Discussion:EIC due diligence visit

Several flags which may trigger an audit include:

Dependent's last name being different from primary taxpayer.

Dependent code other than "son" or "daughter". "grandchild" for example.

EIC refunds average in your office being greater than other preparers in area.

Schedule C on return that was not on return last year (possibly an attempt to create a credit).

Other returns filed elsewhere after you had already filed the client's return (attempting to claim the same child).

Dependents appearing on that particular return for the first time.

I'm curious how many of your 12 flagged returns meet any of the criteria above.

Also, in complying with the IRS knowledge requirements for EIC, you must not know or have reason to know that any information used to determine the taxpayer's eligibility for, and the amount of, the EIC is incorrect.

Per IRS, you may not ignore the implications of information furnished to or known by me, and you must make reasonable inquiries if the information furnished appears to be incorrect,inconsistent, or incomplete.

I myself have sent a customer or two down the street if things didn't smell right.

   The IRS routinely conducts examinations of returns with EIC, little or no wages, and Schedules C that show few expenses. The IRS not only verifies that all income was claimed, but that all legitimate expenses were deducted.

It is possible that the IRS will throw the burden of proof onto the Taxpayer to show that they have qualifying dependents for the EIC.

The general feeling that I got from the discussion was that unless you've aided and abetted in outright fraud, you have nothing to worry about.