Stay Informed!


Learn More about Facilitated Self Assistance for Your Clients!

By Rebecca Thompson on 02/22/2017 @ 02:35 PM

Tags: Taxpayer Opportunity Network

As another tax season progresses towards the mid-April end, VITA programs expect to provide assistance to a staggering number of taxpayers. For many VITA sites, Facilitated Self-Assistance (FSA) provides a logical and relatively easy-to-implement option to extend their services to a larger population while minimizing additional program costs. CFED’s Taxpayer Opportunity Network convened a group of experts from the field in the Facilitated Self-Assistance working group to identify and develop promising practices for programs looking to implement and sustain the burgeoning growth of this innovative approach to community tax preparation.

What Is FSA?

The FSA tax prep model, similar to a traditional VITA/TCE model, uses IRS-certified income tax preparers to assist filers in their tax return preparation. The main difference between the traditional volunteer preparation and FSA boils down to who does the majority of the preparation. As the name suggests, FSA puts the taxpayer in charge of their taxes by walking them through their taxes with free computer tax preparation software with an IRS-certified volunteer.

FSA can be divided into three subcategories: FSA Standalone, FSA Co-located and Remote FSA. Standalone FSA sites use a hub of computers with a volunteer to provide any coaching or assistance as needed to the tax preparer as they work through the program and is the only form of tax prep assistance offered at that location. Co-located FSA sites takes advantage of an existing VITA site infrastructure and resources; however, tax site staff are intentional about directing ideal FSA clients towards the service while also providing traditional VITA services to others. The Remote FSA model uses online marketing and other existing social media platforms to allow taxpayers to file at home, work or any other computer with access to a customer support line via phone, email or chat support. Despite these distinctions, VITA programs can incorporate all three types of FSA products offerings. For example, MyFreeTaxes is a product operated by United Way Worldwide which can be used to create FSA kiosks at VITA sites, standalone sites and at home!

Who Should Use FSA?

Members of the Facilitated Self-Assistance working group observed that the ideal FSA client falls into some if not all of these categories: has a simple return, is tech savvy, fluent in English, a first-time filer and those who may not expect to have a volunteer lead their tax preparation process. Due to the unique focus on computers, online software and learning curve, those who fall in the aforementioned demographics make the most successful FSA clients. With these communities in mind, more than 2,000 tax sites supported taxpayers with some version of FSA across the nation. By employing FSA products to extend the reach and capacity of your tax site, you can help more people access quality, no-cost and efficient returns while empowering them to take control of their taxes.

If you think FSA might be the right fit for you and your clients, click here to learn more!

Tax Season Kickoff, EITC Day Highlight the Importance of Tax Time in Boosting Financial Well-Being

By Rebecca Thompson and Chad Bolt on 02/09/2017 @ 10:00 AM

Tags: News, Taxpayer Opportunity Network

For folks who understand the power of tax time as a pathway to financial health for millions of workers and their families, the past few weeks have been an exciting time. On January 23, we officially kicked of the 2017 filing season, and later that week, CFED and the Taxpayer Opportunity Network celebrated EITC Awareness Day. Then, just last week, we partnered with Tax Credits for Workers and Their Families and H&R Block to convene a Capitol Hill Policy Forum about creating opportunity and fighting inequality at tax time and beyond. Each of these events helped raise awareness and mobilize action to spread the word about the Earned Income Tax Credit (EITC), Volunteer Income Tax Assistance (VITA) and other powerful tax-time financial capability-boosting programs.

With the start of the 2017 filing season, community tax programs and local and state governments joined in with the IRS to mark the 11th annual celebration of EITC Awareness Day on January 27. Throughout the month leading up to EITC Awareness Day, CFED and the Taxpayer Opportunity Network partnered with a range of allies to send a consistent message: protecting and expanding the EITC is critical to our shared mission of expanding economic opportunity. EITC Awareness Day also gave us the chance to recognize the important role that VITA programs play in connecting taxpayers to the EITC. Network members and other allies celebrated EITC Awareness Day by sharing social media messages, videos, shareable graphics, state-by-state data snapshots and more, which led to #EITCAwarenessDay trending nationwide on Twitter!

On February 2, CFED, Tax Credits for Workers and Their Families and H&R Block welcomed Senator Sherrod Brown (D-OH) and Representative Gwen Moore (D-WI) to a packed room on Capitol Hill. The day kicked off with a keynote address from Senator Brown, who underscored his strong support for the VITA program and his tireless work to expand the EITC, such as his 2015 legislation to make permanent important improvements to the EITC. Later in the day, Representative Moore highlighted her work with the Consumer Financial Protection Bureau to protect low-income families and people of color from predatory and discriminatory loans, as well as her fight to give everyone an opportunity to rise out of poverty. Both speakers emphasized that the political landscape will be a challenging one for advocates, but that we can still achieve meaningful victories by remaining steadfast in our commitment to showing the power of consumer protections and the social safety net.

As we look toward a busy and productive tax filing season, we encourage you to join the Taxpayer Opportunity Network. Joining is free and gives you access to a gold mine of resources, including webinars, publications, learning groups and more that help you tackle challenges from volunteer recruitment and retention to mastering TaxSlayer and everything in between. Learn more and join today!

It’s a Tie! Who Gets the Kid?

By Barbara DelBene, Guest Contributor on 02/03/2017 @ 10:00 AM

Tags: Taxpayer Opportunity Network

VITA prepares tax returns for low-income families and the tax law issues are restricted by SPEC scope guidelines. So one might assume that VITA returns are all pretty easy. Unfortunately, that is not always the case. There seems to be an infinite number of ways a return can get complicated - even in seemingly simple aspects of tax law like who is claimed on a return. The rules for determining a qualifying child are complex, convoluted, counter-intuitive and confounding. Family situations that are complicated and ever-changing can quickly lead to difficult tax law applications about who can be claimed on a tax return – and for which benefits. This Dispatch discusses one of the more problematic issues for determining a qualifying child: the knotty tie situation.

First, Let’s Review the Basics

The definition of qualifying child affects five different tax benefits.

  1. Earned Income Tax Credit (EITC)
  2. Dependency exemptions
  3. Head of household filing status
  4. Child and Dependent Care Credit and the dependent care benefits exclusion
  5. Child Tax Credit and Additional Child Tax Credit

There are five basic requirements that make up the foundation of the definition of qualifying child.

  1. Age – Unless the child is disabled, the child must be under a certain designated age and the child must be younger than the taxpayer.
  2. Relationship – The child must be the taxpayer’s child, stepchild, adopted child, foster child, sibling, step-sibling or a descendant of any of these relatives.
  3. Residency – The child must have lived with the taxpayer for more than half of the tax year.
  4. Support – The child cannot have provided more than half of his/her own support.
  5. Joint Return – The child cannot file a joint return unless that joint return was filed only to get a refund of withholding or estimated taxes.

Comment: These requirements are just the basic structure of the definition of qualifying child. There are important exceptions and additions. Moreover, some of the five benefits have additional requirements. A summary chart, “All Those Kids,” can be used as a quick reference tool.

Next, the Rules for Tie Situations

Sometimes a child can meet all five requirements for more than one person. However, each child can be claimed on only one tax return for all five benefits, with one notable exception.

Comment: Right now one might wonder: what about divorced or separated parents who can sometimes split child-related benefits? Divorced/separated parents are parents who didn’t live together which means that the child only lived with one of the parents for more than half of the tax year. Since the child does not pass the residency test for both parents, that child is not the qualifying child of both parents and it is not a tie situation. The child is claimed by the custodial parent unless that parent relinquishes the child for the dependency exemption and child tax credit to the non-custodial parent via Form 8332 which is a rare occurrence. The parent that the child lived with is the only parent who can claim the child for EITC, head of household and child and dependent care credit.

IRS publications and TaxSlayer tax preparation software draw a lot of attention to the tiebreaker rules; however, it is important to remember that sometimes families have choices. During tax preparation, this can mean that the preparer can help the taxpayers decide the most beneficial approach to claiming a child in a tie situation. The strict tiebreaker rules are applied by IRS when an actual tie occurs. That is, the tiebreaker rules are applied by IRS when two taxpayers claim the same qualifying child.

These are the rules to consider during tax preparation…

  • If one of the qualified persons is the child’s parent and the other is not the child’s parent, the non-parent can claim the child only if that non-parent has higher adjusted gross income (AGI) than either parent.
  • When the nonparent’s income is higher than the parent’s income, the family can decide which qualified person claims the child.
  • Once it is determined who will claim the child, that person will claim the child for all five benefits, assuming that person meets the other qualifications.

Note: AGI, in general, is total income before exemptions and standard or itemized deduction are subtracted.

During tax preparation, the tiebreaker rules should be considered to answer a question like, “My brother lives with us and he said that he didn’t claim my son, but what if he did?” The tiebreaker rules predict what the IRS would do.

These are the tiebreaker rules that IRS applies after filing when two taxpayers claim the same qualifying child…

  • If one of the taxpayers is the child’s parent, the child is the qualifying child of the parent.
  • If both taxpayers are the child’s parents, the child is the qualifying child of the parent with whom the child has lived for the longest period of time during the tax year. If the residency period is the same for both parents, the child is the qualifying child of the parent with the highest AGI.
  • If neither taxpayer is the child’s parent, the child is the qualifying child of the taxpayer with the highest AGI.

Now, Some Examples

Example 1: June, who is not disabled, lived all year with her baby boy, Felix, and her mother, Maryann.

  • Maryann | Age: 57 | AGI: $40,000
  • June | Age: 26 | AGI: $22,000
  • Felix | Age: 0 | AGI: $0

Felix is the qualifying child of Maryann and the qualifying child of June.

During tax preparation: Either Maryann or June can claim little Felix as a qualifying child.

If somebody goofs: If both Maryann and June claim Felix, IRS would step in and apply the tiebreaker rules. June would get to claim Felix because she is Felix’s parent; Maryann’s return would be adjusted to remove Felix.

Example 2: John lived all year with his teenage son, Tyrone, and John’s big brother, Myron. No one in the family is disabled.

  • Myron | Age: 37 | AGI: $22,000
  • John | Age: 36 | AGI: $40,000
  • Tyrone | Age: 16 | AGI: $0

Tyrone meets the requirements of qualifying child for Myron and also for John.

During tax preparation: Only John can claim Tyrone as a qualifying child. Myron cannot claim Tyrone because he is not Tyrone’s parent and his income is less that John’s, who is Tyrone’s parent. If Myron’s income was more than John’s income, then either Myron or John could claim Tyrone.

If somebody goofs: If both John and Myron claim Tyrone, IRS would step in and apply the tiebreaker rules. John would get to claim Tyrone because he is Tyrone’s parent; Myron would not.

Example 3: Freda and Sam are the parents of little Maggie. Freda and Sam are both unmarried. All three of them lived together all year.

  • Freda | Age: 32 | AGI: $42,000
  • Sam | Age: 32 | AGI: $5,000
  • Maggie | Age: 5 | AGI: $0

During tax preparation: Freda and Sam can decide who claims little Maggie. Remember that the taxpayer must otherwise qualify for the relevant benefit. For instance, in this situation it is unlikely that Sam provided over half the cost of household expenses and, therefore, he would not be able to take head of household filing status. So if Sam is the person who claims Maggie, nobody here gets head of household.

If somebody goofs: If both Freda and Sam claim little Maggie, the IRS would apply the tiebreaker rules. Since both Freda and Sam are Maggie’s parents and both lived with her all year, Maggie would go to Freda, the person with the higher AGI.

Comment: Aren’t these fun? IRS Publication 501, Exemptions, Standard Deduction and Filing Information, has lots of interesting examples with new twists and turns. Check it out!

Finally, About TaxSlayer

For each qualifying child claimed for EITC, TaxSlayer asks about these issues as part of the due diligence questions: Is this child currently, or intended to be, the qualifying child on any other individual’s return? The SPEC guidelines say: Answer “no” even if the taxpayer would win the tiebreaker. If the answer would be “yes,” mark "wish NOT to claim EIC" in the Dependents Section.

Comment: This advice is a puzzling. Why answer “no” if the answer is “yes.” And how does the tiebreaker play into this? Why block the child for EITC if the answer is ‘yes’ but the taxpayer qualifies? One can imagine a situation where the taxpayer knows that a child is being claimed by someone else yet it is the taxpayer who would ultimately get to claim the child. Since the TaxSlayer due diligence questions do not affect the outcome of the tax return, this is not a serious concern at this time.

TaxSlayer also asks if the preparer explained the tiebreaker rules to the taxpayer. SPEC advice is to answer ‘yes.’ A more appropriate response might be, Answer ‘Yes’ if the child is or might be the qualifying child of more than one individual.

Comment: There are so many situations – most situations – where the child lived with – and only with – the taxpayer and there is no question that the taxpayer can claim the child and is the only person who would possibly claim that child. Bringing up tiebreaker rules seems inappropriate and unnecessary. But, as always, preparers should explain the rules and possible IRS actions whenever there is a more complex situation that might result in questions from IRS.

Why the Earned Income Tax Credit is Essential to the Opportunity Economy

By Rebecca Thompson on 01/27/2017 @ 11:00 AM

Tags: EITC, Federal Policy, Local Policy, Taxpayer Opportunity Network

Click the image to check out our EITC Awareness Day Toolkit!

Since 1975, the Earned Income Tax Credit (EITC) has been among the most powerful anti-poverty tools in our country. Because the EITC is a fully refundable tax credit that puts money back into the hands of hard-working taxpayers, it often represents the largest windfall of cash that low- and moderate-income households receive in a given year. As such, the EITC is a critical income support that helps hard-working Americans overcome financial challenges and put a little away for a rainy day, all while fulfilling their civic obligation to pay their taxes.

In recognition of this powerful tool, the IRS has declared today EITC Awareness Day. Now an annual event, EITC Awareness Day is dedicated to raising awareness of, protecting and expanding the EITC. Throughout the month, CFED and the Taxpayer Opportunity Network have been working with our partners in the field to take advantage of this important opportunity, as protecting and expanding the EITC is critical to our mission of expanding economic opportunity.

As we celebrate EITC Awareness Day today, it is also critical that we recognize the important role that Volunteer Income Tax Assistance (VITA) programs play in connecting taxpayers with the EITC. VITA programs provide free, high-quality tax preparation services to low-income workers, and these services not only connect families with the EITC, but also to a range of other financial capability and asset-building services in their community. As such, EITC Awareness Day is a prime opportunity for CFED and the Taxpayer Opportunity Network to say “thank you” to the thousands of VITA volunteers across the country who make the important work of community tax preparation possible.

EITC Awareness Day affords us the opportunity to carry the message of the value and effectiveness of the EITC far and wide, encouraging all who may be eligible to seek out and claim the credit, and to lift up our collective voice with our elected officials at the local, state and federal levels to protect and expand the EITC to help as many taxpayers as possible.

Interested in using your voice to protect and expand one of the most powerful anti-poverty programs in the US? Download our EITC Awareness Day Toolkit for more information, resources, templates and tips for how you can make a difference!

2017 Tax Season Kicks Off!

By Justin Chu on 01/23/2017 @ 02:00 PM

Tags: Taxpayer Opportunity Network

Today marks the first official day of the 2017 filing season! For many VITA/TCE providers this is a time of celebration and anxiety. After many months of preparation, the filing season is at long last underway. Soon, taxpayers across the country will turn to these community tax preparation programs for the high quality tax prep services they provide. As is the case with every year, and 2017 especially, these services remain a cornerstone of one of the most important financial opportunities for working Americans. The EITC Refund Delay and transition to a new software for many programs have been the forefront of the community tax preparation thought process. As the Taxpayer Opportunity Network moves into its third tax year, we remain committed to elevating the voices and concerns of community tax preparation volunteers, programs and taxpayers.

Earlier this month, we held a webinar on TaxSlayer updates for the 2017 season with representatives from TaxSlayer and IRS SPEC. At the January 19 event, we showcased the unique features of the TaxSlayer software, the transition process and ways for the field to get involved in the TaxSlayer process. For those who did not join us for the live event, we recorded the entire session and presentation slides for public release. In addition, the Slain: Let’s Slay Together blog is here to provide advice to your software quirks and challenges.

For those worried about the delayed refund for EITC filers, the Network hosted a webinar in mid-November on a messaging campaign undertaken by the Intuit Financial Freedom Foundation in coordination with a myriad of national partners, including the Taxpayer Opportunity Network. As a part of this webinar, the entire messaging toolkit was released to the field for dissemination with constantly updating materials. These materials include social media posts, handouts, one-pagers and generic press releases to inform your local community on the impact the delayed EITC refunds may have on qualifying taxpayers. The EITC is vital for many hard-working families and it is imperative that those who may be effected by a delay in receiving the payment are totally prepared for any financial shifts.

Looking ahead to this year, we will host webinars on a variety of topics that will provide resources, tools and tips for VITA programs. As each tax season presents its own unique challenges, the Taxpayer Opportunity Network continues to provide the community tax preparation field with the knowledge, tools and resources required to make this year more successful than the last.

Help Expand and Protect the EITC!

By Justin Chu on 01/19/2017 @ 08:00 AM

Tags: Taxpayer Opportunity Network, EITC

With the start of tax season, it’s time for us all to spread the word about the Earned Income Tax Credit (EITC) and all of the benefits it provides for our economy. National EITC Awareness Day is on January 27. If you’re looking for ideas to spread the word, the Taxpayer Opportunity Network and CFED have crafted easy ways to spread the word about and advocate for the EITC that you can do in 5, 10 and 30 minutes

Got 5 Minutes? Reach Out to Your Elected Officials

By working together to sound a consistent message, we have the unique opportunity to reach our Senators and Representatives with messages about the importance of the EITC for our communities. If you have five minutes to spare, use this template to send an email or call your member of Congress.

Got 10 Minutes? Invite Your Lawmakers to a VITA Site

VITA sites are key to connecting more taxpayers to the EITC, and inviting your lawmarkers to a VITA site can show the power of community tax preparation in action. If you have 10 minutes to spare, reach out to your mayor, county councilmembers, state legislators or members of Congress using this draft script to invite them to join you at your VITA site.

Got 30 Minutes? Share an EITC Success Story

Telling the story of a taxpayer in your community who set out on the path to financial well-being thanks to EITC can be a key step in personifying the power of the program. You can put a face to EITC and its role in the community by sharing your story with us in our Story Bank. The stories we share are for the entire community tax prep field to use to help lawmakers see the importance of protecting and expanding EITC.

Eager to Do More? Download Our EITC Day Toolkit!

This easy-to-use toolkit contains each of the tools mentioned above, as well as a variety of other tools, including:

  • Sample social media posts (in both English and Spanish) and shareable graphics you can use to spread the word among your networks.
  • State-by-state data snapshots that explain the impact of EITC in your state.
  • A social media toolkit, developed in partnership with Intuit Financial Freedom Foundation and the Glen Echo Group, for messaging refund delays during the upcoming tax season. (As a reminder, all payments of the EITC will be delayed until at least February 15.)

We understand the start of the tax season is an incredibly busy time for all those involved in tax preparation, but by taking a few moments to show the importance of the EITC in the community, you are creating steps to protect its future. For all you do to be a good advocate for your community and neighbors, thank you!

One Easy Step to Improve Tax Return Accuracy and Protect Consumers This Tax Season

By Chad Bolt on 01/10/2017 @ 01:00 PM

Tags: Federal Policy, Taxpayer Opportunity Network, Economic Inclusion, EITC

In Washington, DC, all eyes are focused on a date less than two weeks away: January 20, Inauguration Day. Outside the beltway, another date this month looms large for hardworking taxpayers and tax prep volunteers across the country: January 23, the official kick off of tax season!

The new administration and the new Congress have an opportunity to improve tax return accuracy, reduce overpayments and protect tax filers during tax season by setting minimum competency standards for paid tax preparers. Currently, 46 states do not require paid preparers to meet any minimum level of training or expertise to charge filers to file a return on their behalf. Chances are, your hairdresser has undergone more training and certification than your paid tax preparer.

The lack of minimum standards has serious implications. A recent National Consumer Law Center and Consumer Federation of America review of mystery shopper testing studies found problems in as many as 90% of returns filed by paid preparers! In 2013, South Carolina had to permanently ban a tax services provider due to fraudulent claims that federal authorities estimate cost the federal government $55 million. Maryland established its own minimum standards at the state level after it stopped accepting tax returns from four groups of private tax preparers due to a high volume of suspicious returns and repeated compliance violations. Minimum standards would save the government money and protect consumers from predatory preparers that lack basic competencies.

Fortunately, we already have a model for implementing effective minimum competency standards: the Volunteer Income Tax Assistance (VITA) program. VITA must meet strict federal standards to ensure returns are accurately and efficiently prepared. Unlike paid tax preparers, local VITA programs are held to a national standard for tax preparer training, site administration and quality of tax preparation. Local VITA programs train and prepare volunteers, who must become certified according to strict IRS standards. To prevent identity theft issues, valid federal or state identification is required of all filers.

How have these standards affected VITA’s results? VITA’s level of accuracy has been steadily increasing over the years, from 85% in 2009 to 94% in 2015, despite increased demand for VITA services and stagnant funding. The 94% accuracy rate is one of the highest of any category of tax preparation services, including CPAs and major tax preparation services companies, and proves that minimum competency standards can have a marked impact on the quality of tax preparation.

Congress can improve tax return accuracy, particularly returns that involve the Earned Income Tax Credit (EITC), by establishing minimum competency standards. This is an easy but effective way to reduce overpayments without making the EITC more complex to claim or less beneficial to workers that claim it. The Joint Committee on Taxation has scored proposals to establish minimum competency standards as generating $135 million over ten years – in part because unenrolled paid preparers are more likely than any other type of preparer to file inaccurate returns. Even big tax preparation software providers and large tax preparation chains support this proposal.

Tax reform is sure to be a top priority in the 115th Congress. Any discussion of reforming the tax code should include this easy and commonsense measure that improves the accuracy of tax returns, reduces overpayments and protects tax filers.

You can help by calling your member of Congress and letting them know you support minimum competency standards for paid preparers. Or, if you are a member of the tax preparation community and have a story to share about someone you know who fell victim to an unscrupulous preparer, email CFED’s Federal Policy team so we can make sure members of Congress know how the lack of minimum competency standards affects their constituents.

Return Preparer Misconduct

By Barbara DelBene, Guest Contributor on 01/05/2017 @ 09:00 AM

Tags: Taxpayer Opportunity Network

A recent IRS SPEC Fact Sheet, Return Preparer Misconduct at VITA/TCE Sites, introduced yet another acronym into the world of taxes: RPM or Return Preparer Misconduct. Although the Fact Sheet starts out by defining RPM as the deliberate preparation of false returns for nefarious reasons, the Fact Sheet expands the discussion by addressing other problems, including unintended preparer errors. Moreover, the Fact Sheet discusses how partners should proceed to resolve such problems, as well as describing the IRS role in these situations.

This Dispatch will discuss real-life examples of these “misconduct” issues, possible resolutions and the effects on taxpayers and VITA tax sites. Let’s start with probably the most common type of situation: unintentional tax preparer errors.

The Tax Preparer Goofs

Despite extensive training, rigorous certification requirements, site coordinator oversight, and diligent quality reviewers, we all make mistakes. And I say “we” because there are usually two mistakes: the original error made by the tax preparer and the failure of the quality reviewer to catch it. These errors may cause problems at the tax site, but they generally cause even more trouble for the taxpayer.

Example 1 - The preparer missed entering income tax withholding

Orville is a retired widower with two sources of income: a taxable pension and social security retirement. His return was prepared, filed and accepted early in February. He immediately paid the small balance due. Now, during the last week of the filing season, he has returned to the tax site.

Orville: I’m sorry to bother you, but I’d like someone to look at my return.
Intake: Well, we’re really busy preparing returns that are due next week. It looks like your return was processed just fine.
Orville: I know, and I really appreciate the effort and I’m sure you people did a wonderful job, but I can’t stop worrying. You see, I usually get a refund of a few hundred dollars and this year I owed $30. I thought everything was about the same and I can’t sleep thinking that I might owe even more next year.
Intake: Well, every tax year is different so outcomes do change. But I can see that you’re concerned. Please have a seat at this table and get out all of your papers. When I get a chance, I’ll take a look.

Eventually the intake person looks things over and immediately sees that the $550 federal income tax withholding on Orville’s SSA-1099 was not entered during tax return preparation.

Intake: I found the problem. The preparer did not see the withholding on your social security and it wasn’t included on your return. I am so sorry for the error. We can prepare an amended return to correct this error and you should get a refund.
Orville: Yes, please. Will this cause trouble with the IRS?
Intake: I don’t think so. But I’ll get the site coordinator to answer your questions and he will find a preparer to do the amended return as soon as possible. Again, I’m really sorry that we made this mistake.

Comments: We don’t often see withholding on social security, so it is easy to imagine that it might be missed. The important thing is for the site to apologize and offer a remedy as quickly as possible. Also, a quick memo to preparers and reviewers reminding them to check all withholding might be a good idea. This timid taxpayer may have been afraid to say anything during preparation, but taxpayers often do compare the current year to previous years. When a taxpayer says their tax situation didn’t change, but the refund or balance due is quite different, it’s a good idea to listen up and compare the current year return to the prior year.

Effect on the VITA Site – Embarrassment and extra work.

Effect on the Taxpayer – Worry, a second trip to the tax site and a delayed refund.

Example 2 – A volunteer preparer entered the wrong bank account number for direct deposit.

There are different ways that this situation can play out, depending on when the error is discovered and how the bank handles such matters.

  • If the taxpayer notices the error before the return is processed, the taxpayer can ask IRS to stop the direct deposit by calling customer service at 800-829-1040.

Comment: This might work. But calling IRS customer service is often an arduous, frustrating task with lots of waiting on hold and other delays. VITA site staff may want to help the taxpayer with this and/or coordinate the effort to stop the direct deposit with the local SPEC Relationship Manager or Taxpayer Advocate.

  • If the return has already been processed, the taxpayer should work with the bank to resolve the issue. If the bank has returned the refund to the IRS, the IRS will automatically send a paper check to the taxpayer at the address on the return.

Comment: VITA sites should offer to help taxpayers work their way through this resolution process.

  • If the taxpayer gets no results working with the bank, the taxpayer can file a Form 3911, Taxpayer Statement Regarding Refund, which allows IRS to contact the bank directly and further attempt recovery of the refund.

Comment: The SPEC Fact Sheet states that IRS does not accept responsibility or provide restitution in these cases. Although they will provide assistance with recovery, they will not reimburse the taxpayer. Some partner organizations have insurance or other means that provide financial relief in situations where a taxpayer cannot recover a misdirected refund.

One More Comment: Everyone knows that it’s important to have the taxpayer review the completed return before signing. But do we actually make sure that they do it? Taxpayers are so trusting that they often just rush through this process. Please make sure that the taxpayer verifies the bank account number. Be leery of taking the account number from a handwritten note or based on the taxpayer’s memory. It’s best to copy the number from a bank document provided by the taxpayer. Also, be careful about routing numbers. Don’t assume that all customers at the same bank have the same routing number. Again, get the number from the taxpayer’s bank document.

Effect on the VITA Site: A strict policy about bank account numbers may mean sending taxpayers home to get more information. Taking time to ensure that taxpayers carefully review the numbers may slow down the tax preparation pipeline. But it’s better to use a rigorous process than to have even one direct deposit error.

Effect on the Taxpayer: It certainly means a delay and lots of bother and, in some cases, the refund is never recovered.

Tax Preparer Tries to Help Too Much

Example 3 – The preparer ignored the facts in order to increase the tax refund.

A VITA site prepared a return for Mary as head of household, claiming her three children as dependents and for the child tax credit and the EITC. This gave her a large refund. The problem is that during the tax year her children only lived with her in November and December.

Mary: I need help with the taxes you did in January. I got this letter from IRS saying I need to pay back my refund. I think that my ex, Donald, claimed my kids and now IRS won’t let me claim them.
Site Coordinator: Who did your children live with, you or Donald?
Mary: They lived with him right after our separation in December of 2015. They moved back in with me in November of 2016.
Site Coordinator: So they lived with you for only two months in 2016. Is that what you entered on your intake forms?
Mary: I suppose I did. I’m not sure. I remember that the preparer asked me lots of questions. What should I do?

Comment: The problem with this kind of situation is that it may never be possible to know what really happened. It could’ve been that the preparer saw the huge difference in the refund amount when the kids were claimed and tried to “help” by putting them on the return even though they were not qualified. It could be that the taxpayer provided incorrect information indicating that the kids lived with her all year. The important thing is to make sure that preparers know that ignoring information provided by the taxpayer is never acceptable. Yes, this topic is covered by the Volunteer Standards of Conduct. However, it’s one thing to take the training and pass the test and it’s quite another to face real-life temptations. Preparers should be reminded that it is always wrong to falsify a tax return in any way.

Effect on the VITA Site: If it could be determined that a preparer did intentionally prepare a false return – no matter what the motivation – that volunteer would be banned from any participation in the VITA program. In some cases, the IRS might close the entire tax site.

Effect on the Taxpayer: However something like this happens, it’s the taxpayer who has to deal with the tax consequences. In the example, Mary would need to repay the erroneous refund with penalty and interest and, perhaps, be banned from taking EITC or advanced child tax credit in subsequent years.

Tax Preparer Steals from the Taxpayer

This could happen in a number of different ways. The point is that it does happen. Fortunately, it is rare indeed and in some cases IRS provides financial relief to the taxpayer.

Example 4 – The preparer set up direct deposit of the taxpayer’s refund to go into his or her own bank account.

Paul: I came back today because I never received my refund. When I go to “Where’s My Refund?” it tells me that it was issued two weeks ago, but it’s not in my account.
Intake: Do you have a copy of your tax return or your bank information?
Paul: I didn’t bring the return, but here is my checkbook. I gave a voided check to the preparer who did my return.

Intake looks up the return and sees completely different direct deposit information on the return that was transmitted to the IRS.

Intake: Have a seat and I’ll go get the site manager to discuss this with you.

Comment: In a case like this, site staff should immediately notify the supervisor and program director, or go right to the SPEC Relationship Manager. SPEC should always be notified and an immediate investigation should be conducted. Was it the preparer? The reviewer? The person who transmits returns? Someone else? SPEC staff may advise the taxpayer to complete a Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.

Effect on the VITA Site: In many cases, SPEC would close down the tax site – probably for the rest of the filing season.

Effect on the Taxpayer: At best, the refund is significantly delayed. At worst, the taxpayer loses the refund altogether. The taxpayer may also get involved in lots of red tape and frustration.

The Upshot

Sites must focus on prevention by adhering to procedures – such as 100% quality review, full use of Form 13614-C, Intake/Interview and Quality Review Sheet and constant training and review. When a preparer error does occur:

  • Apologize like crazy.
  • Provide robust assistance to the taxpayer to help resolve the situation.
  • Give preventative reminders to all site staff, quality reviewers and volunteers.
  • Make sure that all taxpayers seriously review the completed return before signing.
  • In any sensitive or particularly egregious case, notify the SPEC Relationship Manager.

We Are Duly Diligent

By Barbara DelBene, Guest Contributor on 12/05/2016 @ 01:00 PM

Tags: Taxpayer Opportunity Network

Paid preparers are required by law to meet specific due diligence requirements as represented by a series of questions on Form 8867, Paid Preparers Due Diligence Checklist. These requirements do not, of course, apply to VITA, since clients don’t pay for VITA tax preparation. But just because VITA is not required to do it, doesn’t mean that it’s not a good idea. We must make every effort to get these things right; that is, we must be duly diligent.

There are two new things in the world of due diligence:

1. The due diligence requirements and Form 8867 don’t just apply to the earned income tax credit (EITC) anymore. They now apply to three credits:

  • EITC
  • Child Tax Credit/Additional Child Tax Credit
  • American Opportunity Credit

2. TaxSlayer software requires completion of a checklist that is different from worksheets that VITA tax preparers have dealt with in the past.

This Dispatch addresses the due diligence requirements for paid preparers and how these same requirements, in a general way, can be used to assure high quality of returns prepared at VITA sites.

Due Diligence Requirements

Let’s look at the four basic due diligence requirements (paraphrased) as set forth in the Treasury Regulations.

(1) The preparer will truthfully and accurately answer all the questions on Form 8867.

So what kind of questions are they answering? Basically, the same questions that are on Form 13614-C, Intake/Interview & Quality Review Sheet as well as information obtained in follow-up conversations with the taxpayer. We’re talking about questions like:

  • Did the child reside with the taxpayer?
  • Did you complete the return based on information for tax year 2016 provided by the taxpayer?
  • Did you complete the appropriate EIC, CTC/ACTC worksheets?
  • Did anything appear inconsistent?
  • Did you ask if any credits were disallowed in prior years?
  • If the taxpayer is self-employed, did you ask enough questions to prepare an accurate Schedule C?

Sound familiar? Of course. When a VITA tax preparer makes sure that the Form 13614-C is fully completed and clarifies all answers, he has, in most cases, sufficient information to complete a Form 8867.

(2) The completed Form 8867 is filed with the tax return.

This does not apply to VITA returns and the VITA version of TaxSlayer (and TaxWise in the past) is designed so that the Form 8867 is not sent to IRS with the e-file.

(3) The preparer meets the knowledge requirement.

For VITA, this means that the answers that the taxpayer provides on the Form 13614-C, the information obtained during the interview with the taxpayer, the documents provided by the taxpayer and anything else that the preparer knows about the taxpayer all present a complete, consistent and reasonable picture. If something appears to be incorrect, incomplete or inconsistent, the preparer will follow-up to get at the truth – the whole truth. The preparer must not ignore any information provided by the taxpayer or otherwise known by the preparer. Here are some examples based on real-life situations.

Example - The preparer is finishing a return for a single dad with three children who is claiming a big EITC.

Preparer: Do you want your refund directly deposited to your bank account?
Taxpayer: Yes. I wrote down my Central Bank account number here.
Preparer: Great. I also need the routing number. It’s a nine-digit number that identifies the bank.
Taxpayer: Darn! I didn’t bring that. Don’t you have it on file somewhere?
Preparer: No, I really need to get the number from you. Do you have a check with you?
Taxpayer: No. But it’s Central Bank over on Main Street. You must have it.
Preparer: Sorry, no. But it would be on any of your personal checks.
Taxpayer: OK. I’ll call my wife at home and have her find a check and read it off to me.
Preparer: Ahhh… your wife?

It turned out that the taxpayer was married and living with his wife and they were both claiming head of household – based on advice from last year’s tax preparer. The VITA preparer exhibited due diligence by calling him on the discrepancy – even though the information was discovered by accident rather than during the tax preparation interview. Eventually, this couple filed a joint return.

Example – A self-employed taxpayer was filing a Schedule C for his delivery service business. He said that he drove 20,000 business miles and that he had extensive records at home. He had two Form 1099-MISCs which showed income totaling $4,000. In an attempt to ferret out commuting mileage, the preparer asked questions about where he drove. The taxpayer was pretty fuzzy with the answers. The preparer realized that things just weren’t making sense and the taxpayer did not seem able to provide reasonable clarification. This taxpayer was sent home to get records and he never returned.

Other Examples – Some things just don’t feel right and should lead to a lot more investigation.

  • A couple filing a joint return who can’t agree on how to spell their child’s name.
  • Someone who is self-employed and provides no records and only two figures: total income and total expenses, and it results in net income that yields the maximum EITC.
  • Someone who claimed one child last year and suddenly has two more adolescent children.

The knowledge requirement also says that the tax preparer must know and apply the relevant tax law when determining credit eligibility. VITA certainly does this by requiring volunteers to pass the IRS SPEC certification tests

(4) The preparer keeps a copy of the Form 8867, as well as a copy of completed worksheets, interview notes, and other evidence of answers provided by the taxpayer.

VITA sites do not prepare Form 8867 and generally keep no records.

TaxSlayer and Due Diligence

As we prepare for the 2017 filing season, we need to understand how TaxSlayer, the new tax preparation software for VITA, addresses due diligence. For EITC, TaxSlayer uses an EIC Checklist. (The Practice Lab version of tax year 2016 does not yet cover due diligence issues for the child tax credit/additional child tax credit or the American opportunity credit.) Here are some of the checklist questions that are new to VITA.

Warning: This discussion is based on the Practice Lab version of TaxSlayer for tax year 2016 as of December 1, 2016. This is likely to change.

Did you complete form 8867 and/or perform the due diligence required based on current information provided by the taxpayer or reasonably obtained by you?

VITA does not complete Form 8867, but we do use Form 13614-C and conduct a thorough interview and make sure that we have all the relevant information. So, “yes,” we perform the VITA version of due diligence.

Did you ask this taxpayer any additional questions that are necessary to meet your knowledge requirement?

Did you document the additional questions you asked and your client’s answers? (A yes answer assumes that there was formal documentation that the tax preparer keeps on file.)

VITA intake staff and tax preparers most certainly discuss Form 13614-C information, asking follow-up questions whenever something is unclear or inconsistent. So, “yes,” we meet the knowledge requirement; but, “no,” we don’t create documentation for our records.

Did you comply with the EIC due diligence requirements?

VITA does not prepare a tax return when the information provided by the taxpayer is incomplete or contradictory. In most cases, a preparer faced with this kind of dicey situation will call on the site coordinator for assistance. Often the result is that the tax site refuses to prepare the return. So, “yes,” we comply.

Did you keep the records found below? (This is followed by a list of “Documents to Determine Residency.”)

Generally VITA does not keep any records. TaxSlayer does provide a Miscellaneous Statement feature where a preparer can make notes to keep electronically. But we don’t copy school records and the like. So, “no” we don’t keep records. And we can check, “Did not rely on any documents.” We may have looked at documents, but generally no specific records are kept.


VITA volunteers run a gauntlet of training and testing that includes standards of conduct and intake and interview training, in addition to tax law training. We are required to use a thorough intake form on every return. With that knowledge and expertise, as well as the mandatory 100% quality review, QSS reviews, and IRS field visits, VITA successfully employs due diligence on tax credit issues, as well as all aspects of tax return preparation. Hey, good for you!

Community Tax Prep Census Shows Scope of the Field

By Justin Chu on 11/18/2016 @ 10:00 AM

Tags: Taxpayer Opportunity Network

As part of its mission to examine the community tax preparation field, the Taxpayer Opportunity Network released its Community Tax Prep Census. The 23 question survey covered topics from returns prepared, demographics and funding. We ask anyone affiliated with community tax preparation organizations to participate in this quick census to gauge the Community tax prep field at large.

Why is this Important?

The Volunteer Income Tax Assistance (VITA) program recently celebrated its 45th anniversary; Tax Counseling for the Elderly (TCE) will be soon passing their 40th anniversary. Yet, often these sites may operate on a part-time basis either solely during tax time or occasionally, throughout the year. Despite the temporary nature of these sites, they serve a vital role in the community as pillars of financial assistance. By providing a unique service for low to moderate income households as well as limited English speaking households and those with disabilities, the VITA/TCE programs reach an audience of people who may not otherwise be able to help themselves. As a result, by capturing the impact of these sites, regardless of the numbers of returns prepared, we can begin to put the pieces together on the community tax-prep puzzle. When asked about the census process, CFED Consultant Steve Holt had this to say: “We know the VITA movement is a strong support for lower-income taxpayers. Knowing more about the diversity of taxpayers served and the range of services offered would help amplify and leverage that strength. The VITA Field Census is a simple tool for providing this important information.” Utilizing these new data points, we can establish how VITA reaches people in communities both near and far.

Based on early results of the census, we can show that the number of returns prepared ranges from 26 to 20,000. As this shows, each site has the unique ability to service communities both large and small. Not every community tax prep site serves hundreds of people, yet the complex services they provide help qualified filers save money and time either trying to prepare their own taxes or going through a paid preparer. When asked about the importance of community tax preparation, Brad Martin, the VITA Program Coordinator for the United Way of Southwest Alabama, stated, “Anyone who works with a VITA program has seen the impact that free tax preparation/tax education has on low- and moderate-income families and individuals. These are taxpayers who want to do the right thing and pay their taxes like every American, but they can't afford to pay a preparer to do their returns. As the tax laws and their own tax situations become increasingly complex, they don't feel confident in their ability to prepare their own returns. VITA provides them a safe place to go to have their returns prepared by someone who has their best interests at heart and no ulterior motives.” By informing the work provided by VITA sites both big and small, we can provide quality, effective assistance to community tax providers all over the country.

With this in mind, we ask you to complete the census through this link. We ask that one person from each community tax program, possibly the tax site coordinator or director, complete it. We will be closing the census on November 25, so don’t delay!

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