EIC Audit Resolution Packet

Transcription

1 EIC Audit Resolution Packet Included in this packet is information to assist you with an EIC audit being conducted by the IRS with one or more of your clients. The goal of an IRS EIC audit is to prove one of two things: a taxpayer has a valid relationship to a dependent that entitles them to claim EIC; or, the taxpayer himself qualifies for a reduced income credit. By assisting a taxpayer with completing the required paperwork properly, you can help release the balance of the taxpayer s refund by the IRS. This can pay down a taxpayer s outstanding RAL balance and lower your loan loss ratio. This directly affects both your incentive and your ability to offer RALs in the future. The taxpayer will need your help with preparing the proper documentation and sending it to the IRS. Taxpayers know and trust you, and your involvement is critical. Please contact the taxpayer as soon as possible and inform them they are undergoing an IRS audit and will be receiving information from the IRS requesting more documentation. Explain to the taxpayer, failure to respond to the IRS audit papers may result in all subsequent tax refunds for future years having problems. Once the necessary documents have been gathered, you can assist the taxpayer by faxing this information to the provided number by the IRS. There are three types of EIC audits. The most common is the EIC Dependency audit where the IRS wants proof that dependent(s) are valid. The next type is the EIC Head of Household audit where the taxpayer needs to provide paperwork to verify that they are the head of the household. The third audit, and least common, is an audit on Taxpayers without a Qualifying Child (an audit on oneself). All audits are explained below. Here is what you need to do now: 1) Click the links below to view and print Form 886-H-EIC-2008 and Form 886- H-HOH-2008 so that you can be familiar with what your taxpayer will receive from the IRS. 2) Contact your taxpayer to tell them they will be getting a notice (one of the Forms mentioned in step 1 above) from the IRS explaining what they must do to receive the balance of the refund. 3) Assist the taxpayer in completing the form the taxpayer receives (either Form 886-H-EIC-2008 or Form 886-H-HOH-2008) and obtaining the necessary proof (such as court documents, birth certificates, letters from church or school district). The required proof will differ with each taxpayer. 4) Mail Form 886-H-EIC-2008 or Form 886-H-HOH-2008 (whichever was requested by the IRS) and the required proof to the IRS. 5) Follow up with the IRS periodically to make sure the Form and proof was received.

2 The process of getting the IRS to release the taxpayer s EIC is simple once you understand it. Please call Refund Advantage at if you have any questions, or need any assistance with this process. An explanation of the three types of EIC audits EIC Dependency Audit The EIC Dependency Audit is the most common of the three types of audits. In the case of the EIC Dependency Audit, the IRS will mail the taxpayer Form 886-H-EIC-2008 to the taxpayer s home address with instructions on what type of proof the taxpayer should provide in order to get the balance of the refund released. Click HERE, or visit to view and print a copy of the form; or, you can call our office to fax you a copy. The IRS Form 886-H-EIC-2008 provides 3 areas (relationship, age, and residency), along with examples, where a taxpayer must provide proof to qualify a dependent for EIC. The proof differs depending on the relationship between the taxpayer and the specific type of dependent they are claiming. See the IRS Form 886-H-EIC-2008 to determine what information is needed to provide the required proof for the dependents the taxpayer is claiming for EIC. The taxpayer must provide proof in all of the following 3 areas specified on the IRS Form 886-H-EIC-2008: a) Relationship Test Court documents awarding custody can be used in lieu of birth certificates b) Age Test c) Residency Test Sample letters from a church or school district are attached For purposes of proofing residency, we have attached sample letters at the end of this packet that show samples of the type of letter the IRS is looking for - one sample letter is from a school and one is from a church. EIC Head of Household Audit In the case of an EIC Head of Household Audit, the IRS will mail the taxpayer Form 886-H-HOH-2008 to the taxpayer s home address with instructions for what type of proof the taxpayer should provide in order to get the balance of the refund released. Click HERE, or visit to view and print a copy of the form; or, you can call our office to fax you a copy. The IRS Form 886-H-HOH-2008 provides 3 areas (marriage, qualifying person, and cost of keeping a home), along with examples, where a taxpayer must provide proof to prove that they are the head of the household and therefore able to receive EIC. The proof differs depending relationship between the taxpayer and the specific type of dependent they are claiming. See the IRS Form 886-H-HOH-2008 to determine what information is needed to provide the required proof to the IRS. We have provided sample letters at the end of this document to show the type of letter the IRS is looking for when determining a qualifying person for EIC.

3 Earned Income Credit for Taxpayers without a Qualifying Child In the case of an EIC Audit for Taxpayers without a Qualifying Child, the IRS will mail the taxpayer Form 886-H-EIC-2008 to the taxpayer s home address with instructions for what type of proof the taxpayer should provide in order to get the balance of the refund released. Click HERE or visit to view and print a copy of the form; or you can call our office to fax you a copy. The IRS Form 886-H-EIC-2008 provides 3 questions to qualify an individual to claim EIC on themselves- without a qualifying child.

4 Date: xx/xx/2010 RE: Child s Name To Whom It May Concern: SAMPLE LETTER School Letter This is a sample letter you can give a school to duplicate. The italicized areas must be completed. This letter MUST BE ON LETTERHEAD from the school. School Name 123 Street Name City, ST Zip Code Phone Number School records show that Child s Name is a student in Grade X at School Name. School records list Name of Taxpayer as the parent/guardian and living with his/her Relationship to Child at 123 Street Name, City, ST Zip Code from date to the present. If you have any questions you may call us at Telephone Number. Thank you, First Name, Last Name School Principal or School Administrator NOTE: The letter must show the child lived with parent/guardian for over half of the 2009 in order to qualify. If the child does not currently live with the parent/guardian, the letter can indicate the date the child moved out, but must still show the child lived there for more than half of The letter should the earliest date the child lived there. If possible, this should be in 2007 or 2008 in order to avoid an EIC audit of 2007 or 2008.

5 Date: xx/xx/2010 RE: Child s Name To Whom It May Concern: SAMPLE LETTER Church Letter This is a sample letter you can give a school to duplicate. The italicized areas must be completed. This letter MUST BE ON LETTERHEAD from the church. Church Name 123 Street Name City, ST Zip Code Phone Number Church records show that Child s Name is a member of our congregation at Name of Church and lives with his/her Relationship to Child at 123 Street Name, City, ST Zip Code from date to the present. If you have any questions you may call us at Telephone Number. Thank you, First Name, Last Name Pastor/ Rabbi/ Minister NOTE: The letter must show the child lived with parent/guardian for over half of the 2009 in order to qualify. If the child does not currently live with the parent/guardian, the letter can indicate the date the child moved out, but must still show the child lived there for more than half of The letter should the earliest date the child lived there. If possible, this should be in 2007 or 2008 in order to avoid an EIC audit of 2007 or 2008.

6 SAMPLE LETTER Medical Provider Letter This is a sample letter you can give to a Medical Provider to duplicate. The italicized areas must be completed. This letter MUST BE ON LETTERHEAD from the Medical Provider s office. Date: xx/xx/20010 Medical Provider s Name 123 Street Name City, ST Zip Code Phone Number RE: Child s Name To Whom It May Concern: Medical records show that Child s Name is a patient of Medical Provider s Name at Medical Provider s Office Name. Medical records list Name of Taxpayer as the parent/guardian and living with his/her Relationship to Child at 123 Street Name, City, ST Zip Code from date to the present. If you have any questions you may call us at Telephone Number. Thank you, First Name, Last Name Medical Provider or Provider Administrator NOTE: The letter must show the child lived with parent/guardian for over half of the 2008 in order to qualify. If the child does not currently live with the parent/guardian, the letter can indicate the date the child moved out, but must still show the child lived there for more than half of The letter should the earliest date the child lived there. If possible, this should be in 2007 or 2008 in order to avoid an EIC audit of 2007 or 2008.