We improved our refundable credit paid preparer compliance program and expanded it to include more preparers and more credits. It now includes the earned income tax credit (EITC), the Child Tax Credit (CTC), the refundable part of the CTC, the additional child tax credit (ACTC), and the American opportunity tax credit (AOTC).
|We look at the characteristics of returns claiming the EITC, the CTC and the AOTC completed by the same preparer and focus on questionable claims. We focus on a combination of characteristics that we know indicates the returns have a high likelihood of error and assign a risk level.|
We assign an appropriate compliance treatment in line with the preparer’s risk level. We consider what may be the cause of the errors:
The Refundable Credit Paid Preparer Compliance program takes a tiered approach depending on what category best fits the preparer. Our tiered approach includes educational letters and visits, audits, penalties and may result in barring preparers from filing tax returns in extreme cases.
We estimate the error rate to be around 27 percent of all EITC claims have some type of mistake which cost the government roughly $18 billion in 2014. We are completing a study for the ACTC and AOTC error rates and will have that information soon.
Some errors are caused by misinterpreting the law; some because the preparer accepted client-provided information at face value and others are outright fraud. You, as part of the tax preparation community, are crucial in stemming these errors because paid preparers create the majority of refundable credit claims.
We know most paid preparers practice due diligence and prepare accurate refundable credit claims. But, we developed this preparer compliance program to ensure you compete on a level playing field.
About 60 percent of EITC errors fall into three key categories:
The most common CTC/ACTC errors are:
The most Common AOTC Errors are:
Preparers filing returns with questionable EITC claims may receive any of the tiered treatments listed below:
The IRS assesses a $500* (indexed for inflation) penalty per return to preparers who do not submit the Form 8867, Paid Preparers Due Diligence Checklist, with all EITC, CTC/ACTC and AOTC claims. The penalty for all returns filed beginning in 2016 and in 2017 is $510. The form must be submitted electronically or attached to each EITC claim you mail in or give directly to your clients for filing. Find out more about the Form 8867 and the consequences of not completing or submitting it.
Find out more about the Consequences of Failing to Meet Your Refundable Credit Due Diligence Requirements
We reach out to preparers and provide education and other resources to help you avoid refundable credit errors and help you practice due diligence. This Tax Preparer Toolkit has a wealth of resources: