Friday, April 28, 2017


Perhaps the 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.
Obviously 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. 
But if 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.
First, 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. 
The number 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.
Currently VITA preparers are not required to do the same excessive due diligence as paid tax preparers – which is wrong. 
Second, educational 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.
Just a thought. 
What do you think?

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