Due diligence requirements for 2018

Technical topics regarding tax preparation.
#1
lucyko  
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I just received Drake software first download for 2018 tax season .

As we had known earlier, Head of Household has been added to the list of "due diligence" . Also the $500 "Other Dependent Tax Credit" has been added to Due Diligence .We know have more questions than ever to document .
 

#2
Frankly  
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?
Due diligence applies to every line on every form, always.
 

#3
lucyko  
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I agree but I'm referring to the additional steps and documentation required for the designated due diligence items ( Earned income credit ,child tax credit, Opportunity credit ,etc .etc. )
 

#4
makbo  
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lucyko wrote:I just received Drake software first download for 2018 tax season .

Huh, that's pretty late compared to other vendors.
 

#5
lucyko  
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Iv'e used Drake Software for 13 years and their first release is always the first week in December so they are right on schedule.
 

#6
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Are they moving to a 2-step authentication too? I heard Prosystem is doing that? Just wondering if any other vendors are following suit.
 

#7
lucyko  
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Yes Drake is providing the 2- step authentication this year but there is a workaround if you don't want to apply it ,

Iv'e been playing around with the tax software for the last 2 days and, as would be expected, there are some software glitches that need resolution ( i.e Other Dependent credit , K-1's with income from PTP ,new mortgage interest rules)
 

#8
EADave  
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This year I will be a bit sneaky with my due diligence. I plan to stomp on my client’s feet, as a subtle distraction, whilst simultaneously pricking their fingers with one of those diabetes pens to collect their DNA. Now, I’ll make sure to inform the client prior to their meeting to bring in at least one or all their dependents with them to the meeting.

I’ll offer the dependent/relative aoemthing to drink and as they are leaving, I’ll collect their DNA sample by placing the cup they drank from into a sterilized plastic baggie cleverly marked, “DNA sample”. I’ll have Danny Reagan meet me outside the building as the clients are exiting the parking lot so he can transport the sample to the crime lab, to protect and maintain the chain of custody.

Of course I will await the lab results to ensure the DNA samples have within 50% of the genome, indicating a match of parent and child. If the samples don’t match, I’ll turn in the case to either CI or the local authorities; whoever answers the call first. Upon verifying the validity of the DNA match, I will carefully hit the Efile button only after I have run a complete background check on the client to certify the information they provided me on their family, occupation, last seven residences, and Facebook status is a match.

This is only after I’ve interviewed their friends, neighbors, co-workers, probabtion officers, life guards, PTA presidents, etc. But, I won’t charge any extra, it is worth it to me to know I’ve done what it takes to ensure the validity of the return.
 

#9
lucyko  
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I think your proposal has a chance of working as long as they don't see the blood dripping down to the floor and proceed to pass out .
 

#10
EADave  
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Then there’s that! I too am a bit of a hemaphobe, so this is a good point.

Perhaps I can simply ask for a cheek swab. But, I would still need a distraction of some kind.....
 

#11
novacpa  
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I think the point Lucyko is making is - due diligence requirements are far more time consuming and risky. Preparer Penalties of $520 per incident. Where you "check the box" Head-of-Household, and late its proven to be false - bingo, $520 per/incident.
Either decline the work or charge a great deal more, more risk more fee.
 

#12
ATSMAN  
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▶ You will have complied with all due diligence requirements for claiming the applicable credit(s) and/or HOH filing
status on the return of the taxpayer identified above if you:

A. Interview the taxpayer, ask adequate questions, document the taxpayer’s responses on the return or in your notes, review adequate information to determine if the taxpayer is eligible to claim the credit(s) and/or HOH filing status and to determine the amount of the credit(s) claimed;
B. Complete this Form 8867 truthfully and accurately and complete the actions described in this checklist for any applicable
credit(s) claimed and HOH filing status, if claimed;
C. Submit Form 8867 in the manner required; and
D. Keep all five of the following records for 3 years from the latest of the dates specified in the Form 8867 instructions under
Document Retention.
1. A copy of Form 8867;
2. The applicable worksheet(s) or your own worksheet(s) for any credit(s) claimed;
3. Copies of any documents provided by the taxpayer on which you relied to determine eligibility for the credit(s) and/or HOH
filing status;
4. A record of how, when, and from whom the information used to prepare this form and the applicable worksheet(s) was
obtained; and
5. A record of any additional questions you may have asked to determine eligibility to claim the credit(s), and/or HOH filing
status and the amount(s) of any credit(s) claimed and the taxpayer’s answers.

Previously many tax return preparers were not asking and documenting the questions that needs to be asked. Hopefully now with the additional penalties we will ask the question, and write down the response. Most software have a worksheet to document the notes. I am going to print a copy and have the taxpayers sign that and keep that as part of my documentation. I will scan it along with other input documents into my document manager.
 

#13
irc162  
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EADave wrote:This year I will be a bit sneaky with my due diligence. I plan to stomp on my client’s feet, as a subtle distraction, whilst simultaneously pricking their fingers with one of those diabetes pens to collect their DNA. Now, I’ll make sure to inform the client prior to their meeting to bring in at least one or all their dependents with them to the meeting.

I’ll offer the dependent/relative aoemthing to drink and as they are leaving, I’ll collect their DNA sample by placing the cup they drank from into a sterilized plastic baggie cleverly marked, “DNA sample”. I’ll have Danny Reagan meet me outside the building as the clients are exiting the parking lot so he can transport the sample to the crime lab, to protect and maintain the chain of custody.

Of course I will await the lab results to ensure the DNA samples have within 50% of the genome, indicating a match of parent and child. If the samples don’t match, I’ll turn in the case to either CI or the local authorities; whoever answers the call first. Upon verifying the validity of the DNA match, I will carefully hit the Efile button only after I have run a complete background check on the client to certify the information they provided me on their family, occupation, last seven residences, and Facebook status is a match.

This is only after I’ve interviewed their friends, neighbors, co-workers, probabtion officers, life guards, PTA presidents, etc. But, I won’t charge any extra, it is worth it to me to know I’ve done what it takes to ensure the validity of the return.



Yup....that about sums it up. I predict there will be new additions to Form 8867 every year. Eventually, it will probably cover every credit, deduction or filing status that could possibly be claimed by the taxpayer.
 

#14
novacpa  
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Have you ever paid or been assessed a Preparer Penalty?
Know of anyone who has?
Ever heard of anyone who has?
 

#15
Skatter  
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novacpa wrote:Have you ever paid or been assessed a Preparer Penalty?
Know of anyone who has?
Ever heard of anyone who has?


No, no, and no.

But weren't the prior posts discussing due diligence and the related penalties? Aren't preparer penalties and due diligence penalties two different types? The former imposed by TCOs or RAs after an audit and the latter by random(?) IRS visits to tax preparer offices to review supporting documentation? (My questions aren't rhetorical; I don't really know the facts but would like to hear what others have found out.)
 

#16
EADave  
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Just a fun fact, “TCOs” are now called “Tax Specialists”, at least they are in the 5th district; the greatest in all the lands. I had a SB/SE audit recently and was corrected when I called the auditor a TCO in my audit notes. Not that she took offense, she merely corrected my terminology.

Also, I’ve never heard of any preparers that have suffered a prepared penalty. I attend a seminar in Plano (like the tackle box!) every year and there are two attorneys (tax attorneys) that rep preparers facing potential penalties or sanctions from the dreaded OPR. The attorneys speak about the preparer penalties as if they are a common occurrence; maybe in their world I suppose. Scares the tar out of me though. I do my best not to get crafty on returns involving children and darned if I have to review the stupid dependency and filing status rules almost every time when dealing with the HOH and EIC returns. I suppose that isn’t a bad thing, though. I just need to get better at documenting the substantiation. Such a shame we’ve become the dependent police. I only wish they had better controls in the Welfare Office (and the crowd said, “Oh Snap!”).
 

#17
Frankly  
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novacpa wrote:Preparer Penalties of $520 per incident. Where you "check the box" Head-of-Household, and late its proven to be false - bingo, $520 per/incident.
The penalty is for wantonly disregarding the rules and helping a client obtain a credit or tax treatment to which he's not entitled. Regular diligent tax pros have nothing to worry about.
 

#18
ATSMAN  
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Because of the additional scrutiny to HOH filing status, my suggestion is to make sure you document the following:

1) Details of the qualifying child, where and how long the child lived.

2) Details of the qualifying relative, where and how long they lived, Dependency exemption and the relationship.

The most common problem that I see is the child/relative living somewhere else for more than 6 months. For school age children it is relatively easy to document that.

I am sure IRS will be doing targeted and random audits for the 2019 season!
 

#19
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So can we expect IRS is going to redirect their resources to preparers so they can assess preparer penalties? From everything you read in the laymen's press, IRS is so underfunded and understaffed, they are unable to do audits at the level they would like. Due diligence is something we must do and have always had to do, but this focus on it feels more like a scare tactic, like seminars that are held before or during tax season that are designed to tell us about all the tax preparers that are in jail for being naughty. I was involved with a serious CPA infraction many years ago, the CPA did serve two years of jail time, but he was doing some really flagrant stuff with falsified records, bank fraud, bogus tax returns and he knew that he was doing that. If you are doing your job and honestly completing tax returns, you shouldn't be living your life in fear.
 

#20
JR1  
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The trouble is that we're a better resource than individual taxpayers. Hit one of us and you get anywhere from 100-1000 tax returns up for grabs...so by aggravating us and hoping to get lucky...they not only can whack us, but then hit our clients who fit the profile.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

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