From the Archives: New Preparer Requirements on Earned Income Credit = Higher Fees for Clients

checklist-310092It’s a holiday week so I’m re-publishing popular posts from the past.

This post is editorial commentary from December 21, 2012, about new IRS requirements on preparers regarding tax returns claiming the earned income credit.

With editorials, it’s interesting to look at predictions as time passes.

What I’ve found in my practice is, the EIC documentation requirements have indeed resulted in higher fees for returns claiming the EIC, but I didn’t raise fees as much as I had thought I would.

I also have found that the paperwork burden is not nearly as bad as I had thought it would be. I don’t deal with a lot of EIC claims, but for those that I have dealt with, getting the needed paperwork and filling out the Form 8867 isn’t that onerous.

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Originally published December 21, 2012

The IRS has placed new requirements on tax preparers who prepare tax returns that claim the Earned Income Credit. As Robert Flach (aka, “The Wandering Tax Pro”) says, the IRS is basically making tax preparers become social workers.

For example, if someone who claims the EIC has a qualifying child, we — the preparer — must ask for, and keep copies of, documentation that proves that the child lived with the taxpayer. Examples of documentation we must ask for and keep copies of include: school records, medical records, child care provider records, etc. (You can see the entire list of insanity by viewing the full Form 8867, “Paid Preparers Earned Income Credit Checklist.”)

Preparers have always been required to review data, ask questions, and verify anything that seems suspicious. But we’ve never before been asked by the IRS to play the role of auditor by forcing clients to submit documents such as school records to us to review.

Thankfully I don’t prepare too many EIC returns. But the few that I do prepare will be billed at a much higher rate than in the past.

My fee for returns claiming the EIC will increase more than $30 over what I have charged for EIC in the past. There’s simply too much work involved, and too much risk on my end of me being hammered by the IRS if I don’t check the right boxes on the Form 8867.