Earned Income Credit

I may have to calculate earned income credit once a year at the most. I have run into a situation in the past where a taxpayer in his late twenties seems to qualify for EIC. He has a job as a white water rafting guide and makes very little (maybe less than $15,000). He is the beneficiary of a trust which pays most all of his living expenses. The point of earned income credit as I understand it is to benefit low income people who work. The due diligence questionnaire doesn't specifically address people with trust funds. I am curious whether other professionals have run into similar situations and how it was handled.

I have another instance now (which made me post) where a taxpayer who had a low earned income year in 2017, married a woman who lives very well off of gifts from her wealthy family. I have to amend their 2017 return and the EIC is calculating. It is a similar issue to my first example. These people live well by every measure. I don't want to include the EIC even though it seems they qualify.

EIC is based on income not wealth. I have had prepared several returns that I felt did not "deserve" the EIC because of the client's assets, but the rules are as they are and I feel we are supposed to do all we legally can for our clients.

The point of earned income credit as I understand it is to benefit low income people who work. The due diligence questionnaire doesn't specifically address people with trust funds.

Have you performed your required due diligence, including the knowledge requirement? You are aware that there is an investment income threshold above which EIC is not available? You haven't made clear what the nature of the trust fund income is in your first example.

In general, the investment income limitation addresses your concern about "undeserving" people getting EIC. Also, without children, both the AGI limit and the credit itself are quite low, in your first example of the trust fund beneficiary, it seems the EIC would be mostly phased out. Even for MFJ filers with no children, the AGI limit is quite low.

Thanks for the responses. It is the kind of discussion I was hoping for.

I am aware of the investment income limit. In the cases of both examples, the investment income was less than $3,450. The trust must be a complex trust in example 1 (no K-1 or grantor letter). Also, the AGI in first example was actually around $10,000. I guess that is the point of my post, the facts of each situation allow EIC to be claimed. However, I know that the taxpayers have lifestyles that are heavily supplemented by nontaxable trust fund distributions and gifts. I don't see anywhere that they are not allowed to claim the credit or that I am required to "disallow" it on the return. It just doesn't feel right to me though.

Remember, the AGI limit is where the credit phases to zero. The maximum credit is obtained only at an even much lower AGI/earned income level.

I have had clients for whom the EIC was relatively small, and the burden of due diligence (and my accompanying fee) would have been large, and client has willingly agreed to forego claiming the credit. You can always suggest that IRS heavily audits EIC (which is true) and maybe they'll be glad to just skip it.