Congress Requires Self-Preparers and Consumer Tax Software to Check for Improper Tax Credits

The $1.1 trillion spending bill passed by Congress this week and signed into law by President Obama on Tuesday contains a provision directing the Treasury Department to implement uniform standards for taxpayers claiming refundable credits such as the Earned Income Tax Credit to stem improper payments.

The language contained in a report accompanying the recently passed federal appropriations bill directs “… the Department of the Treasury to ensure that the same questions are being asked of taxpayers whether they are preparing their returns with a paid tax preparer or via do-it-yourself methods such as paper forms, preparation software, or online preparation tools…”

A recent report released last week by the Treasury Inspector General for Tax Administration found that, despite the efforts of the Internal Revenue Service, billions of dollars in improper payments continue to be made on claims for refundable tax credits such as the EITC and the Additional Child Tax Credit (see IRS Urged to Crack Down on Improper EITC and ACTC Payments). Professional tax preparers are required to conduct a due diligence check with their clients who are claiming the EITC and file a Paid Preparer’s Earned Income Credit Checklist on Form 8867, but there is currently no requirement in place for self-prepared returns. Some tax preparers have complained that unscrupulous competitors use consumer tax prep software to claim the refundable credits for their clients and avoid filling out the checklist by refusing to sign the return as a paid preparer.

H&R Block president and CEO Bill Cobb applauded the inclusion of the provision. "It makes no sense to have different documentation requirements and fail to screen for fraud at every opportunity,” Cobb said in a statement. “This legislation is a huge step forward and will do much to help achieve the legitimate goals of covered tax credits while at the same time reducing improper payments that result from fraud or complexity by those claiming the Earned Income Tax Credit or other refundable credits. We have been strongly urging this action for almost two years now because it's the right thing to do and will bring additional credibility and common sense to the filing process."

Cobb commended the bipartisan effort to reduce improper payments, which he has repeatedly urged, most recently in November in a letter to IRS commissioner John Koskinen and Treasury assistant secretary Mark Mazur.

He pointed to the TIGTA report, which estimated EITC improper payment rates ranged from $16 to $19 billion for the fiscal year ended Sept. 30.

“Though this legislation is clearly a very positive development, there's more work to be done," said Cobb. "Congress has spoken and provided clear direction to the Department of the Treasury. We strongly encourage the IRS to implement the recommendations of the EITC Software Developers Working Group immediately. We look forward to working with Treasury, the IRS and the industry members of the Working Group to fully and promptly implement the law.”

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