Nov 11th 2013
By Ken Berry
The IRS intends to crack down on inaccurate claims for earned income tax credits (EITCs) claimed on 2013 returns. And this time it means business.
This is a long-time bugaboo at the IRS. It often suspects that the EITC is improperly claimed on tax returns by tax return preparers as well as taxpayers filing their own returns. Building on previous efforts to improve compliance in this area, including a smaller pilot program launched last year, the IRS is proactively trying to correct the problem.
Notably, over the next two months the IRS intends to send out approximately 11,000 letters to tax return preparers, pinpointing specific errors on 2012 returns. The letter will:
- Inform the preparer that inaccurate returns may have been submitted,
- State the primary EITC issues observed by the IRS, and
- Explain the consequences for filing inaccurate EITC returns.
Note that the IRS isn't viewing this as a punishment. The letters are designed to help tax professionals file more accurate returns for 2013 and thereafter. However, the tax collection agency will continue to monitor these preparers and could follow up with a phone call, additional warning letter, or due diligence audit.
In addition, IRS investigators will visit preparers whom the IRS believes have filed EITC claims with a great chance of error. The goal of these visits is to help preparers understand what the errors were and how to avoid them. The IRS agents will also discuss the consequences of filing inaccurate returns and what the due diligence requirements are. No penalties will be assessed during these visits.
Finally, the IRS will conduct approximately 1,000 due diligence audits in the coming months. Of these, 700 will be standard audits based on 2012 EITC returns, while 300 will be real-time audits performed during the 2014 filing season based on 2013 EITC returns. The IRS initiates due diligence audits for preparers it considers to have filed a large number of highly questionable EITC claims.