QUESTIONS AND ANSWERS
Adjusted Basis - ANSWER-The Cost or other original basis of property reduced by
adjustments such as depreciation allowed or allowable & increased by Capital
Improvements & other adjustments.
Earned Income Credit Due Diligence four requirements - ANSWER-1) Complete &
submit an eligibility checklist
2) Compute the amount of credit
3) Comply with the knowledge requirement
4) Retain records
EIC due diligence failure - ANSWER-Subject to a $500 penalty for each occurrence
To comply with EIC - Records Retention Requirement: - ANSWER-MUST:
- Retain Form 8867 and EIC worksheet or equivalents & maintain a record of how &
when the info used to complete these forms was obtained.
- Verify the identity of person giving you the info & maintain a record of who
furnished the info and when you received the info used to determine the credit.
- Keep the records for THREE YEARS from the latest date of the following that
apply:
*** Original due date of the tax return (this does not include any extension of time for
filing
*** Date the tax return or claim for refund is filed, if you e-file the return or claim for
refund and sign it as the return preparer.
*** Date you present the tax return or claim for refund to the taxpayer for signature, if
the return or claim for refund is not e-filed
and you sign it as the return preparer.
*** If you prepare part of the return or claim for refund and another preparer
completes & signs the return or claim for refund, YOU MUST keep the part of the
return you were responsible to complete for THREE YEARS from the date you
submit it to the signing tax return preparer.
Form 8867 - ANSWER-- Paid Preparer's EIC Checklist
- Must be based on info provided by taxpayer to Tax Professional
- Must ask every taxpayer ever question on this list every time.
Tax Professional knowledge requirement - ANSWER-Tax Preparers are responsible
for knowing the tax law and using that knowledge to ensure that the correct
questions are asked to get all the relevant facts as they apply to each EIC return.
Does this make sense? - ANSWER-- Tax Professional must not know or have
reason to know that any information used by the Tax Professional in determining the
taxpayer's eligibility for, or the amount of, the EIC is incorrect.