Tax Preparer Liability For EIC

What is the name of your state? FL

Whenever applicable I ask a series of pertinent questions to determine if a client qualifies for Earned Income Credit (EIC). There are times when I feel the client is "exagerating" the truth. In other words, they're flat out lying. One of the forms they sign is an EIC checklist verifying their answers, which we then keep on file.

Is that enough to remove me from any liability of a false return or do I need to request documentation to support their answers? For example, a foster child cannot be claimed for EIC, but the client will insist its their natural child even though the last name is different.
Am I then required to ask for a birth certificate?

I really do not like to be involved in false returns, but my supervisors do not like clients walking out the door because I ask too many questions. If someone wants or needs to falsify their return, that's their business, I just do not want to be part of it.

Your answer is in Rev. Proc. 80-40 /1/, :

.03 The penalty under section 6694(a) of the Code for the negligent disregard of rules and regulations by an income tax return preparer. generally will not apply where a preparer in good faith relies without verification upon information furnished by the taxpayer. Thus, the preparer is not required to audit, examine or review books and records, business operations, or documents or other evidence in order to verify independently the taxpayer's information. However, the preparer may not ignore the implications of information furnished to the preparer or which was actually known by the preparer. The preparer shall make reasonable inquiries if the information as furnished appears to be incorrect or incomplete. Additionally, some sections of the Code require the existence of specific facts and circumstances, such as maintenance of specific documents, before a deduction may properly be claimed. The preparer shall make appropriate inquiries to determine the existence of facts and circumstances required by a Code section or regulations as a condition to claiming a deduction.

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The due diligence checklist the client signs is enough to protect you from liability unless you *know* the client is lying. In fact, as a paid preparer, failing to have a signed EIC checklist subjects you to a penalty of $100 per return.

Remember, your job is to prepare the tax return to the best of your ability, taking advantage of all laws and legal loopholes to save your client as much money as you can. You are not an IRS auditor. Given how common it is for children to have surnames that differ from their custodial parent's surname, I don't think that the kid having a different surname is sufficient information to require you to dig further.

If you are concerned that you have been given false information, but are not certain that is the case, carefully explain the law to the client. Make copious notes that you explained the definition of "fosterchild" for EIC purposes and the client insists that the child meets the definition. Then warn the client that 25% of EIC returns are audited and there is a good chance they will have to prove their relationship to the child with birth certificates, medical records, school records, etc.

As a last resort, you can always write "Prepared without audit from information provided by Taxpayer" in the signature block.