Recent Tax Updates

IRS Earned Income Tax Credit Compliance Efforts for Upcoming Filing Season

October 16, 2013

In a continuing effort to improve Earned Income Tax Credit (EITC) preparer due diligence, the IRS will be performing the following educational and due diligence audit activities this fall and during the 2014 Filing Season.

The IRS continues to use a risk based scoring model to classify preparers of EITC returns. Based on this score, a preparer may be subject to one of the following:

  • Warning Compliance Letter
    The IRS will send approximately 11,000 letters regarding specific errors that they observed on 2012 returns to medium risk preparers prior to the filing season that will include the following:
    • Inform the preparer that they may have submitted inaccurate returns
    • State the primary EITC issues the IRS observed
    • Explain the consequences to the taxpayer and preparer for filing inaccurate EITC returns
    • List what their due diligence requirements are
  • These letters are designed to help the preparers file more accurate EITC returns in the future. The IRS will be monitoring these preparers as the 2014 Filing Season begins and may do a follow-up with these preparers if they do not see improvement. This action may be a phone call, additional warning letter, or due diligence audit.

    See Reaching Out To Preparers on the IRS EITC Central website for more information and to see examples of the letters.

  • Educational Visit

    This fall, an IRS agent and criminal investigator will conduct educational visits to preparers whom the IRS believes have filed EITC claims with a high chance of error. The goal of these visits is to help preparers understand what the errors were and how to avoid them. They will also discuss the consequences of filing inaccurate returns and what their due diligence requirements are.

    No penalties are assessed during these visits; however, the IRS will be closely monitoring EITC returns filed by these preparers during the 2014 Filing Season. If the IRS does not see improvement the IRS will conduct a due diligence audit during the filing season.

    See Visiting Preparers Filing Highly Questionable Returns on the IRS EITC Central website for what occurs during these visits.

  • Due Diligence Audits

    The IRS will again be conducting around 1,000 due diligence audits with 700 standard audits performed during the fall of 2013 based on 2012 EITC returns, and 300 real-time audits will be performed during the filing season based on 2013 EITC returns.

    The IRS conducts a due diligence audit on preparers whom they consider to be filing a large number of highly questionable EITC claims.

    See Auditing for Due Diligence Compliance on the IRS EITC Central website for more information on what occurs during a EITC due diligence audit.

    Since a Real-Time Due Diligence audit has some differences from the standard due diligence audit, see the Real Time EITC Preparer Pilot page on EITC Central website for what these differences are.

To learn more about the IRS EITC compliance program see the following on the IRS EITC website: