Hot Topics for Return Preparers

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  • Revised Rules Allow More Taxpayers to Claim the EITC without a Qualifying Child
  • Alert to EITC Return Preparers - Missing Form 8867 - Letter 5364
  • Temporary Due Diligence Rules and Regulations and Proposed Rules Post on Federal Register
  • PATH Act Legislation and Expanded Due Diligence Requirements
  • Paid Preparer Due Diligence Penalties
  • IRS EITC Compliance Strategy Brings in Injunctions
  • Educational Opportunities
  • Education Credit News
  • Tip for the 2017 Filing Season --Don't Forget to Update Your PTIN in Your Software
  • Protect Your EFIN and PTIN
  • Make a Complaint About a Tax Return Preparer
  • Don't Miss Any EITC News

Revised Rules Allow More Taxpayers to Claim the EITC without a Qualifying Child

The IRS changed its position on who may claim the earned income tax credit (EITC) without a qualifying child in situations in which an individual meets the definition of a qualifying child for more than one taxpayer. Under the new rules, a taxpayer who may not claim an individual as a qualifying child after applying the tie-breaker rules may now claim the EITC without a qualifying child, if all other requirements are met.

The new rule is explained in proposed regulations issued on January 19, 2017. This change affects all open tax years.  Thus, for example,  you may apply this rule on a 2016 return or an amended return for an earlier year that is open under the statute of limitations.  Note that most individuals only have until April 15, 2017 to amend a 2013 tax return to claim a refund.

This new rule may apply in households in which an individual meets the definition of a qualifying child for more than one taxpayer.  For example, this new rule may apply in households in which grandparents, children, and grandchildren live together  or in households with unmarried parents who both work.  For more information and examples, see Applying Tiebreaker Rules to the Earned Income Tax Credit.

We will have further updates on these proposed regulations soon. We are working with software providers, tax return preparers, and other partners to get the word out and to update software and forms and instructions.

Alert to EITC Return Preparers - Missing Form 8867 - Letter 5364

IRS is beginning to send letters to tax preparers who completed two or more 2016 paper returns claiming the earned income tax credit (EITC), the American opportunity tax credit (AOTC), and/or the child tax credit/additional child tax credit (CTC/ACTC) missing the Form 8867, Paid Preparer’s Due Diligence Checklist. See "What's the Form 8867?" for copies of the letter in both English and Spanish and additional information about the form and your due diligence requirements regarding the form. Preparers who filed electronically will get an acknowledgement alert with similar information.

Temporary Rules and Regulations and Proposed Rules Post on Federal Register

Both the temporary rules and regulations for the Tax Return Preparer Due Diligence Penalty Under Section 6695(g) posted to the federal register.

PATH Act Legislation and Expanded Due Diligence Requirements 

  • Refunds. Effective in 2017, the Protecting Americans from Tax Hikes PATH Act requires the IRS to hold the refunds for tax returns claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15. This change affects some returns submitted early in the tax filing season. We will process returns as usual, but to comply with the law, will hold the refunds on EITC and ACTC-related returns until February 15. File your returns as you normally do and don’t hold them. The "Where's My Refund?" application is the best way for your clients to ensure the IRS received the return and for the status of their refund.
  • Expanded due diligence requirements. The PATH Act also extended due diligence requirements to returns claiming the child tax credit/additional child tax credit (CTC/ACTC) and the American opportunity tax credit (AOTC). Last year due diligence only applied to EITC. See “Paid Preparer Due Diligence Penalties” below for information on how IRS can assess penalties. 
  • Form 8867, Paid Preparers Earned Income Credit Checklist. In previous years, the law required paid preparers to complete and submit the Form 8867 with every EITC claim. The form now includes the CTC and the AOTC. Beginning in 2017, paid preparer will need to complete and submit the Form 8867 with every electronic or paper return claiming EITC, CTC or AOTC or any claim for refund with one or more of the credits. The IRS can assess penalties when the Form 8867 is not completed or not included with the tax return claiming one of the credits. The revised Form 8867 instructions are available.
  • PATH Act Legislation and ITINs. Individual Taxpayer Identification numbers may need renewal this year. Those who have not used their ITIN on a federal tax return at least once in the last three years will need to renew their ITIN.  Also, all ITINs issued before 2013 will begin expiring this year. ITINs with a 78 or 79 in the middle will expire this year; others will expire on a rotating basis. You can't file a tax return using an expired ITIN. Also, there are new documentation requirements when applying for or renewing an ITIN for certain dependents. Renewals began in October 2016. Find out more about the changes here.

 

Watch this page for more updates and for upcoming educational opportunities about the PATH act. 

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Paid Preparer Due Diligence Penalties

  • The $500 penalty for each failure to meet your due diligence for one or more of the credits is now adjusted for inflation. The penalty for tax year 2016 is $510. The penalty for 2017 will remain at $510.
  • Paid preparers must exercise due diligence, conduct interviews, ask adequate questions to determine whether a taxpayer meets all the eligibility requirements for these credits and keep records. Failure to take these steps can be costly. The penalty will apply to each credit incorrectly submitted on a tax return and is now indexed for inflation. The penalty for failure to meet the due diligence requirements containing EITC, CTC or AOTC filed in 2017 is $510 per credit per return. For example, if the preparer fails to meet due diligence for ALL THREE credits, the preparer’s penalty would be $1,530 per return for 2016 returns.

Educational Opportunities

Find out more about educational opportunities for finding out more about refundable credit eligibility rules, tax law and regulations updates, return preparer’s due diligence requirements and more. Many of the opportunities offer continuing education credits.

 

 

IRS EITC Compliance Strategy Brings in Injunctions

The IRS recently got another EITC due diligence injunction that prohibits preparers from preparing any further federal income tax returns. These EITC due diligence compliance strategy injunctions represent over $120 million dollars in harm to the government. Find more information on the process and the preparers involved here.

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Protect Your EFIN and PTIN

Keep yourself and your practice safe from fraud. We have found unauthorized uses of PTINs, Preparer Tax Identification Numbers, and EFINs, Electronic Filing Identification Numbers. Find out more on our page, What Can I Do to Protect my EFIN and PTIN?

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Make a Complaint Against a Tax Return Preparer

Use this site to find out how to file a complaint about a tax preparer.

Don't Miss Any News

Visit What's Hot on EITC Central for more news related to refundable credits and Visit our Hot Topics for  Partners for what's happening to increase awareness. 

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Page Last Reviewed or Updated: 26-Jun-2017