The Internal Revenue Service has expanded its compliance program for the Earned Income Tax Credit to cover a broader base of both new and experienced tax preparers in an effort to prevent errors and misrepresentations.
The EITC Paid Preparer Compliance Program now has new tiers of outreach, education and compliance, the IRS explained on a new Web page last week. The expanded program will look at returns with a high likelihood of EITC error that have been completed by the same preparer. It will also search for the cause of the errors, whether it’s lack of knowledge of the tax laws, misapplication of the law, or intentional disregard of the tax laws.
“Some errors are caused by misinterpreting the law; some are because the preparer accepted client-provided information at face value and others are out and out fraud,” said the IRS. “You, as part of the tax preparation community, are crucial in stemming these errors because paid preparers produce two thirds of EITC claims.”
The IRS estimates that 24 to 29 percent of all EITC claims have some type of error, costing the federal government $13 billion to $16 billion each year.
The IRS noted that approximately 60 percent of EITC errors fall into three key categories: claiming a child who does not meet the age, relationship, joint return, or residency tests; filing as single or head of household when legally married; and over-or under-reporting income or business expenses to maximize the credit.
To help preparers better understand the EITC, the IRS is offering an online training course in due diligence that may qualify for continuing education credits, along with a Schedule C and Record Reconstruction Training module and Due Diligence Videos to help preparers avoid common EITC error situations. The IRS also has a Frequently Asked Questions page on its site.
Last week, the IRS also proposed requiring tax preparers to file a due diligence checklist with any federal return claiming the EITC (see IRS Proposes Requiring Preparers to File EITC Checklist with Returns).
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