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Due diligence documentation CTC

PATAX
Level 15

On form 8867 Paid Preparers due diligence checklist, on line 5, you may want to list IRS letter 6419 as one of the documents provided by the taxpayer that you relied on to satisfy the record retention requirement for CTC/ACTC computation. Just my opinion.

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IRonMaN
Level 15

Can I still put that even if my client came in and said his dog ate the letter? 🐕


Slava Ukraini!

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21 Comments 21
IRonMaN
Level 15

Can I still put that even if my client came in and said his dog ate the letter? 🐕


Slava Ukraini!
PATAX
Level 15

@IRonMaN Heidi is usually disciplined and regimental, but if one of my clients tries to pull that lying bull$@&# with me, then Heidi is going to pull a Cujo Part 2 on their cheap @$$....😉🐕

Camp1040
Level 10

I always list "tax return" as a document since the dependents name and address are on the form. Circular reasoning but seems to be working.

PATAX
Level 15

You can also list: "Prior year income tax returns of taxpayers which I prepared with the same children and CTC/ACTC"... just my opinion

IRonMaN
Level 15

"Notes in file" always sounds nice.  My brain is a file, so the notes up there still count don't they?


Slava Ukraini!
PATAX
Level 15

The meat grinder that CPAs and tax preparers have been placed in over the last several years used to work me up, but now I just take it easy and I don't let it bother me...

FTAX
Level 5

I literally had someone call this morning and say the dog ate her's, but is it okay if she just come in with her husband's letter.

rbynaker
Level 13

Probably not a bad idea, thanks for the suggestion.

I had plans to revamp my DueDoo forms for TY2021 but then this ACTC mess started and I lost the energy to pursue it.  Part of calculating the credit amount involves determining how much advance was received.

Also, IMO the "Line 5 Worksheet" should be included in the file as part of DueDoo.  Sounds like ProSeries doesn't produce such a thing?  Or at least several folks here have complained that they can't find it.  I haven't looked in Drake yet but they're pretty good about including worksheets like that.  Edit: Drake does have this worksheet.

Rick

TaxGuyBill
Level 15

@rbynaker wrote:

Also, IMO the "Line 5 Worksheet" should be included in the file as part of DueDoo.  Sounds like ProSeries doesn't produce such a thing?  Or at least several folks here have complained that they can't find it.


It is not in Basic, but I THOUGHT there was a way to get it in Professional.  However, I can't remember how to do it and can't find it now.

 

rbynaker
Level 13

I'm still trying to wrap my brain around this.  In prior years there was a 2-page worksheet buried in the 1040 general instructions for calculating the limitation on the child tax credit (see pages 38-39 of the i1040gi--2020.pdf  as an example).  Did PS Basic produce that worksheet?  I'm pretty sure Pro did and at one point I made a determination that it was required for due diligence so I always included it in my DueDoo "bundle" along with copies of any documents I relied upon and client Q&A.

For 2021, the IRS moved everything to the "new and improved" 3-page Schedule 8812.  The worksheet is no longer in the i1040gi.pdf but is instead in the i1040s8.pdf.  The limitation (or at least one of them) is now calculated on S8812 Line 5.  There are four other worksheets in those instructions which may or may not be relevant depending on circumstances.  I think the Line 5 is always relevant, if nothing else it's $3,000 (or $3,600) x # of children which IMO is certainly part of "determining the amount" of the credit.

Does PS Basic (or Pro) still produce a version of the "old" worksheet?  Or is the math truly just buried in the software without showing any work whatsoever?  I think that's a potential DueDoo disaster.  I can picture the IRS auditor now:

Auditor: "And how did you determine this number you put on Line 5?"
Tax preparer:  Blank stare.  "I don't know.  The software does that calculation."
Auditor:  "That will be $545 please."

Ephesians3-14
Level 8

We're basically doing to IRS auditor's job. We pre-populated that field with "Form 1098-T, birth certificates, etc...AS APPLICABLE" That way, I'm not saying I have all of those - just the ones that apply. I do all that work up front in early January to save me time during the tax season.

PATAX
Level 15

@Ephesians3-14 you told the truth on that one Brother. We're doing their work for them, and we're not being compensated by them. Correct me if I'm wrong, but isn't it the law to be compensated for work performed? And to top it off, we get fined $500 plus if something is not in order, even if there was no change to the tax liability on the return . Doesn't that sound just marvi ? Just wondering and just asking and just my opinion.

rbynaker
Level 13

@Ephesians3-14 wrote:

We're basically doing to IRS auditor's job. We pre-populated that field with "Form 1098-T, birth certificates, etc...AS APPLICABLE" That way, I'm not saying I have all of those - just the ones that apply. I do all that work up front in early January to save me time during the tax season.


I'm not willing to run with scissors like that. 🙂  The "as applicable" may get you out of trouble but I wouldn't personally bet $545 per client on it.  (But I'm fine with "you do you"!)

One or two forum implementations ago we had a new user pop in complaining about some five-figure due diligence penalty they were assessed.  I don't remember the amount but I want to say it was upwards of $60K.  Long story short, the conversation had a bunch of good folks here involved and lasted several days.  Come to find out in the end the tax practitioner had been DD audited in a prior year and, despite the auditors warning to keep all documents listed that were relied upon, she just kept listing documents like birth certificates and SS cards that she did not have copies of.  Surprise, at her subsequent audit she could not produce those documents and the IRS threw the book at her.  Had she simply not listed the documents she likely would have gotten off much easier.  I think @abctax55 was involved in that discussion but a lot of folks chimed in to try to help, only to find out days later that this wasn't the first audit and she lied on practically all of the 8867 forms.

Rick

PATAX
Level 15

I agree with you Rick. How hard is it to make photocopies of the birth certificates and social security cards? Once you have those copies, you just bring the copies forward to each year. Just my opinion.

abctax55
Level 15

Yep - I was part of that one.  At first it was a "poor me, the big bad IRS is pickin' on me & trying to put me out of business".

As we slowly drug more & more of the details out of her,  the story unfolded that she been audited on the issue before, and the second time is when they really threw the book at her.   Hundreds of thousands in penalties, if memory serves.  She was basically running a mill, and had virtually NO backup of the documents she had listed on the DD form.

She wasn't happy when we were a wee bit unsympathetic and deleted her entries in the entire thread.  Our responses were still there, but the thread got lost in one the various revisions this place has gone thru.

I don't list a lot of documents; I don't collect them from my clients - but most of my clients have been with me for decades.  Or if it's the kids of long-term clients that I'm doing the returns for; hell - most of them I knew when they were in the womb, went to the baby showers, went to T-ball tourneys, went to graduation, etc.  There are advantages to a small, close-knit town.  

And, as I'm not taking any new clients - vetting them isn't an issue 😂.  

 

"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
PATAX
Level 15

@abctax55 At Tax Seminar several years ago,  I asked the instructor about this during a break... He said that the IRS does not fine tax preparers the first time, but rather gives them a warning. I have never heard of a tax preparer in my area being subject to these fines, but apparently in some areas, like NYC, it does happen. The bottom line is if we do our due diligence, then hopefully there will not be a problem. Just my opinion.

abctax55
Level 15

@PATAX  - I believe she WAS fined the first time.  But she was doing ZERO due diligence, AND lying that she had the docs she listed on the F 8867.

Then, she did it again.  And got caught again.  Hard to muster up much sympathy.

Just my opinion <w> but she SHOULD have been put out of business, permanently.

 

"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
sjrcpa
Level 15

I remember that discussion.

"Be the person your dog thinks you are." - I've got a refrigerator magnet that says that, along with quite a good photo of what looks the beagle I had, but this was purchased off the shelf.

It is excellent advice.


Ex-AllStar
IRonMaN
Level 15

Ahhhhh, the good old days.  I remember that post quite well.............. "poor, poor, me.  The IRS is being so mean to me, what can I do?  They came in and told me I can't do that, but then the nerve of them, they came back again the next year and said I really can't do that and they fined me big time.  Just because I am dumber than a box of rocks and blew them off the first time, they can't do this to me.  So what can I do to make this just go away?"

Based on the years that I have spent here, I really have to wonder how many of those type of folks are still out there. 


Slava Ukraini!
Camp1040
Level 10

Just prepared a return for a semi retired couple, they are over 65, TP has a part time job and they qualify for EIC. Proseries basic's  built in DD worksheet stated that if taxpayer is under 25 or over 65 stop here, they do not qualify. .Hasn't been updated for 2021 exception yet.

Only a worksheet so it does not impact the calculation of the return or generate an error.

IRonMaN
Level 15

Since tax season doesn't start until March this year, they still have plenty of time to fix that.


Slava Ukraini!