Software Developers Strategy
Most tax returns claiming EITC are prepared using software:
- Paid preparers use software for almost 100* percent of the EITC returns they file
- 95 percent are completed using software and the returns are filed electronically
- 5 percent are completed using software but filed on paper
- For self-prepared EITC returns 97 percent use software
- 86 percent use software and are filed electronically
- 11 percent are completed using software but filed on paper
*less than .4 percent of paid preparer returns do not use software
Recognizing that most taxpayers use a return preparer or tax preparation software, the IRS's EITC and Refundable Credits Office and representatives from software companies formed a partnership. The group identifies best practices and software enhancements that:
- Improve the quality of EITC returns
- Improve compliance with EITC due diligence requirements
- Reduce the amount of EITC claimed in error
The group originally focused on software enhancements and developed eight best practice recommendations to help preparer's meet their due diligence requirements. Feedback from the tax preparation software industry and from preparers about the enhancements is positive.
The group expanded its focus to educational materials and to other refundable credits including the First Time Home Buyer Credit, Adoption Credit and American Opportunity Tax Credit. Read the recommendation summaries or the full reports for each year for more information.
- The majority of software companies voluntarily* adopted the first seven of the group's 2008 recommendations. Many already implemented the last recommendation or a version of it. And, using feedback from the software companies' clients, the group tweaked the original recommendations in later years.
- Recommended a Schedule C and Record Reconstruction Training eligible for continuing education credit. The Software Developers Working Group developed the training but we are unable to make it eligible for CE credit at this time due to budgetary issues.
- Improved the Form 8867, Paid Preparer's EIC Checklist, and suggested IRS require submission of the form with all returns claiming EITC. IRS implemented both suggestions.
- Recommend IRS develop an online look-up tool for the FTHBC and eliminate the yearly notices. The FTHBC tool is now available on irs.gov.
- Helped develop additional due diligence training scenarios to supplement the due diligence training videos and the handling common due diligence scenarios.
*The group's recommendations are advisory only and implementing is voluntary
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:
- Considering Impact of new regulations and the increased penalty amount
- Due to the decline in the volume of returns prepared by paid return preparers, directing greater attention to the accuracy of self-prepared returns.
- Recommending form revisions to Form 8863, Schedule EIC and Form 1098-T to capture compliance information and make the compliance requirements explicit for both taxpayers and paid preparers.
- Addressing issues of noncompliance and identifying opportunities to provide education and guidance to preparers for other refundable and non-refundable credits including the Healthcare Credit.
- Recommending the ability to attach required documentation to electronically-filed returns claiming refundable credits to reduce the need for paper returns.
- Addressing issues of noncompliance and opportunities to provide education and guidance to properly determine earned income for EITC purposes
- Addressing ACTC issues including the challenges surrounding ACTC claims and ITINs.
Last updated: 4/11/2013