Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Friday, April 28, 2017
A BETTER WAY
greatest source of tax fraud, and tax return error, is the result of the
erroneous policy of distributing government welfare and other social program benefits
via the Form 1040 (or 1040A), especially when this takes the form of a
refundable tax credit – the Earned Income Tax Credit, the Additional Child Tax
Credit, and the American Opportunity Credit.
the best solution to the problem of tax fraud and error in this situation is to
remove the distribution of government benefits, and all refundable credits,
from the Tax Code.
Congress insists on continuing this erroneous practice I have an alternative to
forcing paid tax preparers to act as Social Workers and verify that clients qualify
for these government program benefit payments via excessive additional “due diligence”,
and forcing many legitimate low-income claimants to pay a tax return preparer
to apply for government benefits.
require that all taxpayers who claim the
Earned Income Tax Credit, whether or not refundable, have their tax returns
prepared at an IRS VITA (Volunteer Income Tax Assistance) site, where
returns are prepared free of charge for lower-income taxpayers.Tax preparers would not be permitted to
prepare, nor taxpayers to “self-prepare”, tax returns claiming the EITC.
of VITA centers would need to be expanded and staffing would include paid IRS
employees who, along with volunteer preparers, are specifically trained in
verifying EITC qualifications.Taxpayers
would be required to provide VITA preparers with all the appropriate
documentation that tax preparers are currently told to ask for.
VITA preparers are not required to do the same excessive due diligence as paid
tax preparers – which is wrong.
institutions must be required to report
on the Form 1098-T all cash payments made to the institution during the
calendar year for qualifying tuition and fees from all sources (payments
from the student or the student’s family, direct student loan or employee
benefit payments, and scholarships and grants), net any tuition and fee refunds,
without exception (which Congress has already required institutions to do), the Form 1098-T must include a second page
that lists the specific details of the charges and payments (as many
colleges actually already provide to students), and the Form 1098-T must also be required to be attached to the tax return.