Be Nice, Not Naughty, When Filing EITC Claims
by Ken Berry on
Santa Claus wasn't the only one who was supposed to make a list and check it twice this holiday season. The IRS is riding herd on tax practitioners who claim the Earned Income Tax Credit (EITC) for clients without filing Form 8867, Paid Preparer's Earned Income Credit Checklist. In this case, the penalty is a lot stiffer than a jolly Santa might imagine: A $500 penalty for each return that's missing the checklist.
On December 20, 2013 – just five days before Christmas – the IRS issued a stern reminder via an e-mail to tax return preparers. The agency confirmed it had sent "Letter 4989 warnings" to preparers who didn't comply with this requirement for EITC claims for the 2011 tax year. Next up, the IRS will be notifying nearly 800 preparers about their failure to attach the checklist to 2012 returns.
It's all part of a continuing IRS effort to crack down on noncompliance relating to the EITC. Approximately 11,000 tax return preparers can expect to be notified about various and sundry EITC errors. But the IRS isn't stopping there. It also intends to go door-to-door (but not down chimneys) visiting tax return preparers whom it believes have filed EITC claims that are likely to include errors. Finally, the nation's tax collection agency will conduct approximately 1,000 due diligence audits in the next few months, of which 700 will be standard audits based on 2012 returns claiming the EITC.
The auditors will review the preparer's EITC returns looking at their due diligence records, including checklists and worksheets. The IRS vows that no stone will be left unturned.
What's the beef? IRS officials have good reason to be concerned. According to a recent report from the Treasury Inspector General for Tax Administration (TIGTA), noncompliance by tax professionals with the respect to the EITC is on the upswing. As of March 7, 2013, TIGTA had identified 80,585 paid tax preparers who filed 616,622 tax returns claiming $1.9 billion in EITC without attaching Form 8867. That means that IRS could conceivably hand out $306 million in penalties if it follows all the way through.
The 2013 version of the Form 8867 checklist, available on the IRS website, is four pages long and takes up twenty-seven lines. It can be daunting, but the time spent to complete the form is well worth it. Just like Santa, you don't want to get on the IRS' bad side.
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