2010 SDWG Recommendation Summary
In 2010, the group tweaked the software enhancement best practices based on user and client feedback. Refinements included more customization to lengthen or shorten the online interviews based on preference settings and improving the questions to avoid yes/no answers.
Income Reporting and Schedule C
The group identified the following common income reporting issues:
- Questionable Schedule C income to qualify for EITC including taxpayers with no Form 1099
- Questionable Schedule C losses that reduce other income and qualify taxpayers for EITC
- Schedule C income reported by client, but no records for income or expenses
- Income from Schedule C business, but no expenses when it is reasonable to expect the taxpayer to incur expenses to conduct the type of business activity
Training is now available on the EITC toolkit. Since the preparer community has shown active interest in the module, the Group suggested making the training module qualify for Continuing Professional Education (CPE) module.
The Software Developers Working Group would like to hear from you. Send any suggestions for improving tax preparation software or the administration of EITC and other refundable credits to:
Due Diligence Audit Procedures
Based on client feedback, the group wanted a better understanding of the procedures and preparer rights involved with an EITC Due Diligence Audit. And, the software companies wanted materials to provide their clients if they were selected for a Due Diligence Audit.
The group developed a paper that covered the following topics related to the Due Diligence Audits:
- Overview and Purpose of the EITC Due Diligence Program
- What should I expect if I am selected for an EITC due diligence audit?
- What will the examiner do at my office?
- What happens when the examination is complete?
- What do I do when I receive Letter 1125 package (30-day letter)?
- Appeals Process
- Why Penalties are Proposed
The Due Diligence Audit paper is available on EITC Central to help preparers understand their role and rights in the Due Diligence Audit Program.
Other Refundable Credit Recommendations
In 2010, the group expanded their scope beyond EITC to serve the tax preparer community in response to new refundable credits including the First-Time Home Buyer Credit and the Adoption Credit.
First-Time Home Buyer Credit Recommendations
The software developers proposed the following enhancements to support preparers' efforts to calculate repayment properly and recapture the credit:
- Development of an IRS.gov lookup tool for the credit claimed and repayment required by the taxpayer. The FTHBC tool is now available on irs.gov.
- Development of software triggers and help links to identify dispositions that require recapture.
Adoption Credit Recommendations
The group suggested IRS develop materials to assist taxpayers and preparers to compute the Adoption Credit properly. The recommendations include development of online help on the following topics:
- Types of adoptions
- When an adoption is considered final
- Substantiation requirements for returns claiming adoption credit
Preparer Registration Program
The IRS launched the Tax Return Preparer Initiative to strengthen the integrity of the tax system by ensuring uniform ethical standards for tax preparers through service and outreach and education and training.
The software developers discussed the following recommendations:
- IRS and software industry could format and require PTIN on all returns produced by professional software
- IRS could perform PTIN validation with a reject code
- To identify non-signing tax return preparers, IRS could perform matching on IP address, MAC address, physical address, bank account number, or phone number
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Page Last Reviewed or Updated: 09-Dec-2013