Update that includes further information on EITC Warning Letters and Self-Employed Deductibility of Medicare premiums.

IRS Update: IRS “Fresh Start” Initiative and Changes to IRS Offer-in-Compromise Program

As part of their continuing “Fresh Start” initiative, the IRS has announced that they will be offering more flexible terms to its Offer-in-Compromise (OIC) program. This will enable some of the most financially distressed taxpayers to resolve their tax problems more quickly.

The IRS has made the following changes to the OIC program to more closely reflect real-world situations:

• When calculating a taxpayer’s reasonable collection period, it will now look at future income as follows:
• Offers paid in 5 or fewer months: 1 year (down from 4 years)
• Offers paid in 6 to 24 months: 2 years (down from 5 years)
• Allowing taxpayers to pay their student loans
• Click here to read more

The IRS “Fresh Start” Initiative began in 2008 and has included the following:

• In 2008: Lien relief for taxpayers trying to refinance or sell a home
• In 2009: New flexibility for taxpayers facing payment or collection problems
• Click here to read more

Click here to read the entire CrossLink Tax Update that includes further information regarding the IRS "Fresh Start" Initiative and Changes to IRS Offer-in-Compromise Program.