Annette Nellen

The addition of these two credits to the required due diligence of paid preparers in preparing a return that claims either or both was made by the PATH Act (P.L. 114-113, 12/18/15). The statutory language added at §6695(g) implied that regulations were needed. The IRS released draft Form 8867 and instructions in summer 2016, but did not release the regulations until 12/5/16. [TD 9799 (12/5/16) and REG 102952-16 (12/5/16)]

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The IRS announced that it would no longer hold tax returns that both claimed the Earned Income Tax Credit [EITC] and had incomplete Forms 8867 attached.

Late last week, published reports indicated that the IRS was devoting special scrutiny — and so delaying refunds — to filers who claimed the EITC, typically those taxpayers who needed their refund checks the most. IRS spokesman Terry Lemons, however, said on Monday that the service was paying no special scrutiny to such returns and that any delay in refunds was a “processing” problem caused by incomplete or inappropriate use of Form 8867.

“We were seeing two issues with the 8867 during the early part of filing season,” Lemon said. “In one instance we were seeing the form being filled out incompletely. The other issue was with taxpayers who prepared their own returns and had an 8867 with the return and didn’t need it because the return wasn’t filled out by a preparer. Those two situations created a processing issue for us.”

“We’ve increased scrutiny on fraud in general, but we’re not giving special scrutiny to returns claiming EITC,” he said, adding that the service has “worked through those [early EITC] returns” and that filers in that group should be getting their refunds soon. He also confirmed that fewer than five percent of returns submitted claiming the EITC have had refunds delayed and that refunds should generally take one to two weeks if returns were e-filed and direct deposit was selected as a payment option.

“We’re in good shape on this front,” Lemon added, also stressing that the “Where’s My Refund?” site is updated overnight.  The IRS did acknowledge in a recent question and answer flyer that it was holding returns “submitted with incomplete Forms 8867 and was sending Letter 12C to taxpayers requesting they provide the required missing information. [But] as of February 19, these returns are no longer being held and 12C letters to taxpayers are no longer being issued” and the returns were being processed. Those who have received a Letter 12C should respond to it, the service said, adding that it would contact preparers about any compliance issues after return process is complete. It also noted that those whose returns were held prior to February 19 should expect their refunds in the next one to two weeks.

Finding Out The Hard Way

Some preparers’ experiences are consistent with IRS warnings regarding Child Tax Credit and the EITC before tax season began. “Some of our clients have had their refunds anywhere from two to 14 days. There doesn’t seem to be a consistent method of processing. It seems like the EITC and college credit returns are taking a little longer to process, however,” said Michael Perkins, enrolled agent and president of Larrison’s Tax Service in Terre Haute, Ind.

Preparers on LinkedIn tax prep discussion boards have been reporting a number of delays in refunds for reasons such as failing to indicate that a filer’s family included a disabled child. Some preparers have chosen to refer EITC clients directly to local IRS preparers, and others dislike having to ask clients for such personal information, as well as questioning the appropriateness of the sources the IRS asks for regarding verification.

“Line 26k of the 8867 will accept an ‘Employer Statement’ as proof of residency,” wrote one preparer. “How ridiculous is it to think an employer is better qualified to prove residency than the man who tucks the kids in bed at night?”. “Why would I need to see more than a birth certificate for a client’s own child?” wondered one preparer. “ ‘Oh, I’m sorry, I know you gave birth to him and you’ve been my client for 10 years and he’s been on your return every year, but can you please run down to his school and ask for a statement that he is indeed your kid living in your home going to school from your house?’ That is completely ridiculous.”

“For the past several tax seasons, preparers have expressed concern over the amount of information that they are required to obtain from their clients before EITC eligibility can even be determined,” said EA Cindy Hockenberry, manager of the tax knowledge center for Appleton, Wis.-based National Association of Tax Professionals. “Many preparers are finding out the hard way that merely filling out Form 8867 and answering the questions is not sufficient. They need to dig deeper, ask more questions and request to actually see more documentation to determine eligibility. This takes time and creates delays and increased fees. Taxpayers have a difficult time understanding this, especially if they have been coming to the same preparer for years. The days of merely having a dependent and low income to qualify are gone. In many cases, obtaining the necessary information is a burden on the taxpayer.”

Some preparers’ organizations have also reported hearing from members that EITC due diligence can be a maze with the only clear end a $500-per-return penalty should they get it wrong. One culprit: Section 10.34(d) of Circular 230 that says a preparer may “rely in good faith without verification upon information furnished by the client.”


The least the IRS could do is post the returns on its site as being processed, instead of looking like the return has not been e-filed at all,” said preparer Tony Hernandez of Hernandez Enterprises in Ridgecrest, Calif. “Some of my clients have been checking, see nothing, and of course then call me to find out why their return hasn’t been filed.”

WOW, I never realized just how many paranoid people there were in the world. I have been doing taxes for nearly 20 years and I have never had a single client try to claim “fake” kids or have more than one person get away with claiming the same child. There is no way two people can claim the same child unless they have two social security numbers for that child. I have had clients that play the “I have to file earlier than the other parent so I can get the exemption before they do” game. I hate that some of the “big box tax prep stores” solicit their clients as early as Thanksgiving by offering to secure their refund as a pre-Christmas loan using their pay stubs to estimate the year-end amounts. I believe this is a ridiculous gimmick that ends up costing the client nearly $500 just to prepare their taxes and pay for the loan fees. It also encourages those who are in need to over extend themselves. Any tax/financial adviser should try to teach their clients to save for the holidays by lowering their withholding or taking the advanced EITC. That would increase their income throughout the year and then they might be able to budget a little of the extra to a Christmas club account or savings instead of allowing the government to hold their money interest free.

I don’t think the IRS should require me to ask long time clients for all that documentation when I know the children belong to them. Am I supposed to ask myself for the documentation as well since my family also qualifies for EITC and I prepare our return? Should I trust myself?

I can see asking the clients for a birth certificate as well as social security card since the card just verifies they have a number and not their parentage. But get real, who thinks to bring a letter from the school to a tax prep appointment? And how much burden does that add to the schools if they have to prepare letters of verification for all their students?

Finally to the Notary, I certainly hope you refused to notarize documents that you felt might be falsified. As a notary, as well, I know that would be against the law.

Posted by: Rennaemcintosh,| February 27, 2013

Tax preparers have too much on the line to commit fraud. I say they need to look who prepares the most returns with the EITC credit. Not private preparers. H & R BLOCK,  Liberty Tax Services, Jackson. Hewlett.  These are the firms that most people who have the EITC go to. They advertise to get clients big refunds based on the EITC.

Posted by:  Optimouse , February 26, 2013

This whole thing is going to be a process and it is going to be painful at times to both preparers and to taxpayers. We just got done with 15 years of no enforcement by the IRS. People could do just about anything they wanted without much risk at all of being audited. As usual it’s the extremes that cause major issues and in this case going from near zero enforcement to complete enforcement of the tax code is going to take time. So many Americans no longer see the need to listen to a professional because there neighbor, brother or friend has been doing things one way for 15 years and never had anything happen so in their mind they can do the same and they do not consider any need of professional help. It will take many news stories and horror stories from there friends and family before the majority of the public starts to understand. If the IRS is going to get a handle on this as quick as possible they have to include the preparers to get the message out and to help put the fear in the American Public. Also because of close to no enforcement there are more a large numbers of preparers who have made allot of money taking advantage of the no enforcement and by including the preparer to fix this issue they also get to weed out the offices that have been promoting and taking advantage of EITC fraud and other fraud.

Over all this year I know we are doing all we can to ensure no fraud gets by us by doing things that make sense while not running good clients away. Most all of our good clients understand why we are asking for additional info and understand now that times are changing. I think additional changes are coming for the low income taxpayers in this country and would not be surprised when the IRS implements a system where children are assigned to someone and a system where the IRS will mail out a single form calculating there refund and all the clients need to do is sign and return taking the preparer out of the picture. I still believe the tax business is a gold mine and that additional opportunities because of the future enforcement efforts that are coming down the road and believe these opportunities will provide a great opportunity for additional revenue that will replace and surpass that of the income lost if they change low income tax returns.

Posted by: louisvilleliberty , February 26, 2013

I agree with all comments. I had a previous client to come in my office and request her W-2 from 2011.  She said she needed it to prepare her 2012 return online.  I laughed, but gave her nothing, because I gave her a copy of her 2011 return last year. Also a new client came in, and wanted an estimate, I told her I don’t do estimates – I am a paid tax preparer. She read my sign and agreed to allow me to  prepare her return. She did not want to file it because her refund was $ 4,440. The taxpayer said she wanted to go to Mary T., because Mary T. could get her a $10,000 refund.  I told her Mary T. is not a tax preparer, she is a fraudster, preparing 20 to 40 return on Turbo Tax, H & R e-file and other on-line software programs. The tax payer became very angry. I filed the return and she realized it was the right thing to do.  But for sure she will not return next year.  Every one here in my Texas town loves Mary T. the fraudster tax preparer online.  I have reported her to the IRS, but they have done nothing.  I reported her just this past January 4, 2013. Mary T. has been doing this for over 4 years.

Posted by: hitsero3, February 26, 2013

The tax returns with EITC included should not be held up unless there is something that raises a red flag. I have worked for H & R Block for 14 years before leaving to start my own at-home business. I’ve seen every type of situation when it comes to claiming children as well as adults at tax time. The number of returns I have amended lets me know that these branch offices of the big companies are doing whatever it takes to get the largest refund they can for their customer, no matter what. Circular 230 was created to control some of the fraudulent practices by some of the unscrupulous tax preparers (you know who you are!). The laws and regulations were put in place to help us and protect the consumer. If more of us would obey them, and fill out these forms with the information needed, the tax process would go a lot smoother.

Posted by: Jaybee3,  February 26, 2013

People are hurting for money more than ever and tax cheating seems to be where they have all found where they can get more dollars since they say the IRS only audits millionaires. I tell them about the 80% fraudulent penalty they could get but it only scares a low percent of the tax cheats. IRS needs to review at least 35% of all EITC are cheating and that is a lot of money.

Posted by: Karin K,  February 26, 2013

By Jeff Stimpson“Tax Pro Today”,   February 25, 2013

Edited and posted by Harold Goedde CPA, CMA, Ph.D. (taxation and accounting)

We welcome your comments below.


CIRCULAR 230 DISCLOSURE:  Pursuant to regulations governing practice before the IRS, any tax  advice contained herein is not intended or written to be used and cannot be used by the taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.