Friday, November 30, 2012


Earlier this week I attended the NATP’s annual year-end tax update seminar, as I have been doing for more than 20 years.  It used to be “famous”, but now it is “essential” - and is therefore titled “The Essential 1040”.  I attended one of the several offerings located in New Jersey.

I talked about the items of interest to 1040 filers over at THE WANDERING TAX PRO.

One of the items of special interest to tax professionals was the new expanded Form 8867 “Paid Preparer’s Earned Income Credit Checklist”.

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Here we go again!

As I have said time and again, we must call a spade a shovel.  The Earned Income Credit is a federal welfare program.  Period.  In terms of dollars distributed it is, I believe, the largest federal welfare program.

At this point in the discussion I must always make the following statements of personal beliefs -

(1)  There is nothing wrong with the concept of the government providing “welfare” to qualified, “deserving” citizens.  And there is nothing wrong with the government providing encouragements or “rewards” to the working poor with dependent children.

(2)  The government has the fiduciary responsibility to make sure that those who are receiving public assistance, benefits, or “encouragements” are truly “deserving” and meet the requirements established for receiving such benefits.  

Using the Tax Code to distribute welfare, or other government assistance, benefits, or “encouragements, is not good tax policy and not good fiscal policy.

And forcing tax preparers to be Social Workers and do the government’s job of verifying that an individual qualifies for welfare benefits is a bad idea.  It is a job we tax professionals should not accept.

The following are excerpts from my series on MY OBLIGATIONS posted here at TTP in November of 2011, which discussed what I consider to be my obligations to my clients, my practice, and the Internal Revenue Service as a professional tax preparer.  I have highlighted certain statements -

When a client “engages” me to prepare his/her individual income tax returns he/she is basically asking me to assist him/her in preparing a government report.

When preparing tax returns I assume that, unless I have direct personal knowledge to the contrary, the client is telling me the truth.

If a client tells me or indicates on a worksheet that the gross income from a part-time sideline business was $3,525, or that the total medical expenses for the year were $6,257, or that he/she drove 4,206 miles for business I will believe this to be true (again, unless I have direct personal knowledge to the contrary). It is not my responsibility to personally verify all the numbers or statements given to me by a client. I have no obligation, legal or ethical, to audit your return. This is up to the IRS, if they so choose. I am simply preparing the return, to the best of my ability, “based on information supplied by the client”.

It is my obligation, and responsibility, to tell clients about the IRS standards and requirements for documenting income, deductions and credits. But that is where it ends.

Due diligence requires me to ask questions of the client if there is something about which I am unsure, or which appears to be “questionable”, and to make sure that I have all the facts necessary in order to determine whether a deduction, exclusion, or credit is allowable or appropriate.  It also requires me to, as quoted above, tell clients about the IRS standards and requirements for documenting income, deductions and credits.  It DOES NOT require me to personally verify each and every item of income, deduction, or credit claimed on the return.   

The benefit provided by the Earned Income Credit should NOT be distributed via the Tax Code.  It should be distributed the same way as other forms of welfare, with the same safeguards and regulations that are administered by the federal or state employees who administer these other forms of welfare.

Considering the ridiculous new “hoop jumps” required by the IRS, if I were still accepting new 1040 clients I would must definitely refuse any returns that included an Earned Income Tax claim.  As it is, I will not prepare the 2012 Form 1040 (or 1040A) for an existing client who appears to qualify for, and wants to claim, the EIC.  There is too much work, and agita, involved, and too much potential for substantial penalties.

While the NATP and other membership organizations do a good job of speaking on behalf of tax preparers before the federal government and its agencies and representatives, what tax pros of all designations need is an organization whose sole purpose is to actively and aggressively campaign against such abusive and inappropriate rules and regulations like the excessive EIC due diligence requirements (and for a grandfathering exemption from the RTRP test for experienced tax pros).

If the Earned Income Credit must continue to exist in the Tax Code, the very most that tax preparers should be required to do is have taxpayers claiming the credit personally fill out Part I and Part II or Part III of the Form 8867 and sign it under penalty of perjury.  The signed form would be attached to the 1040 (or 1040A).

The seminar also wasted 2 hours that could have been devoted to more important and beneficial federal tax information on the topic of ethics.  Unfortunately this must be done at this seminar to cover the IRS demand that EAs and RTRPs (and potential RTRPs) sit through 2 hours of ethics each year as part of the annual 15 hour CPE requirement.

Regardless of how well the topic was presented by the instructor, the ethics component was truly redundant.  I have sat through the same presentation time and time again.  And I am no more, or less, ethical than I was five years ago.

One item that is covered in this presentation is totally ridiculous and makes absolutely no sense to me.

I am at a local store or restaurant and I run into longtime client Joe.  While we are smoozing Jim, another client of mine, enters and sees us.  Jim knows Joe, but was not aware that I also know Joe.  Jim shows surprise and asks how we two know each other.  From what the instructor said, I am not allowed to say, “Joe has been a client for years”. 

As long as I do not reveal personal and confidential financial or tax information about Joe to Jim, and vice versa, which I would not do, who gives a flying sex act if I happen to tell Joe that Jim is also a client?  Regardless of what the instructor said, in such a situation, unless Joe specifically asks me not to tell Jim, I am certainly going to say, “Joe has been a client for years”.  The IRS be damned!

I would like someone to give me a good reason why I should hide the fact that Joe is a client from Jim.
Your comments on both, or either, issue are solicited.

As usual the NATP seminar was a good, and except for the ethics component, productive one.  I do believe that NATP is the best provider of federal tax CPE.    



  1. Hello;
    As an Enrolled Agent and former IRS employee (27 years) I agree with you that the IRC should be left only for taxes and not to administer welfare programs like the EITC and Health Care. My last job at the IRS was with the Taxpayer Advocate and I had a lot of taxpayers with dubious EITC claims, which could not provide the required documentation substantiating their claim( School records, rental lease,etc ) .

  2. Hello,

    I just came across this very informative Blog and will promise to visit more often.

    My comment is on the issue of we EAs are NOT allowed to say "so and so is a client of mine" when running into people we know.

    At first when I heard this from one of the instructors at NATP I thought forget that, if asked how I know so and so I will just say so and so has been a client for years. However, I started really thinking about it and I can see a reason. We are professionals and like lawyers or doctors, they also would not just come out and say "oh I know so and so for they are a client". It could lead to trouble. What if it is a divorce lawyer...or a GYN doctor...or a cancer specialist? Just a few examples.

    In our case, an EA...well, maybe they do not want a family member to know who the tax professional is for some reason. Or maybe they have an ex that is trying to snoop around for personal information (not that we would ever indulge it).

    Bottom line, I figure since we EAs ARE professionals, like doctors and lawyers, then in the event I am asked "how do I know so and so" my answer will be simple - "I have known so and so for years and consider him/her a great acquaintance/friend". If I am questioned further as to HOW I know the person I will just counter the question WITH a question " WHY do you ask?" Hopefully THAT will shut the person up.

    Diane Offutt, Enrolled Agent, MAcc
    Accounting Connections, LLC
    Woodstock, Georgia

  3. thanks for sharing.