Fellow tax pros - your thoughts?
Thursday, January 14, 2016
Once more the IRS, this time thanks to the idiots in Congress, is thrusting added responsibilities upon tax preparers. We are to continue to function as Social Workers by verifying if taxpayers qualify for additional federal benefit programs. We must already wear the Social Worker hat for Earned Income Credit claims.
Effective for tax years beginning after December 31, 2015, The Protecting Americans from Tax Hike Act of 2015 (aka the PATH Act) requires tax return preparers to meet due diligence requirements similar to those applicable to returns claiming an EITC if they prepare federal income tax returns on which a child (or additional child) tax credit is claimed or on which the American opportunity tax credit is claimed.
I am not quite sure exactly what additional due diligence will be required, but I expect there will be additional forms like the Form 8867 for EIC claims, with appropriate checklists and requirements for checking documents.
This will result in additional fees to taxpayers who qualify for these programs. So qualified lower income individuals will be forced to pay to apply for federal welfare and tuition assistance benefits. And, of course, more wasted time for tax preparers during the tax filing season, when time truly is a precious.
If the tax preparation industry had a national “lobby”, as I have been suggesting for years now, perhaps this would not have been included in the PATH Act. Unfortunately it appears that we preparers must just “grin and bear it”.
The IRS and the idiots in Congress are rightfully concerned about the excessive tax fraud resulting from claims for refundable tax credits. Of course the blame for this fraud lies squarely with the idiots in Congress for putting the distribution of federal social welfare program benefits in the Tax Code, and creating refundable tax credits, in the first place.
The obvious proper action is to remove refundable tax credits, and the distribution of federal social welfare program benefits, from the Tax Code, and to distribute these benefits through “normal” channels with the appropriate checks and balances.
As I have said many times before –
The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the Premium Tax Credit, the energy credits, and other such personal and business credits should be distributed via direct discount payments to the appropriate vendors or direct rebate programs, similar to the successful Cash for Clunkers program of a few years ago, funded by the budget of the appropriate Cabinet departments.
Distributing the benefits in this manner is much better than the current method for many reasons:
1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers, and the IRS, would no longer need to take on the added responsibility of having to verify that a person qualifies for government benefits.
2. The qualifying individuals would get the money at the “point of purchase,” when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.
3. We would be able to calculate the true income tax burden of individuals. Many of the current “47 percent” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.
4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.