Tuesday, May 7, 2019


In the beginning the Internal Revenue Service and Congress required paid tax preparers to perform excessive additional “due diligence” for client returns that claimed a refundable tax credit – the Earned Income Credit, the Additional Child Tax Credit and the American Opportunity Credit - in an attempt to reduce the substantial tax fraud resulting from refundable credits.

Tax pros were required to interview the client, asking “adequate” questions and contemporaneously documenting the questions and the client’s responses, and review “adequate” information and related documentation to determine if the taxpayer was eligible to claim the credit.

Documents the preparer is supposed to review include -

·         School records or statement.
·         Landlord or a property management statement.
·         Health care provider statement.
·         Medical records.
·         Child care provider records.
·         Placement agency statement.
·         Social service records or statement.
·         Place of worship statement.
·         Medical records.

As a paid tax preparer, I clearly oppose the imposition of these requirements.  It is totally inappropriate.   Tax professionals should not be required to in effect become Social Workers and investigate whether a taxpayer qualified for a government social welfare benefit, or looking at it another way, forced to do the work of the IRS and “pre-audit” returns instead of enacting the obvious solution to the problem – eliminating refundable tax credits. 

The purpose of the federal income tax system is to raise the money necessary to run the government, and not to distribute social welfare and other government benefits or to redistribute income.

But now, beginning with 2018 tax returns, paid preparers must perform excessive additional due diligence, and complete Form 8867 (Paid Preparer's Due Diligence Checklist), for all client returns claiming the Earned Income Credit, the Child Tax Credit, the new Other Dependent Credit, the American Opportunity Credit, and Head of Household filing status – which is basically every single taxpayer who claims a dependent and some who do not.

This has gone too far.  As I have said in the past, eventually tax preparers will be required to make random surprise bed checks of client homes during the year.   

Unfortunately, tax pros must just “grin and bear it” because, unlike most other professions and industries, the tax preparation industry does not have a lobby in Washington.     

Why don’t taxpayers who self-prepare have to complete and separately sign a tax form checklist declaring they certify they are aware of and meet the requirements of these credits and the Head of Household status?

If tax professionals are required to perform and attest to additional due diligence for anything it should be the newly limited itemized deduction for mortgage interest. 


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