February 10, 2016
Barbara A. Brown, CPA
Recently, the IRS has been mailing letters to both taxpayers1 and tax return preparers2.
Taxpayers who claimed the Earned Income Tax Credit (EITC) but whose filed returns do not match IRS records are receiving the following letters as they apply:
Letter 5621 requests the taxpayer to review that each child claimed has met eligibility criteria for the EITC.
Letter 5621-A asks the taxpayer to review the accuracy and appropriateness of all Schedule C (or C-EZ) income and expense.
When an error is found, the taxpayer should amend his return accordingly. Additional information concerning the handling of these letters may be found here.
Tax professionals are receiving letters from the IRS Return Preparer Office. The following letters began mailing to preparers at the end of 2015:
Letter 5271 and Letter 5272 address the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC). Letter 5272 specifically references children with ITINs. These letters remind paid preparers of their professional responsibilities for accurately claiming these credits as well as completing Schedule 8812 Additional Child Tax Credit as required.
Schedule 8812 Part I must be completed for any qualifying child with an ITIN who is being claimed for the CTC; however, Schedule 8812 does not need to be completed if all children are identified by a Social Security Number (SSN) or an Adoption Tax Identification Number (ATIN) and the ACTC is not being claimed.
For a taxpayer to be eligible for the CTC, ACTC, or EITC where the EITC is based on having children, a dependent must meet the definition of a qualifying child. The dependent must meet certain relationship criteria in order to qualify for the credit (e.g., client's son, daughter, stepson, stepdaughter, adopted child, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendent of any of them). A child dependent who is a qualifying relative is not sufficient.
Beginning in 2015, if Form 2555 or Form 2555-EZ is filed to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the ACTC may not be claimed.
Also, beginning in 2015, all individuals reported on the return must have either an SSN or an ITIN by the due date of the 2015 return including extensions in order to claim the CTC or the ACTC. The IRS will not accept amendments to add these identification numbers to the return later. See Publication 972 for additional information.
Although it has not been reviewed or updated since January 2015, a Child Related Tax Benefits Comparison chart may be helpful and can be found at EITC Central. Here, required criteria are compared for the EITC, the dependency exemption, CTC, Head of Household, and Child and Dependent Care Credit.
Letter 5573 is being sent to credentialed3 preparers as a reminder of the importance in accurately reporting Form 1099-K and Schedule C for clients. Letter 5574 (a variation) was mailed earlier in the year to unregulated preparers.
Beginning in 2015, completion of Form 1099-K Box 1b (Card Not Present transactions) is mandatory. In prior years, completing this box was optional.
Other information concerning IRS letters and visits to return preparers can be found at here.
1 Jeff Stimpson, “IRS Sends Letters Regarding 2014 EITC Claims,” Accounting TodayDecember 30, 2015
2 Jeff Stimpson, “RPO Advisory Letters to Mail Soon,” Accounting Today December 24, 2015
3 Credentialed here means those preparers who hold professional designations or who have otherwise voluntarily completed the Annual Filing Season Program (AFSP) for continuing education.
Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.