The IRS announced that it would no longer hold tax returns that both claimed the Earned Income Tax Credit 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 5 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 service did acknowledge in a recent Q&A 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, EA 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 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.”
20 Comments
If the IRS would only fix it if taxpayers only got a W2 or 1099M you should be able to claim the EIC. That will elimate out all the lying people from getting the EIC, saying that they were self employed. The $500 fine for the tax preparers is bull crap. I agree with the others. How can it go from $100 fine to $500? Now that is stuppid. The IRS needs to leave the tax preparers alone and go after the taxpayers like before. And for the all the testing going on, that is just a money scamm costing us tax preparers time and more money. I agree with the judge for turning the IRS down.
Posted by: tapp | February 28, 2013 6:44 PM
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I feel that since the IRS is linked to various agencies and can verify the veracity of what the taxpayer is reporting, then they need to penalize the taxpayer for giving false information. Suspend their right to claim EIC when they are found to be doing so illegally. Documents can be altered and falsified, just because someone is listed on a birth certificate does not mean they can claim a child. SO GO AFTER THE TAXPAYERS NOT THE PREPARERS WE DO NOT LIVE WITH THESE PEOPLE WE ONLY PROVIDE A SERVICE. WE DO NOT HAVE THE CAPABILITY TO VERIFY THEIR INFO ELECTRONICALLY LIKE YOU DO SO ACT ACCORDINGLY AND START ENFORCING 8862 AND THE 10 YEAR EIC SUSPENSIONS AND MAYBE THAT WILL CUT DOWN ON YOUR PROBLEM.
Posted by: SHORTY21970 | February 27, 2013 8:22 PM
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I think one of the solutions to eliminate the "Paid Preparer" fraudsters (which I'm almost sure there are more out there than actual Paid Preparers) is to have tax software providers get together with the IRS and create a system where each individual software copy contains an individual PIN number which is attached to the return and is then verified at the IRS end. That would allow only one "self-prepared" return to be attached to that PIN. Along with that each return should include a copy of an invoice or sales receipt from the retailer for additional evidence of purchase.
Posted by: zebo007 | February 27, 2013 8:12 PM
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I AM A TAX PREPARER AND WHEN I PREPARED INCOME TAX RETURNS I REQUESTED FOR BIRTH CERTIFICATES, SS CARDS,ID's, proof of address and copies of food stamps or medicare verification form. to prove that the taxpayer is actually claiming their dependents. ALL copies were filed in their folder to cover my a** as well as theirs and prove the IRS wrong. Well on Monday i got an IRS AGENT walking into my office unannounced and stated that she was there to audit my files that were transmitted. i had no worried because i thought i had everything done right. Well she pulls out the files and told me that for every file that is wrong id be fined $500 per taxpayer. well to my surprise i got fined FOR NOT WRITING DOWN IN INK THE QUESTIONS I ASKED THE TAXPAYER.. ALL I HAD WAS RESPONSES..!! i cried my heart out. The auditor actually wanted copies of divorce decrees for those claiming HOH.!! OR INS reports for proof of deportation.! omg..!! i cant believe it.. i should get credit for having more than one legal copy of documentation to prove what they have at home.! YET THE TAXPAYER GETS THEIR REFUND MONEY AND IM STUCK WITH A HUGE FINE..!! i volunteer with VITA and there we dont request nothing but ss cards and id..! and this is IRS VOLUNTEER PREPARATION.. and they get away with it.. its not fair..!! what can i do to avoid paying this high fine..!!
Posted by: MISSIONTAXX | February 27, 2013 7:34 PM
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Thank you for this website, it has released me from my stress from this tax season.
Posted by: antoniohernandez | February 27, 2013 7:13 PM
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I worked for a large national tax chain company a long time, and there was plenty of "fake" W-2's fake SS cards etc and taxpayers using other people's kids as their own. Fraud definitely is in the mix here. If in those days you add the Refund Anticipation Loans where you can get a big chunk of the refund for the EITC within 24 - hrs then you have the perfect storm. (The RAL has now ended, thank goodness. It gave the tax companies huge fee payments and it gave the crooks a fast, large check, whether it was legitimately theirs or not. There is a lot of fraud happening when it comes to the EITC. Believe me, I've seen enough to know that the crooks in my state came in van-loads and hit these fast tax places. The drove up and down the I-80 corridor going to tax stores with fake credentials. How are preparers supposed to protect themselves from this? Why now are they making the preparer the "police"? Refunds should be slowed down and a real check of all EITC recipients be checked throughly before paying out the money. That credit is full of fraud.
Posted by: oneilln | February 27, 2013 11:03 AM
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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 EIC. 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 EIC 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?
And 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 1:12 AM
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WHAT !!! THE IRS AND TURBO TAX SCREWED UP THE SOFTWARE. IT DID NOT TRANSMIT THE TWO MISSING BOXES. MILLIONS MADE THE SAME MISTAKE AND THEY WANT TO WARN THE PREPARER. GEEZZZZZZZ
ADMIT YOU FAILED IRS AND TURBO TAX. NO YOU JUST BUILDING A CASE FOR YOUR APPEAL.
STOP THE FRAUD TURBO TAX !!!! FREE FILE IS A CROOKS DREAM WITH A DEBT CARD. SBBT IS GOING CRAZY WITH ALL THIS FRAUD.
YOU CAN TRACK OUR EIC WITH THE EFIN NUMBER TO SEE IF WE ARE HONEST OR NOT.
THE DELAY WAS BECAUSE OF A SOFTWARE ERROR. WHEN THE CALLS FLOODED YOUR SWITCH BOARD AND WHERE IS MY REFUND CRASHED THEN YOU SENT THE EIC RETURNS IN MASSES
HAVING US POLICE THE EIC PROGRAMS IS PLAIN STUPID. WE HAVE TOO MUCH RESPECT FOR OUR CLIENTS TO ALLOW THEM TO HAVE DIRTY MONEY.
TOO THE IRS YOU ARE POINTED IN THE WRONG DIRECTION.
EIC IS NOT WELFARE !!!! THERE IS A LOT OF RICH PEOPLE WHO ARE GLAD WE HAVE SUCH PROGRAM CUZ THEY ARE BROKE WITH NO FRIENDS BUT THE PEOPLE AT THE BOTTOM.
THIS IS JUST SAD
Posted by: JDAVIS | February 26, 2013 7:23 PM
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My husband and I have a small tax practice. I have had client's kids grow up and get married and have children of their own who now come to me. Now I am supposed to ask for documentation, esp when the client has been with us for over 25 yrs !!! IRS has to remember that it really isn't the tax preparer who has their own practice that is doing this. We have too much on the line to commit fraud. I say they need to look who prepares the most returns with the EIC credit. Not private preparers. HR BLOCK, Liberty Tax Services, Hewlett Jackson. These are the firms that most people who have the EIC go to. They advertise to this.
Posted by: optimouse | February 26, 2013 3:35 PM
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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 its 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 EIC Fruad and other fruad.
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 11:23 AM
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I agree with all comments. I had a previous client to come in my office and request her w-2 from last year 2011. She said she need it to prepare her 2012 return online(AGI). I laughed. But gave her nothing, because I gave her a copy of her 2011 return last year. Also I a new client came in, she wanted an estimate, I told her I don't do estimates I am a paid tax preparer. She read my sign and agreed to them. I prepared her return. She did not want to file it because her refund was $ 4440. 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 TurboTax, H & R Eflie and other online softwares. 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 her in my Texas town loves Mary T. the fraudster Tax preparer online. I have reported her to the IRS, 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 11:22 AM
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The tax returns with EIC 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 alot smoother.
Posted by: Jaybee3 | February 26, 2013 11:00 AM
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I think the problem is that we have tax laws that are too complicated to enforce requiring documentation that is too burdensome to produce. The EITC was a well meaning attempt to provide federal assistance for working people with too little income. We used to call this "welfare" and it was administered by social workers at DHHS. It is time to give this program back to the social workers who are trained to assess need and let tax preparers prepare tax returns which is what they are trained to do. The cost and accuracy of tax returns will improve and so will the welfare of those truely in need of assistance.
Posted by: Linda C | February 26, 2013 10:34 AM
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I had a client come to me claiming her grandchild. This was the first time she was claiming this child, she have been claiming different kids for the past 4 years. I requested the required docs but she couldn't provide them. She left and went to H&R Block office and they prepared the return, no question asked.. they didn't even ask her for SS card to confirm the child's SS #. I called a few H&R block offices and I asked them what information I needed to claim a child, they told me all they needed was the child's SS# and date of birth; I don't have to need copies just have to know it. I called about 4 offices and they all said the same thing. What is the IRS doing about this? Is IRS checking the big companies such as H&R & Jackson Hewitt too or are they only after the small preparers? ? These companies donot follow any of the procedures that IRS claimed to have in place.
Posted by: zephrina | February 26, 2013 9:48 AM
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To fritzjseide
And you really think that money goes towards the reduction of the deficit? SERIOUSELY? They collected $100 million dollars last year from Tax Preparers in order to create the PTRP program.... I don't remember the IRS mentioning the "Deficit" when they were asked to account for that money! They said they had to spend $50.million hiring 162 people in order to implement the program Wow! At that kind of ratio I would not mind having a job with them!
Posted by: SNAFU | February 26, 2013 9:31 AM
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I read the entire article and I agree with all the remarks the tax prepares have made. My clients look at me as if I am from out of space when I ask additional info and residency documents on the children they have claimed for years while I prepared the return all along. The only reason the IRS is "relaxing" the EIT rules is either because the majority of the EIC return have been filed by now, since they are the first to go out, or the criticisms not only from the tax preparers but from the tax payer are getting to be to many. And I agree with the fact that those who do file fraudulent returns for the EIC went where they know the questions would not be asked and got though anyway or fumbled through the return themselves and got it wrong. What's the IRS going to do to a TP who preparers his own return and does not answer any of those questions? Fine them $500.00? I think not! Putting the threat of the $500.00 fine on the form itself was not only tacky; it was absolutely not called for! All the IRS did, with the "Do Diligence" idiocy is hurt the Tax Preparers business after having cost us a lot of time, money and aggravation last summer, inundated us with 40 to 50 e-mails per day about the exam and after having given all our information to every outfit who decided to get in on the cash cow while the cow was giving cash. The IRS causes the problem, we suffer the consequences and then the IRS acts as if they are doing us a favor....by stopping a program that was implemented totally wrong. But, don't breath a site of relive for too long...The Sch.Cs are coming..., along with the 1099Ks and all the "DO Diligence" they want us to do on self employed tax payer. That will be another reason to "hold" the refunds. Wait and see. The only return that will get through without problems will be the ones where the TP will owe money! Who is laughing all the way to the Bank? H&R and the other Tax Stores are! They don't follow the rules because they have deep pockets. They don't care if they get fined. I am sure they have found some kind of Insurance to cover them and figured out a way to get the TP to absorb that cost too, along with all the other "Insurances" they sell to them
Posted by: SNAFU | February 26, 2013 9:16 AM
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If I could join the IRS in its anti fraud operations this year, I would recommend that every single taxpayer who filed their own tax returns to provide proof that they have indeed prepared it by themselves. The crooks out there have declared a big war against the Agency; every step the IRS takes to control the system they find a way to divert it. I surmise that more than 55% of those people who pretend to file their tax returns electronically are paying a clandestine tax preparer. So, in the quest of putting an end to fraudulent tax returns, the IRS should audit almost every self prepared tax return to discover those unscrupulous and incompetent paid tax preparers hiding behind the scene. It is true that certain people are afraid to commit mistakes costing $500.00 a piece but those hard to catch preparers are worth more than $500.00 to the government. I would like to see more measures taken to correct this over due situation. Please let the delay go, and let those who deserve a refund receive it with peace of mind.
Posted by: fritzjseide@gmail.com | February 26, 2013 9:15 AM
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My understanding is the IRS has waited too long to come up with such measures, which can help protect the public (taxpayers) and value the tax return industry. For more than one decade, I have been suffering from all those irregularities caused by the lack of implementing structures susceptible to curb on the vague of identity theft and the stealing resulting from certain tax preparers concocting false return schemes with their clients. I am more than happy with the fact that the IRS is finally taking some steps to reduce the stealing from the government and allow those of us who respect the law and the authorities to serve the taxpayers within the frame of the law and earn some money from our respectful and prestigious profession. It is understandable that certain guys who are still filing tax returns with last pay check stubs, making up false W2 for unemployed clients, and selling a bank of stolen or negotiated kids social security numbers are arguing that the IRS should not take time to scrutinize those incomplete returns, but the fact of the matter is the IRS will help the government reduce its deficit by stepping up on these measures. Those preparers make millions of dollars after the tax season is over but the scrupulous tax service providers can not even keep on office for the whole year. I believe that we need uniformity in the industry; therefore, the law must govern everybody in the industry by letting Circular 230 prevail over every taxpreparer. The law is one for ALL.
Posted by: fritzjseide@gmail.com | February 26, 2013 8:55 AM
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At our tax office we have had alot of people come in and we do there taxes and they get EIC and when we ask them for all the paperwork they leave to go get the paperwork but they go home and file their taxes online with tax in a box and they call back we do not want to file with you because you can only get us $3000 back and we can get $8000 back by doing ourselves. The IRS should not stop checking these returns. There is so much fraud going on when people that do not know the tax laws can file their own taxes by using tax in a box and we have to follow all the rules (which we always do) but if we make a mistake we get a $500 fine and they get $5000 reward. How does this make sense? I already this year have several parents claiming the same kid and both say they can claim them. People are hurting for money more than ever and tax cheating seems to be were they have all found where they can get more $$$$ 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 % of the tax cheats. IRS needs to review at least 35% of all EIC are cheating and that is alot of money. Frustrated Taxpreparer
Posted by: Karin K | February 26, 2013 8:53 AM
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I feel that IRS is setting the tax preparer up for failure. We are losing so many of our clients for all of this additional information that IRS is requiring us to get. Just what they didn't expect, people are trying to do their own taxes to avoid the additional questioning and paper work. And in some cases making them give false documents to the preparer. I am a notary as well and people are coming to me to have a document notarized stating the information is correct. IRS has not plan this process out well enough and it is at the expense of the tax preparer. The nerve of them to want to fine us $500.00 for a mess they created.
Posted by: Lheaglin | February 26, 2013 8:22 AM
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