IRS assesses more than 90 percent of all EITC due diligence penalties for failure to comply with the "knowledge" requirement of IRC § 6695. These examples show how asking the right questions help you get all the facts. And, remember to document any additional questions you ask your client and the answers your client gives at the time of the interview.
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Separated Spouse Example: your client and her husband are separated. She has a 7-year-old child living with her and wants to claim EITC. What filing status should your client use? The outcomes change depending on the questions you ask and the answers she gives.
Eighteen Year Old Daughter Lives with Her Parents: your 18-year-old client tells you she lives with her parents, has a two-year-old daughter and wants to claim EITC. Is she eligible? View the three different outcomes based on the questions you ask and the answers she gives.
Twenty-Two Year Old with Two Sons: your 22-year-old client tells you he has two sons and wants to claim EITC. Can the sons pass the relationship tests? It depends! See our example showing different outcomes depending on the questions asked and the answers given.
Self-Employed House Cleaner: Your client tells you she earned $12,000 cleaning houses, had no expenses, wants to claim head of household and EITC. Would you accept that or would you ask more questions? Explore this scenario to answer that question.
Additional Qualifying Child: last year your client claimed single and had one qualifying child for EITC. She returns this year and has an additional child. What questions do you ask?
Social Security Card Scenario: is a scenario with examples of identification cards that can be used to claim EITC.
The scenarios show questions you might ask to get all the facts and have different outcomes based on the questions asked and the answers received:
Scenario 1: is an example of a relative other than a parent claiming a child and deals with the adjusted gross income of the parents.
Scenario 2: gives an example of a relative other than a parent claiming another relative. It deals with age, disability and a qualifying child of more than one relative.
For more examples and scenarios, view the Due Diligence videos presented at the 2010 IRS Nationwide Tax Forums.
Last updated: 7/11/11