TUBMAN: I see it's the top of the hour, so let's get started. Welcome to today's webinar: Understanding Paid Preparer Due Diligence Requirements. We're glad you're joining us today. My name is Veronica Tubman and I am a Stakeholder Liaison with the Internal Revenue Service and I will be your moderator for today's webinar which is slated for 120 minutes. Before we begin, if there is anyone in the audience that is with the media, please send an e-mail to the address listed on the bottom of this slide. Be sure to include your contact information and the news publication you're with. Our media relations and Stakeholder Liaison staff will assist you and answer any questions you may have. As a reminder, this webinar will be recorded and posted to the IRS Video Portal in just a few weeks. This portal is located at www.irsvideos.gov. Please note Continuing Education credit or Certificates of Completions are not offered if you view an archived version of our webinars on the IRS Video Portal, so just keep that in mind. In case you do experience a technical issue, this slide shows helpful tips and reminders. We've posted a technical help document you can download from the materials button on the left side of your screen and it provides the minimum system requirement for viewing this webinar, along with some best practices and quick solutions. If you have completed and passed your systems check and you are still having problems, try one of the following: First option is to close the screen where you're viewing the webinar and re-launch it. And the second option is to click on the gear icon. Now, some of you may not see the gear icon. It depends on your web browser. If you do not have it, the gear icon will be in the top-right corner of the slide in the photo boxes. You will have two choices. Select Flash instead of HLS from the available media box. You should have received today's PowerPoint and a reminder e-mail. If you do not have it, no worries. You can download it by clicking on the, Materials, button located on the left side of your screen as shown on this slide. Closed captioning is available for today's presentation. If you're having trouble hearing the audio through your computer speakers, please click the, CC, button on the left side of your screen. This feature will be available throughout the webinar. Now, during the presentation, we'll take a few breaks to share knowledge-based questions with you. At those times, a polling style feature will pop-up on your screen with a question and multiple-choice answer. Select the responses you believe is correct by clicking on the radio button next to your selection and the clicking, Submit. Some people may not get the polling question. This may be because you have your pop-up blocker on. So, please take a moment to disable your pop-up blocker now, so you can answer the question. If you have a topic-specific question today, please submit it by clicking the, Ask Question, button. Enter your question in the textbox and click, Submit,. Please, please do not enter any sensitive taxpayer-specific information or ask questions about a specific situation. We cannot provide guidance for individual situations in this forum. If you're just joining us, welcome to today's webinar: Understanding Paid Preparer Due Diligence Requirements. I'm Veronica Tubman, your moderator for today's webinar. Let me introduce today's speakers. Piper Stevenson is a Senior Analyst in Wage and Investment, Return Integrity and Compliance Service or RICS. Denise Helland is a Senior Analyst in the Stakeholder Engagement Office. Both have extensive experience working with the tax professional community.

Shanonda Scott-Ray is a Senior Analyst with Wage and Investment and is a member of the Refundable Credit Administration Team where she works on refundable credits and other tax benefits. At this time, I'm going to turn it over to Piper to begin the presentation. Piper. STEVENSON: Thank you. Thank you, Veronica. Good day, everyone. I am Piper Stevenson. And I must admit it's hard to admit that we're actually on the eve of another tax season. Thank you again for joining us today. Before I jump right into the meat of today's webinar, let me share a little more about our team. At IRS, we have oversight for the credits that are subject to due diligence. You may know them as the Earned Income Tax Credit or EITC; the American Opportunity Tax Credit, which we call AOTC; the Child Tax Credit; Additional Child Tax Credit, that's CTC, ACTC; and the New Credit for Other Dependents, ODC. As you know, the Child Tax Credit, Additional Child Tax Credit, the Credit for Other Dependents and Head of Household Filing Status were all affected by the December 2017 tax reform changes. With more complex tax issues, we thought connecting with you before the filing season was a great idea. At IRS, we understand tax reform changes, Social Security Number requirements, family relationships to consider and meeting your due diligence with confidence is extremely important to everyone. In addition, we want to take some of the mystery out of when, why and how the IRS communicates with you as a paid tax preparer. So, let's start by looking at what today's webinar will offer you. This webinar will give you a quick overview of the Internal Revenue Code Section 6695(g) which explains due diligence requirements for paid preparers. And we will do a recap of the tax cuts and Jobs Act as it relates to the Child Tax Credit, Additional Child Tax Credit moving forward, I will simply refer to it as CTC, the Credit for Other Dependents and the Head of Household Filing Status. I will also discuss with you the Social Security Number and Citizenship requirement for each credit as well as the Head of Household Filing Status. We will walk you through the various methods IRS uses to communicate with paid preparers who may not be meeting their due diligence requirement. I will share with you the how and when IRS contact paid tax preparers that's usually when we see non-compliance in some areas as it relates to due diligence. These messages include letters, phone calls, yes, IRS will call you, Educational Knock and Talk Visits and Compliance Due Diligence Exams. Those exams can be in person or by correspondence. We will also cover the concept questions for failing to meet paid preparer due diligence and share resources to assist you in meeting your due diligence requirements. Let's begin with the changes made around the Child Tax Credit as a result of the 2017 Tax Reform Legislation. As you know, major modifications were made to the Child Tax Credit. Tax reform changes took the exemption for personal and dependent to zero. And the credit now phases out at a higher income level, that is 400,000 for married filing jointly and 200,000 for all other filers. Depending upon your client's income, the CTC is now worth as much $2,000 per qualifying child. Of that, refundable portion is up to $1,400 per child. To claim the refundable portion, your client must have earned income over $2,500. Some of your clients may have received the credit for the first time in 2018 primarily due to the higher income limit, while others may have lost the credit last year. For your clients who have children with ITINs and that's the Individual Tax Identification Number, or have dependents over the age of 16, they may have been eligible to claim the Credit for Other Dependents which was implemented in the 2018 filing season. A key requirement for your client eligibility to claim the CTC is that that child must have the required Social Security Number. So, you may be thinking what constitutes a required Social Security Number. I have the answer for that for you. A required Social Security Number is one that is valid for employment and is issued by the Social Security Administration. That number would be issued before the due date of the return and that's including extensions, which means the social security card will either have no additional markings on it or the card legend will state, Valid for Work Only with DHS, which is the Department of Homeland Security authorization.

A child card stating, Valid for Work Only with DHS Authorization, can be used to claim CTC for your client. If the child card states, Not Valid for Employment, your client cannot claim the CTC for that child. But if the child immigration status change so that the child is now a U.S.

Citizen or Permanent Resident, your client can contact Social Security Administration and request a new card without a legend. Remember, the taxpayer, that's being the primary other spouse, can have an ITIN. The Social Security Number requirement only applies to the child. Now, let's dive deeper into CTC qualifying child requirement. For your clients, to qualify for CTC, each child claimed must meet the federal requirements shown on this slide. Let's do a quick review of those requirements. The child must be eligible to be claimed as a dependent on the client return. That is of the utmost importance. Now, let's look at relationship, relationship. A child must be related to the client such as a daughter, son, niece, nephew. That can be an adopted child as well as a foster child and sibling. You know those relationships by now, so I definitely will not dwell into them any further. Now, let's talk about age. The child must be 15 years or younger on the last day of the tax year, which is December 31st. Now, let's talk about residency. Looking at residency, the child must have lived with the client for more than half of the tax year. And don't forget to explore those situations where the child may be away, but that primarily may be due to situations like boarding school. Support. The child must not have provided over half of his or her own support during that tax year. Joint return. Now, with joint return, the child must not have filed a joint return with a spouse. And last, Citizenship.

The child must be a U.S. Citizen, a U.S. National or a U.S. Resident Alien. A U.S. Resident Alien is a non-Citizen person who lives in the U.S., who lives in the U.S., has a green card, or meets the U.S. Substantial Presence Test. As I mentioned earlier, the child must have the required Social Security Number. Along with the Social Security Number requirement, what's equally important is the child Citizenship status. For Citizenship, the qualifying child must be a U.S. Citizen or U.S. National or a U.S. Resident Alien. That's a person that's a non-Citizen who has a green card and, once again, meets the U.S. Substantial Presence Test. Remember, the Citizenship test is different from the required Social Security Number test and the client's child must meet both. Preparers, also remember that the Citizenship test being U.S. Citizen, National or Resident Alien is different from the Residency Test and that's living, the child must live with the taxpayer for more than six months of the calendar year. Both must be met and both must be examined extremely close where you're determining eligibility for the credit.

Let's see how well you listen in or how well I communicate. Here's Veronica with our first polling question to check your understanding of the Child Tax Credit and Citizenship. Veronica.

TUBMAN: Ok. Audience, Piper shared a lot of good information. Here is our first polling question. Can the client claim the Child Tax Credit for a child who is a non-U.S. Citizen living in the United States? Now, is the correct response A, yes, the child is a U.S. Citizen; B, no, the child is not a U.S. Citizen; C, it depends on the client's tax identification number; or D, both A and C? Now, please take a minute and click in the radio button you believe most closely answers this question. I'll read it again. Can the client claim the Child Tax Credit for a child who is a non-U.S. Citizen living in the United States? You have four options now. Is the correct response A, yes, the child is a U.S. Citizen; B, no, the child is not a U.S. Citizen; C, it depends on the client's tax identification number; or D, both A and C? I'll give you a few more seconds to make your selection. OK. We will stop the polling now. Let's share the correct answer on the next slide. And the correct response is A, yes, the child is a U.S. Resident. I see that, OK, 90 percent of you responded correctly. That's a great response rate. Piper, will you elaborate on how why A is the correct response for us? STEVENSON: Certainly. Thank you for the opportunity, Veronica. Although the child isn't a U.S. Citizen or National, since the child is a U.S. Resident Alien, the child is eligible to be claimed for the Child Tax Credit. However, make sure you also check to see whether or not the child has the required Social Security Number or Child Tax Credit. Some children will have it, but some may not. Now, back to you, Veronica.

TUBMAN: OK. Thanks for that explanation, Piper . So I'm going to hand it off back to you again. STEVENSON: Great job, everyone. Now, let's explore the Credit for Other Dependents, which we call ODC. ODC is an extension of the Child Tax Credit, so guess what, due diligence requirements apply here as well. The credit was created by the tax reform changes of 2017. It offers a $500 non-refundable credit for each eligible dependent. Let's look at bullets one and two on the slide for a quick review of ODC. A dependent for ODC includes your client's dependent qualifying child who can't be claimed for CTC for two reasons. The child does not have the required Social Security Number or because the child is over the age of 16. That is very important there. Looking at bullet three, a dependent for ODC includes your client's dependents who is a qualifying relative. A qualifying relative is a person who depends on your client for more than half of their financial support. That can be an adult child, an aunt, a brother and even an aging parent. Also, that can be a person who is not related to your client, but lives with your client for the entire tax year. Let's look closer at ODC rules for qualifying relatives and Citizenship. The Citizenship requirements for ODC qualifying relative is a person who is not your client's qualifying child or CTC or ODC. But that person can be claimed as a dependent on your client's return and that person is a U.S. Citizen, a U.S. National or a U.S. Resident Alien. This rule is the same as the Citizenship rule for CTC. Therefore, only U.S. Citizen residing outside of the U.S. can be claimed for ODC. For ODC, the other rules to be claimed as a dependent qualifying relative apply as well. They are your client, the client dependent must not have gross income over $4,150 or more. They must not have filed a joint return with a spouse and, finally, they must receive over half of their total support from your client. There are special rules for support that also apply. I'm going to refer you to Publication 501. Once again, that is Publication 501. It's very informative and it's a great resource for you to reference. Also, remember, this person must have the tax, must have a taxpayer's identification number issued to them before the due date of the return and that's inclusive of extension. The taxpayer identification number can be an ITIN, a ATIN which is for adoptions, a Social Security Number or a Social Security Number not valid for employment. Like with any tax matters, if you're not confident of your answer, please, please do your research. To wrap up ODC, Veronica is going to join us with another poll question. Veronica. TUBMAN: Thanks, Piper . Here is our second polling question. Can the client claim ODC that's Credit for Other Dependent for a sister who is a dependent with an Individual Tax Identification Number, lives in Canada and is a Canadian Citizen? Please take a minute and click the radio button you believe most closely answers this question. Based on the information Piper just shared, do you think the correct answer is A, yes, the sister has ITIN; B, yes, the sister lives in Canada; C, no, the sister is not a U.S. Citizen, National or Resident Alien; D, both A and B? OK. Here's the question again.

Can the client claim ODC that's Credit for Other Dependent for a sister who is a dependent with an Individual Tax Identification Number, lives in Canada and is a Canadian Citizen? Click in the radio button you believe most closely answers this question. Is it A, yes, the sister has ITIN; B, yes, the sister lives in Canada; C, no, the sister is not a U.S. Citizen, National or Resident Alien; or D, both A and B? And I'll give you a few more seconds to make your selection.

OK. We're going to stop the polling now and we'll share the correct answer on the next slide.

And the correct response is C, no, the sister is not a U.S. Citizen, National or Resident Alien.

Let's see how well you did. Looks like 75 percent of you responded correctly. So, Piper, can you explain why C is the correct response for our audience? STEVENSON: Yes. I'm glad to do that and, Veronica, thank you for the opportunity. Remember, in order for a person to be claimed for the credit for other dependent, that person must be a U.S. Citizen, a U.S. National or Resident Alien. Remember in the question the sister is a Canadian Citizen, so the client would not be able to get CTC for her. Remember, Citizenship matters. Let's move on to the next slide and I'll go over this quick chart with you that you may find very thoughtful. Again, well, this is a visual representation of all that I've shared about CTC and ODC with Citizenship requirement.

But, most importantly, I hope when you find yourself in your office and you're sorting through those tax identification numbers and Citizen requirement for both CTC and ODC, that you will find this chart very helpful as you try to make the correct decisions for your client. We did this because we know that the spoken word will quickly fade but print lasts for life. So, I hope that this print, this visual here, serves as a good resource and tool for you. As you know, the tax reform changes of 2017 brought Head of Household filing status under the Internal Revenue Code Section 6695(g) Paid Preparer Due Diligence requirement. Here to discuss HOH further with you is my peer and coworker, Denise Helland, Denise. HELLAND: Thank you, Piper, and hello, everyone. I really appreciate this opportunity to talk with you today. So, folks, as you know, under the new tax legislation, none of the rules for claiming Head of Household changed. The only change under the legislation is now this status is subject to due diligence requirement.

So, if your client pays for more than half of the household expenses and was considered unmarried for the tax year and has a qualifying person, which could be a parent, a niece, a grandchild, you should know most of those by now, then your client may be eligible for the Head of Household filing status. And it's important to know it's, it does not matter if the client is not eligible to claim that CTC, ACTC or Credit for Other Dependents. And I'm sure that you recall that there are special rules for divorced or separated parents when determining whether or not your client can claim the Head of Household. There is a great publication that is Publication 501, Dependent Standard Deduction and Filing Information,. It's a great resource if you do need to refresh yourself on those details. And, most important to remember, for the Head of Household filing status, your client's dependent must be a U.S. Citizen or a U.S. National or a Resident Alien or a Resident of Canada or Mexico. And remember, the dependent must have a taxpayer identification number, such as a Social Security Number or an ITIN. In addition, there is a special rule allowing a taxpayer to claim Head of Household filing status for a parent that lives in a separate home. So, if your client's parent is a U.S. Citizen or a National, they can live in the United States or they can live abroad. However, if the client's parent is a non-U.S. Citizen or a National, that parent can only live in the United States, Canada or Mexico. Now, just like before we developed this little chart, this little visual, to bring it all home as far as where you can claim a Head of Household filing status. I'm going to share a little example with you and let's say my client has provided over half of the total support for his father who earns $1,500.

His dad has an ITIN and lives in Mexico. Dad also meets all the other tests to be your client's qualifying relative. The client cannot claim his father for the Credit for Other Dependents because he doesn't meet the U.S. Citizen, National or Residency test. But he may be able to claim his father as a qualifying person for the Head of Household filing status because dad lives in Mexico. Now, again, the Head of Household that that dependent must be a U.S. Citizen, a U.S. National, or a U.S. Resident Alien or, again, a Resident of Canada or Mexico. There is a great publication out there, Publication 519,, U.S. Tax Guide for Aliens,. It's a great resource for you to think about these special situations. Now, Veronica, I do love these polling questions. Do you have another one for Head of Household? TUBMAN: Great minds think alike, Denise. Our next polling question is on Head of Household. Audience, now remember what Denise said earlier. A dependent must be a U.S. Citizen, National, or Resident Alien or a Resident of Canada or Mexico. All determinations should be made with this particular point in mind. OK, here it is. Can the client living in New York claim Head of Household status with a dependent parent who lives in Guatemala? Is the correct response A, no, the parent doesn't live with the client; B, no, the parent doesn't live in Canada or Mexico; C, no, because the parent is not living in the U.S.; or D, it depends whether the parent is a U.S. Citizen or National. OK.

Let me read it again. Can the client living in New York claim Head of Household status with a dependent parent who lives in Guatemala? Click in the radio button you believe is the correct answer. Is it A, no, the parent doesn't live with the client; B, no, the parent doesn't live in Canada or Mexico; C, no, because the parent is not living in the U.S.; or D, it depends whether the parent is a U.S. Citizen or National. Alright, now, just a few more seconds. OK, we will stop the polling now and we'll share the correct answer on the next slide. And the correct response is D, it depends whether the parent is a U.S. Citizen or National. Let's see how well you did.

I see that 39 percent of you responded correctly. Alright, Denise, will you provide the audience with a further explanation of that answer? HELLAND: I'll be glad to. If the parent is a U.S. Citizen or National and the client provides over half the cost to keep up that parent's home, then, yes, the parent in Guatemala is a qualifying person for the Head of Household status.

But if the parent is not a U.S. Citizen or a National, the client's parent in Guatemala is not a qualifying person for Head of Household filing status for your client. So, again, this can be a little confusing. So, we made another chart that might assist you. We know that your clients can come in with very complicated family and household relationships. So, this table might be something you will consider. It combines the child tax credit, the Credit for Other Dependents, the Citizenship requirements and addresses the Head of Household dependency requirements all at a glance. And, hopefully, this chart will be of use to you as you navigate through the questions concerning your client's families and their household. And all I can say is, thank goodness, you're out there as professionals sorting through all of these situations for your clients. Now, before I move on, I want to recap a few points and help you keep those in mind from this portion of our presentation. First, in order for your client to claim the child tax credit, their child must have the required Social Security Number. That credit may be worth as much as $2,000 per qualifying child depending on income and the refundable portion can be up to $1,400 per child.

Also remember the due diligence requirements for paid preparers now apply to claiming the Head of Household as well for each of the credits we're discussing today. And don't forget that also applies to the American Opportunity Tax Credit and the ever-popular Earned Income Credit as well.

And be sure to consider the new Credit for Other Dependents, which is that $500 non-refundable credit when your client's dependent doesn't qualify for this Child Tax Credit. The qualifying child or the relative for this credit can have an ITIN and can be over the age of 16. Now, with all of this, we want to be sure that you have all the information you need to meet the refundable credits and due diligence requirements. Now, there is a great resource called, The Tax Preparer Toolkit, which can be found on www.eitc.irs.gov. It offers online compliance education, webinars, publications and due diligence training meant just for you. I'm going to talk a little bit more about that a little later. Now, Veronica, I think it's a really good time for yet another polling question. TUBMAN: I agree. Audience, our fourth polling question is can the client claim credits for other dependents for his parent who is a dependent, has a Tax Identification Number and lives in Japan? Please take a minute and click in the radio button you believe most closely answers the question. Based on the information Denise just shared, do you think the correct answer is A, yes, the parent is a qualifying relative; B, yes, the parent's residency is not an issue; C, no, the parent must reside in Canada, Mexico, or the U.S.; or D, it depends on the parent's TIN? Again, can the client claim credits for other dependents for his parent who is a dependent, has a Tax Identification Number and lives in Japan? Click in the radio button you believe most closely answers this question. Is it A, yes, the parent is a qualifying relative; B, yes, the parent's residency is not an issue; C, no, the parent must reside in Canada, Mexico, or the U.S.; or D, it depends on the parent's TIN? You have a few more seconds to make your selection. OK. We're going to stop the polling now and we'll share the correct answer on the next slide. The correct response is D, it depends on the parent's Taxpayer Identification Number. So, let's see how you did. I see 15 percent of you responded correctly. Oh My goodness, Denise will you. HELLAND: My goodness, yes. TUBMAN: give us a little bit more of an explanation on the answer, please? HELLAND: I'll be happy to. If the parent is a U.S. Citizen or a National, your client can claim the parent in Japan for the Credit for Other Dependents. However, if the parent isn't a U.S. Citizen or a National, your client cannot claim the parent in Japan or the Credit for Other Dependents. And remember, and this is so important to remember to keep it all clean in your mind, to claim a person for the Credit for Other Dependents, they must be that U.S. Citizen, National or Resident Alien. You must inquire to see if they have what is required as Social Security Number or an ITIN to determine the eligibility.

Now, I'm going to turn our presentation to how we assist you, the preparers, in meeting your due diligence compliance through educational letters, calls and visits and; when necessary, examinations. My colleague, Shanonda will take you through each of the letter and calls we make to guide those who do not appear to be meeting the requirements. But, first, it wouldn't be a due diligence presentation without a review of the four requirements. There are four steps each preparer must take to meet due diligence. As a professional preparer, you're expected to, first, apply the knowledge requirement, which means to understand the tax law for all the credits, including the new Credit for Other Dependents, as well as the rules to claim Head of Household filing status, so that you can ask your client all the right questions. As a paid preparer, you must not have any reason to, as we say, to know or think the information being provided to you is incomplete, inconsistent or incorrect. And, if it is, you must ask reasonable and appropriate inquiries and document what you asked along with your client's responses. Now, it's also important to be sure to complete the appropriate worksheets for each credit based on the information provided by your client or information you otherwise obtained or you know about. And you will need to keep copies of the required records, including worksheets and other documents that you relied on to determine each of the credit eligibility. And you are required to record the questions that you ask and the answers that you receive from your client or the representative and copies of your client's records should be stored and can be stored on paper or electronically. Last, but definitely not least, be sure to complete and submit Form 8867, otherwise known as the Paid Preparers Due Diligence Checklist. As you know, we revised it last year to reflect the new due diligence requirements that now apply for the Credit for Other Dependents and that legislation that expanded due diligence to the Head of Household filing status. And guess what? We've made additional, excuse me, we made additional revisions to this form for this filing season and this is as a result of the feedback that we received from the tax preparer community. So, you made some suggestions and we listen. OK. So, what do you think we see preparers making the most mistake, in which areas? Well, it's not meeting the knowledge requirement and not keeping all the required records. What we found is the preparers often do not recognize the inconsistent or incomplete information that their clients give them or what we call not applying the Common Sense standard to the information that's being provided in order for the preparer to meet the knowledge requirement. So, what do you think applying the Common Sense approach in order to meet the knowledge requirement looks like? Well, consider what you know about income from employers and industries in your community and weigh it against what the client shares with you. And use what you know about your client and their occupation, then match that information up against your client's past year returns if you have them available. And compare all of that information against what they're currently reporting to you. And, you know, sometimes it can be uncomfortable, but you should go ahead and ask those follow-up questions as needed even if you think you already know the answer because I know that life changes daily and it is also true for your client. So, don't forget to ask. Now, it's important that you develop your own interview process and apply it to each return every time. Now, that all seems straightforward, right? But, we have another problematic due diligence area and that is in record keeping. But what documents do you really need to keep and how long should you keep them? Well, we find that there are times the preparers are not keeping all the required records. Remember, you must keep a record of all the additional questions you ask your client in order to comply with your due diligence, as well as their answers. So, be sure to record who gave you the information and when you got it. And don't forget to keep copies of any and all worksheet that you complete to compute the amount for each credit. And, of course, you must keep a copy of Form 8867 and any copies of client document that you relied on to determine eligibility for each credit and/or the Head of Household filing status or any paperwork you use to compute the amount of each credit.

And you must include Form 8867 with every return you prepare, that claim any of the credits that we're discussing as well as the credit for Earned Income Tax and the American Opportunity Tax Credit or the Head of Household filing status. And, once again, this can be on paper or within your software. And keep in mind most software is generic and really it can't be relied on necessarily to provide 100 percent of all the questions you need to ask. So, as I mentioned, there may be situations in which you'll need to ask additional questions because that information may appear to be incomplete or inconsistent. So, be sure to document those additional questions and the answers. Now, consider how to ask those questions so that you're not leading your clients to an answer in a way that they may perceive as helping out. For example, don't ask,, Are you Head of Household?, Ask instead,, Who lives with you?, and proceed from there. Now, I think I got a minute, so I'm going to share with you an experience I had about 100 years ago when I was a brand-new IRS employee and I worked on the toll-free line. I was trying out my chops in answer, asking open-ended questions. So, I had a gentleman on the, on the phone and we were trying to determine how he should file his tax return. So, I asked him,, Sir, what is your marital status?, Hey, that sounds like an open-ended question, right? Well, he gave a long pause and then he replied, Not good., Well, that did not answer my question, however, it did open the door for further conversation. So, it is very important also if you employ other tax preparers to ensure that they are trained in the due diligence process and have that process in place to ensure that they are meeting those requirements for your business. I have a little bit more information on my favorite Form 8867. Now, I'm sure you all noticed that Form 8867 was redesigned last year to cover all the TCJA tax reform changes. But here is a brief overview of each section for this form this year. Part 1 will still cover the general due diligence requirements that now include the Head of Household filing status. Part 2 will cover the EITC eligibility including the consideration for Head of Household. Part 3 covers the Child Tax Credit, the Additional Child Tax Credit, and the Credit for Other Dependents. Part 4 will continue to cover the American Opportunity Tax Credit. Part 5 ask questions regarding the Head of Household filing status, and part 6 is your Certification of Eligibility that you must complete and sign. And don't forget there are penalties for not meeting the due diligence requirement. If you are a paid tax preparer and fail to comply with due diligence requirements for the EITC, the CTC, the ACTC, including the Credit for Other Dependents, the American opportunity tax credit, and/or the Head of Household, the IRS can assess a $530 penalty per error. So, allow me to take one more minute to talk about preparer's concerns that we observed this year when we presented at the Nationwide Tax Forums and conducted focus groups. We had tax preparers come up to us after our presentations and in those focus groups that we held and asked questions centering around documentation. We heard from many tax preparers that they're frustrated because they perceive their client has to prove eligibility for the credit and the Head of Household status by providing documentation at the time of tax preparation. Some tax preparers told us that they were uncomfortable asking those probing questions that were sometimes sensitive, but necessary, to meet their due diligence knowledge requirement. So, we have some suggestions. Consider using the form IRS uses to request documentation during audit. Tell your clients, Here's what you need to support your claim if you are audited by the IRS, And ask them, Do you have these documents or can you get them? You don't have to review the document, but if you do and you rely on that information to prepare a claim for the Earned Income Credit, the Child Tax Credit, the Additional Child Tax Credit, Credit for Other Dependents, or the American Opportunity Tax Credits, be sure to keep a copy either on paper or electronically of those document. Most of the forms that we have for the, are in both English and Spanish. For example, the Form 886H-EITC documents you need to prove you can claim the Earned Income Credit on the basis of a qualifying child or children. You can review the document with your client showing the client the legal requirements a qualifying child must meet. Then, you can confirm with your client that they have or they can get the supporting document. Also, you can advise your client to keep these important supporting documents for three years after the due date of the return in case the IRS would audit that return. Boy, Veronica, that was a lot of information. I believe you may have one more polling question. TUBMAN: You're correct. We do. Audience, our fifth and final polling question is should a paid tax preparer require documentation if the client is a grandparent claiming Earned Income Tax Credit for her qualifying grandchild? Which do you think is the correct response? Is it A, yes, documentation is always required; B, no, if response to probing questions are documented and appear to be correct, consistent and complete; C, no, if the grandparent has or can get the supporting document if requested by IRS; or D, both B and C?

Again, should a paid tax preparer require documentation if the client is a grandparent claiming Earned Income Tax Credit for her qualifying grandchild? Is the correct response A, yes, documentation is always required; B, no, if response to probing questions are documented and appear to be correct, consistent and complete; C, no, if the grandparent has or can get the supporting document if requested by IRS; or D, both B and C? Click the Radio Button you believe is the correct answer. OK, just a few more seconds before we stop the polling. OK, we will stop the polling now and we'll share the correct answer on the next slide. And the correct response is D, both B and C. Let's see how did you do. I see that 51 percent of you responded correctly.

Denise, will you share why B and C are correct? HELLAND: Sure will. Now, if you ask questions of your client and they provide answers that seem consistent with the information that they provide you, be sure to record both the questions and their answers in your work papers. It's also important to reinforce to your client that if the IRS asks for documentation, they must have that paperwork available or be able to get it. So, with that, I am now going to turn it over to my friend and colleague, Shanonda Scott-Ray to continue with our presentation. Shanonda, are you ready? SCOTT-RAY: Thank you so much, Denise and great job on the polling questions, everyone. It looks like you're ready for the upcoming filing season. Now, before we get there, you may not believe this, but we share the same goals as you. We want to ensure every taxpayer receives the credits and the filing status that they are entitled to. And we also want you, as paid preparers, to be successful in preparing correct returns claiming these credits and the filing status for your client. Now, we use various ways for us to contact you. We have letters which we will send based on potential errors that we have seen or may be seeing. We also may contact you by way of phone calls. And as you have heard in today's session, yes, we do make phone calls to paid tax preparers. Also, we may do an educational visit known as a Knock and Talk Visit. We call it a KTV. Now, these visits include reviewing some of your client returns and having a discussion regarding due diligence law and how to comply in the future. Now, once we contact you using any of those methods, we continue to monitor the returns you prepare. So, let's say, we have sent letters; made phone calls; done a KTV with you and there still seems to be some issues with your due diligence. At that point, we may conduct a Due Diligence exam, which could either be done via correspondence mail or in your office. During which time, we will review your returns and possibly propose penalties, which, of course, is not the most ideal situation. Now, in order to remove some of the mystery surrounding the process, we are going to review the letters, talk about the process and various options that you will have if you are penalized. So, the screen you will see the first letter, which is a Letter 5025. We send this letter if you, as a paid tax preparer, filed returns claiming one or more of the credit and/or the Head of Household filing status for your clients and our review of those returns indicate you may not have met your due diligence requirements. Now, this Letter does not identify specific tax returns because this Letter is for educational purposes only. Now, while this letter includes information about due diligence requirements, it also outlines what could happen if you continue to not meet your due diligence. So, I guess you can say it is a cautionary educational letter that reminds you to comply with your due diligence requirement. Now, the Letter 5025 is sent in the fall. This is during the time what we referred to as our pre-filing season for the upcoming year. The letter addresses the previous filing season returns that you may have submitted. The next letter we have here is the Letter 4858. Now, this Letter is sent early in the filing season and, similar to the 5025, it is sent to preparers who file questionable returns claiming any of the credits and/or the Head of Household filing status and it too does not identify specific tax returns because it is an educational letter as well. Do you see a pattern?

Educational letters do not include specific tax return information. Now, there is a difference.

The difference between the Letters 4858, which you see here; and the 5025 is that this letter reminds paid preparers of their due diligence requirements based on the returns that have been filed so far. So, it's based on current returns filed. We will include also in the letter any new tax law changes. For example, for the fiscal year 2019 letter, we included information on the Tax Cut and Jobs Act expansion detail. We may also include information regarding what can happen when there is failure to exercise due diligence that may include penalties of up to $2,120 per return. It also may include a possible audit, suspension or termination of your e-filing privileges or referral to the IRS' Criminal Investigation Division. The next Letter that we send is the Letter 5364. Now, this Letter is sent to paid preparers to remind of their requirements to submit the Form 8867, Paid Preparers Due Diligence Checklist, with each return.

We will send this letter when we see multiple papers returned missing the Form 8867. Now, for the millennials on the line, you won't remember this, but the rest of you may remember completing tax returns by hand and having to mail them in. It is great now that all that you have to do is click everything. Now, that is, of course, if you are using the right software designed for preparers. For the most part, I am sure the missing form may be an oversight or possibly a printing issue or maybe in the past you did not need to file the Form 8867 because your clients did not qualify for the credit. But now, because of the inclusion of the Head of Household filing status or the new ODC credit, you are required to submit it. So, if you received one of our letters in the mail, the Letter 5025, the Letter 4858 or the Letter 5364, what did you do?

Panic? Ignore it? Throw it unopened in the trash and think if you did not open it, it did not happen? No, don't do any of that. Open the envelope and read it. We send these letters to help you. We want to assist you with complying with due diligence requirements. We do not propose penalties when we send any of these letters. But, remember, we will continue to review your returns and, if your returns do not improve, we may follow up with a phone call, an additional letter, an educational visit, or even a Due Diligence exam during which we could propose penalties. So, let's assume you are in the office, you got a Letter 5025. You opened it and you actually read the letter. What corrective action can you take to improve your due diligence compliance? Well, even if you feel you've got a great process in place, it is always a good idea to revisit your procedures and make sure all four due diligence requirements are truly being met. Review the rules that apply to all of the credit and the filing status and implement any additional steps to ensure accuracy. Now, let's talk about the phone call which is another way we try to reach out to paid tax preparers. Now, it appears that there has been some confusion around call from the IRS to paid tax preparers as to whether or not these calls are legitimate.

We are all aware of the telephone scams where people call demanding money, right? They tell you how you owe outstanding taxes, threaten bodily harm, and when you question who they are, they may even start cursing on the phone. Now, this is not the IRS. IRS does not call asking for payment unless you called first and you would have received a bill in the mail. But educational compliance calls to paid tax preparers are different. These calls are exempt from recent directives about IRS not calling tax preparers. I'm sorry, these calls are exempt from recent directives about IRS not calling taxpayers. During the pre-filing season and during the filing season, we make educational compliance phone calls to pay tax preparers who may or may not have received a prior contact letter and continues to not improve.

We call to help you avoid errors in preparing future client returns as well as potential due diligence penalties. We do not ask for personal information about your client, neither do we ask for any money. When we make these calls, we will try several times with the telephone numbers we have available. Those numbers may include your cell phone number, your office number et cetera.

Once you are on the phone with the IRS employee, they will confirm their identity with their IRS credential and they will confirm your identity as well. They may mention the prior letter you received or the phone call if they are calling you back. The agent will also explain that the returns you are submitting continue to be questionable, that the IRS is monitoring and reviewing the returns, and they will discuss any new tax law changes. They will talk about due diligence rules and possible consequences if questionable returns continue to be received. And then, finally, before they conclude, they will share where you can find due diligence educational products and training on IRS.gov and you can put in, Preparer Toolkit, in the search box. Now, I have one more type of educational activity that I would like to discuss. This activity is known as a knock-and-talk visit or, as we call it, a KTV. We have a regular KTV and we also have a KTV Lite. The difference between a KTV and the KTV Lite, for the KTV, the examiners are accompanied by a Criminal Investigation agent when they are doing the visit, while a KTV Lite does not include a CI agent. Other than that, they are essentially the same. These visits are done in person and to our preparers who complete egregious returns. After the visit, what do you think we do? You're probably thinking it. We will continue to monitor the filing behavior.

And if it does not appear to improve, a Due Diligence exam may be conducted. Alright, now, up until this point, I have shared our various educational activities. Now, we are going to talk about what happens if we have sent letters and conducted phone calls, but there has not been any improvement. We have what is called Due Diligence exam. So, I know you want to know what happens during the exam and how that process happens and I will share that with you. The tax preparer will receive an appointment letter notifying him or her that they have been selected for an examination as part of the Paid Preparer's Due Diligence program. The letter includes a phone number for the preparer to call and set up an appointment. The agent and the preparer will agree on the best time to meet and the agenda for the first appointment and the agent will also share what the preparer needs to provide. The tax preparer will need to provide Form 1040 from the tax year under exam, Form 8867, Credit Computation Worksheet, and the documentation used to support eligibility and computation of the credit. In addition, the preparer's software setup may be reviewed during the visit as well. Now, suppose the tax preparer do not call to schedule the appointment and tosses the letter in the trash. If the agent does not hear from the preparer to schedule the appointment, the agent will then try to call the preparer. If the agent cannot get in contact with the preparer, he will send a letter proposing the penalty under IRC 6695(g).

Now, just one thing that you should keep in mind. If you are selected for a due diligence exam, you can have someone else represent you. You will need to complete a Form 2848, Power of Attorney and Declaration of Representative. Send it in the mail or fax it to the agent before the time of your appointment. The agent will need to have received the form before they can discuss any of your tax matters without you being present. Now, generally, in addition to the specific questions about the client returns, during the exam, the agent will ask the preparer about the paid preparer's training and education, due diligence procedures that are in place, the Form 8867 process in place, intake sheet, credit worksheet and retention of records. Now, these are just a few of the questions that the examiner may ask. Each exam is unique. Sometimes more details are needed in order for the agent to understand and sometimes it could be less. After the completion of the initial interview, the examiner will review a selected number of client returns, the additional schedules and documentation. And generally, the appointment can last up to eight hours. However, if the agent is unable to complete the review of all of the returns, a follow-up visit may be necessary. Now, when the exam is completed, the agent may propose penalties or there may be no changes at all if it is determined that the preparer complied with all of the requirements IRC Section 6695(g). So, what happens at the exam closing conference?

You may be wondering. Remember, before a tax preparer get to the point of an examination, he or she would have had previous contact from the IRS and opportunities to improve. But when improvement is not observed and examination can't take place, if due diligence penalties are proposed, the preparer has options regarding how to handle the penalty amount that has been proposed. Let me share what those options are. If the preparer agrees to the penalty, he will sign the Form 5816, Report of Tax Return Preparer Penalty Case, pay the whole amount, or make a partial payment and request that a bill for the rest of the payment be sent to him. Or the preparer can wait for the bill and request an installment agreement. Now, if the preparer does not agree, he has appeal rights. The Letter 1125 advises him that he has 30 days to file an appeal which will then be forwarded to the IRS Appeals Office. Now, if the penalties proposed are $25,000 or less, the preparer can send us a Letter requesting to go to Appeals. In the letter, he has to include what he does not agree with, the reason why, and state he wants to go to Appeals. Or the preparer can complete a Form 12203, Request for Appeals Review, which is easier because it includes the questions the preparer needs to answer so that he won't forget to include those items in his request. Now, if the total penalties proposed are more than $25,000, the preparer will have to do a formal protest. The requirements for a formal protest are explained in Publication 5, Your Appeal Rights and How to Prepare a Protest if you Don't Agree.

And if the preparer does nothing and hope it will all go away, unfortunately, that will not happen. Within a 30-day period, the case will be closed and the penalty shown on the Form 5816 will be assessed. Now, in fiscal year 2020, the penalty will increase to $530 per failure for returns and amended returns. IRS refers preparers who willfully file fraudulent returns to either our CI office or the Office of Professional Responsibility, or we may work with the Justice Department Tax Division under the Civil Injunction Program to seek a court order called an injunction. Injunctions can bar a person or a business from preparing tax returns for others. Now, I am going to share one last method the IRS may use to examine a paid preparer due diligence compliance. We have what is call a correspondence Due Diligence Exam. We conduct Due Diligence correspondence exams in areas where there are not enough Revenue Agents or where there are no Revenue Agents in that geographic area to conduct an in-office visit. Last season, approximately a thousand Due Diligence examinations were done, of which, approximately 230 were done via correspondences. Now, we may expand the number of correspondence exams conducted in the future. So, if there is a preparer nowhere near an IRS office, it does not mean IRS cannot conduct a Due Diligence examination. It simply means we will do it via mail. Now, before we end our presentation on today, Denise will share some of IRS resources that we have that can help you avoid getting the letters that I shared with you today, a possible phone call or the penalties and other consequences that have been discussed during this presentation. Denise. HELLAND : Thanks, Shanonda. And before I get to all those great educational resources we have, I just want to say there were a few main points that I'm going to keep in mind from your discussion. The first one is that it's not, it's vital not to forget to complete my form, my favorite Form 8867, the Paid Preparer's Due Diligence Checklist for every return that's prepared with any of the credit and/or the Head of Household filing status. Another point you made is that the IRS uses various methods to communicate with preparers who are not meeting their due diligence requirements. So, tax preparers should be sure to address any letters or phone calls or those educational visits from the IRS to really avoid a Compliance Due Diligence Examination. I'm sure that's what I would do. And the other point I'm taking away is that there are consequences for failing to meet the paid preparer's due diligence. But the good news is the IRS will attempt to educate those preparers who do not seem to be meeting the requirements before going to more aggressive actions. So, onto what we have available. It's important, everyone, that we have for you, as part of an important part of our education effort, a resource and we have one. We have a great resource tool available through IRS.gov. It's designed with you in mind and our goal is simple, to assist you in accurately preparing your client's return. And all you need to do is use the search box on IRS.gov and enter the words, Preparer Toolkit,. And what does the Preparer Toolkit contain, you might ask? Well, it provides information on due diligence requirement, including articles and publications and examples of various treatment letters that Shanonda talked about. When you open the page, you can also find up to the minute compliance messaging under what we call, Hot Topics, And guess what else? We have some humorous, but educational videos that walk through those more complex client scenarios that we've been covering today and how to navigate through an interview to meet your due diligence to assist you in making accurate return preparation. We produced those for the Nationwide Tax Forums this year and all you need to do is, on the toolkit, you can search, Tax Forum Videos, or, Videos, on that site. We also have a video or two that will walk you through the due diligence exam process that Shanonda just covered and sometimes pictures are worth a thousand words for sure, so watch these videos.

I think you'll find them educational and entertaining. Also, this also may be of great interest to you. The site, the Preparer Toolkit also offers you an opportunity to take an online due diligence training module and earn another Continuing Education Credit. Again, this is for free.

Best of all, for this particular training, you can take the course anytime, 24/7, from the comfort of your home or office. And all of this information can be found on our preparer toolkit, so take a look. Now, in addition to the toolkit, and as we stated, you should check it periodically because we also under, Hot Topics, provide more information about upcoming due diligence webinars to avoid the common errors and penalties when determining eligibility or the credit. We also offer taped videos that you can use as a training resource for your business and your staff. And we know that you may have more questions that we're not able to cover today surrounding Letters and due diligence. So, we do offer you a direct e-mail address to us. It's the EITC program mailbox. This is a way for you to contact our office directly with your questions or your suggestions. And you can send your questions to eitc.program@irs.gov. But I just want to remind you that this mailbox is only for general questions regarding due diligence, not specific taxpayer issues or technical questions. Veronica, this completes our presentation, so I'm going to turn it back over to you. TUBMAN: Thanks, Denise , and hello again. I'm Veronica Tubman and I'll be moderating the Q&A session. Piper, Denise and Shanonda are staying on to answer your question. We are also fortunate to have Naomi Mbugua-Dillard, Acting Manager of the Policy and Coordination PC group; and Return, Integrity and Compliance Services Manager, RICS, join us today to help answer your question. Before we get started, I want you to know that we may not have time to answer all the questions submitted, but we will answer as many as time allows. Before we start, a word about certificates and Continuing Education Credit. You will qualify for 1 credit by participating for at least 50 minutes from the official start time of this webinar, which was at the top of the hour. You will qualify for 2 credits by participating for at least 100 minutes from the official start time of webinar. The first minutes of chatting we engaged in before the top of the hour does not count towards the 50 or 100 minutes. OK, speakers, we've received a lot of questions. So, let's go ahead and get started. OK, ladies, let's take a look here. Alright. Piper, if the client has a parent with an ITIN and was a Resident of Canada and they support them, can they claim them for the Head of Household?

STEVENSON: Veronica, yes. They may claim if the parent has an ITIN and was a Resident of Canada and this applies for HOH Head of Household. They may be claimed as HOH, but remember, they cannot be claimed for ODC and I think that's kind of problematic for people. If there's an ITIN, that person is a Resident of Canada, can they do HOH? Yes. Can they do ODC? No. Remember, a qualifying person must be a U.S. Citizen, a U.S. National or a U.S. Resident Alien when you're talking ODC. The rules are different ODC and HOH as it requires, as it applies to ITIN. So, please look and review your information carefully in those situations. Thank you, Veronica.

TUBMAN: Thanks, Piper. OK, Denise. What form does the service use on audit of these credits?

And this was the one that you talked about during your presentation. HELLAND: Thanks, Veronica.

There is a form that's sent to taxpayers that may be undergoing an audit and it, and I'll give you an example for Earned Income Tax Credit if they're reviewing that credit. It's Form 886H-EIC. And the form is available in Spanish or English and the forms name is, Documents You Need to Prove You Can Claim Earned Income Credit on the Basis of a Qualifying Child or Children.

Now, we recommend this as a guide for you to use with your client to show them some of the documents that may be needed in order, if, in fact, they are subject to an audit. So, what you can do with that form is review it with your clients and confirm that they have those, they have that documentation if it's ever needed. Now, this is if you feel that your client is giving you accurate information. It's not necessary for you to get all those documents, but just reaffirm with your client they have access to them. TUBMAN: OK, thanks a lot. OK, Naomi, I have one for you. Are there any publications regarding CTC, ACTC, and ODC available online? MBUGUA-DILLARD: Hi, Veronica. Thank you. There is a publication available online at IRS.gov and the publication is Publication 972. And that publication gives you a lot of information about the Child Tax Credit, the Additional Child Tax Credit and the Credit for the Other Dependents. And it goes into a lot of information for the questions that have been posed today regarding an ITIN, regarding the location, a lot of information on there. So, I definitely do encourage people to take a look at the Publication 972. TUBMAN: OK, Shanonda , we have one for you. The preparer says I have a letter from IRS stating I may not meet required due diligence. What should I do?

SCOTT-RAY: Thank you, Veronica. If you received a letter from the IRS stating you may not have met your due diligence requirement, there will be a phone number and an e-mail address that you may utilize to contact the IRS in reference to the letter that you received. Just remember, there will not be any information about specific client returns information on that letter and, when you call in in reference to the letter for any questions, specific details will not be provided.

Again, there will be a phone number and an e-mail address on any of the letters that are mailed to preparers. Thank you, Veronica. TUBMAN: OK, thank you. Thanks, Shanonda. OK, Piper. If a taxpayer prepares his or her income tax return, does he or she required to file electronically only or does he or she opt to file paper or mail through the United States Postal System? And that's for Piper . STEVENSON: Can you repeat that? Can you repeat that again? TUBMAN: Sure, Piper. If a taxpayer prepares his or her own personal income tax return, are they required to file it electronically only or can they take the paper and mail it through the United States Postal System? STEVENSON: Yes. They are not required to file electronically only although we encourage it. That person can file their return at and print and send it in through the regular mail, United States Postal Service. That is acceptable. TUBMAN: OK. Thanks a lot. OK. So, next ones for Denise. So, the child or dependent can or can't have an ITC to claim the Child Tax Credit, an ITIN, I apologize. Let me give that to you again, Denise. So, the child or dependent can or can't have an ITIN to claim the Child Tax Credit. Is that a true statement?

HELLAND: That's a good question. For the Child Tax Credit, the child cannot have an ITIN. And what's very interesting is that your client can have an ITIN, but the child must have a Social Security Number by the due date of the return or its extension. TUBMAN: OK. Thanks a lot for that. Alright. So, with that in mind, Piper, just to make sure we get a good understanding, what is a U.S. National? What's considered to be a U.S. National? STEVENSON: A U.S. National, Veronica and everyone, is a person that is born in the U.S., but however, they have ties to the outlying possessions of the United States. For example, starting in 2019, that's a person that's an American Somalian. Those are, those are the only classes of U.S. Nationals that are now recognized. So, they can, they can be looked at as a U.S. Citizen, but also they may declare themselves as a National. And that goes to the, like I say, once again, the outlying possessions. They live on the outskirts of the United States. TUBMAN: OK, thanks a lot. OK, Naomi. What document does a taxpayer need to keep copies of as proof they have fulfilled or, should I say, the tax preparer keep to say that they have fulfilled their due diligence requirements? So, what kind of documents should they retain? MBUGUA-DILLARD: Well, so, as a tax preparer, you're required to keep a copy of any client provides a document that you relied on to determine or compute the amount of the credit. So, these documents may be requested when you're unsure of additional information and the responses that are provided by the client appear to be incorrect, inconsistent and/or incomplete. So, it would be any document that you relied on to determine or compute the amount of any of the credit. TUBMAN: OK. So, Naomi, if a client wants to claim her son as a qualifying child for EITC and reports that she is self-employed as a babysitter with no expenses, you know, what questions should be asked to ensure that due diligence is satisfied in that situation? MBUGUA-DILLARD: In that situation, the preparer should ask questions to be satisfied that the taxpayers really, that they are really self-employed.

Like, do they have income and expense records? Can they present a reconstruction of the income and expenses? You know, if there's, if they have any verification of payment, those are the good type of questions that they would need to ask until they are satisfied that the answer they are receiving are correct and consistent with what the client has stated is the business. TUBMAN: OK. MBUGUA-DILLARD: Until they're satisfied. TUBMAN: OK. Appreciate that. Shanonda, this one's for you. Is there a list of questions that preparers can ask on each EITC? SCOTT-RAY: Thank you, Veronica. That's a very good question. I will, I will start with this, as I explained during the presentation about the due diligence exam, each exam is different and unique. That is no different than a client coming to preparers. Their situations are different. Their situations are unique. There may be some questions within the software, very general questions that the preparers can start with. However, because the situations are different and unique, sometimes, in most cases, additional inquiries should be asked and those additional questions should be documented. The responses should be documented as well as a part of their due diligence. TUBMAN: Appreciate you. OK, Piper, I'm tossing this to you. What about a totally disabled child who lives with the taxpayer, has an SSN or CTC? Does age matter then? STEVENSON: No. That's, a question there, if that person is totally disabled as a child or a totally disabled person and lives with a taxpayer, has an, has an SSN, for CTC, the name or the age would not matter. So, they would be able to claim that disabled child regardless of age for the Child Tax Credit.

Thank you. TUBMAN: OK. So, Piper if, now, here is another question from a practitioner. If the dependent is not a Citizen, but resides in the U.S. do they it qualify for an ODC? That's for you, Piper. STEVENSON: The dependent is not a Citizen and resides here, they would qualify for ODC. Remember, we said for ODC, the person may have an ITIN. So, well, let me go back. The dependent must have an ITIN. They can have an ATIN, they can have a Social Security Card, or they can have a Social Security Number that is not valid for employment. If they reside here, they could qualify for the ODC. But they must have some form of Tax Identification Number to be claimed on that tax return. TUBMAN: OK. Thanks a lot for that. OK. This one's for Denise. If a client wants to claim AOTC for her child who received a 1098T from an eligible education institution, should you keep a copy of the form to meet your due diligence? HELLAND: If the client, the client should provide a copy of the 1098T and if and since the preparer will need to rely on that in order to claim the credit, a copy should be kept. TUBMAN: OK, thank you. OK.

So, for Naomi. For Head of Household and claiming a parent who lives in Mexico or Canada, does a parent need an ITIN if they are Citizens of Mexico or Canada? MBUGUA-DILLARD: So, Veronica, I would, I would definitely suggest and there is a publication for that as well and that's Publication 972 and that is, talks, that, it talks about and includes information regarding the Head of Household filing status. So, basically, for the Head of Household filing status, the parent must have an ITIN and the client claiming the parent should have provided over 50 percent of the support for the parent and, in the case of 2019 tax year, the parent should have earned less than 4,200. If it was for 2018, it would have been 4,150. But I would definitely again, you know, encourage the Publication 972 which is a great reference and it is available online.

TUBMAN: OK. Thank you so much. Alright. This one's for Shanonda. To satisfy due diligence when clients claim certain tax benefit, now, is the preparer required to request and keep a copy of school records and/or medical documentation? SCOTT-RAY: Thank you, Veronica. So, the answer to that question surrounding documentation for school records or medical records, the answer is no.

You are not required to keep a copy of any client documents if they were not provided. However, if the client provides you with the documentation and you rely on the documentation to compute the amount of the credit or the claim, you must keep a copy. In addition, I think there has been some confusion around documentation about school records and medical records. You are not required to request that client to provide to the document automatically. There are instances when you may request it. Those instances would include when that client provides you information that seems to be incorrect, inconsistent or incomplete. At that point, you may require documentation, medical records or school documentation. TUBMAN: OK. Excuse me, Shanonda, so on the same vein, are preparers required to keep a copy of a Social Security Card and, if so, how long do they have to keep that copy? SCOTT-RAY: OK. I will start off with the record retention piece. Any documentation or records that you keep or your client files should be maintained for three years from the due date on the return or the date that the return was submitted. So, that includes those Social Security Cards. That includes any other documentations that you may have requested, three years. As far as Social Security, follow up, I'm sorry, Veronica. TUBMAN: Go right ahead. SCOTT-RAY: Follow up. TUBMAN: Go right ahead.

SCOTT-RAY: For the social security card, you may have office procedures in place for returning client versus new client. Now, a good practice would be to make sure you have a social security card in that client file. If they're returning client for three years, you may not request the social security card when they come in in year two or year three. However, if they are a new client, it is a good practice to make sure you have that social security card, so, at that point, you may want to request it as your business office procedures have it. TUBMAN: OK, very good. Appreciate that. OK, Piper, does the other dependent, we're talking about dependents, include boyfriends and girlfriends living together? Are they considered to be dependent or other dependent? STEVENSON: I'm reading that to as if the person is talking about the Credit for Other Dependents, so I'm going to answer the question as if that boyfriend and girlfriend live together and would they be eligible for, to be claimed as the Credit for Other Dependents, so that's the ODC, the $500 non-refundable credit. Then, the answer is yes. If that person those individuals live together for the entire tax year, so they would have to be together for the entire tax year. And I'm thinking that other dependent as, like I said, credit for other dependent, which is the ODC, the $500 non-refundable portion. Thank you. Thanks, Veronica.

TUBMAN: Sorry, appreciate you. OK, this is for Naomi. Is there ever a time where two adults can live in the same household and share expenses, both claim Head of Household if they both have qualifying children for the credit? MBUGUA-DILLARD: Thanks, Veronica. Now, I, for a preparer, what I would say is it's not quite a yes or no answer. So, it would really depend. What it would depend on is if the family, if these two people who live at the same address if they constituted in a separated household. For example, if we had two taxpayers who were living there, let's just say Sally and Sam and they were roommates and together they leased a house.

Maybe they both have a child and they split the rent 50/50. They might qualify for Head of Household, each of them, if they and their children maintains separate lives from each other.

What that means is they have separate utility bills, they have separate finances and bank accounts, they pay their rent separately, and they did not support each other's family. So, they had separate rooms, you know, maybe they cook for just themselves and their child. It's basically two families sharing the same physical roof. And I, what I would definitely suggest is that IRS Publication 501, which is a good resource for dependents and standard deduction and filing status information. That is also available online. TUBMAN: OK. Thank you so much. OK.

So, Shanonda, how can practitioners' clients know the difference between the IRS calling them or a scam? SCOTT-RAY: Thank you, Veronica. So, remember, key point, the IRS does not call demanding any money. And the IRS, when we have you on the line, we will first identify our self with our IRS credential, and then, we will proceed to go through disclosures process to identify the preparer on the line. If those steps are not done, this is probably not the IRS. We go through procedures of disclosure in the very beginning, and again, we do not call demanding any money. TUBMAN: OK, appreciate that. That's really good to know because this is, at this time, we do get lots of scam calls. OK, so Piper, what if the child has an ITIN? Can you use it?

STEVENSON: And the answer there is yes. If the child has ITIN, you can use it. However, you can use it for the Credit for Other Dependents, which is ODC. If that child has an ITIN, that would not qualify for the Child Tax Credit. additional Child Tax Credit. So, make sure, there is difference. For Social Security Number, you go, and Child Tax Credit. They go together. If you have an ITIN, what you most likely will be able to claim that child for is, as far as credit is concerned is ODC is the Credit for Other Dependent. Thank you. TUBMAN: Appreciate you. OK.

So, Naomi , can you give us some examples of documents that tax preparers should be looking forward to substantiate credit? MBUGUA-DILLARD: Thank you. So, what I would definitely suggest is for preparers to consider using the forms as Denise had initially shared that IRS uses to request documentation during the audit, during the audit of the clients, taxpayer audit. And those forms, if you go on IRS.gov and you just type in Form 886H-EIC that Denise shared, that will give you the documentation request that is done during an audit for EITC. There is a similar one for AOTC and it is the Form 886H-AOTC and there is one for Head of Household, which follows in this even the same line. It's Form 886-H-HOH. And there's actually even one for an ITIN, which at the end you would just put I-T-I-N, as well as one for the CTC which is actually you could follow along with, on a Form 14815. So, those documents would be able to provide examples of documents. TUBMAN: OK. MBUGUA-DILLARD: Of each tax credit. TUBMAN: OK. Sounds good. Sounds good. OK. And this is the last question we have. Shanonda, what if the preparer filed a paper return and, by mistake and did not attach Form 8867? SCOTT-RAY: Thank you, Veronica. If you filed a paper return and did not attach the Form 8867 at the time of submission, do not do anything.

Don't send in an amended return. Do not send in the Form 8867 separately. Just remember, on future returns for your paper clients or for your, any paper returns you're submitting, be sure that you include the Form 8867. And if you continue to forget, remember, we will send you a Letter 5364 after receiving 6 paper returns without the form. That will be your warning. We've received at least 6. Self-correct and remember to submit the Form 8867. Thank you, Veronica.

TUBMAN: OK. Thanks so much, Shanonda. We really appreciate it. Now, that's all the time we have for question. Piper, Denise and Shanonda, before we close the Q&A session, what are the most important points you want to attendees to remember from today's web conference? Piper, let's start with you. STEVENSON: Thank you. Thank you again, Veronica. Those were some great questions. Some key points I would like to share with everyone is, as we look at an eligible child for CTC, an eligible child for CTC must have a valid social security card. That card is one that is for employment and is issued by the Social Security Administration. Remember, it will have no additional markings on it or the card legend will state, Valid for Work Only with DHS Authorization,. If the child card states, Not Valid for Employment, your client cannot claim CTC for that child. Remember, the Social Security Number requirement applies only to the child.

The parents may have an ITIN. Now, the Head of Household. All returns filed claiming HOH must apply to due diligence requirements. Once again, due diligence requirements applies to all form returns that are filed with HOH. Please remember that Form 8867 is required. It does not matter on that tax return if you claim AOTC or EITC or CTC or ODC. If that form has Head of Household as a filing status, Form 8867 must be submitted with that return. For ODC, which is the Credit for Other Dependent, the Taxpayer Identification Number can be an ITIN, an ATIN, which is for adoption, Social Security Number, or a Social Security Number that is not valid for employment.

Also, it can be for a person not related to your client, but live with your client for the entire tax year. I think that was one of the questions. Girlfriend and boyfriend, ODC will apply if they stay together for the entire tax year. And finally, don't forget to visit our web site. That address is www.eitc.irs.gov. I know it says EITC, but I want to stress and let you know that there's information there for each credit there. There's information on AOTC, ETC and ODC, as well as, as well as Head of Household filing status. We have a large number of free resources to assist you there. There is the Due Diligence Training Module where you can take and perhaps even earn a free CPE credit if you are eligible. Now, here's Shanonda to share with you some key points about IRS and their contact with you. SCOTT-RAY: Remember, when you're doing return for your client for any of the credits that we've discussed today and/or the Head of Household filing status, due diligence is very important. It's vital that you don't forget to submit the Form 8867, Paid Preparers Due Diligence Checklist with each return you submit, that includes those credits and/or the Head of Household filing status. When computing the credit, make sure you complete the appropriate worksheet for each credit based on the information provided by your client or information you reasonably obtained or know. And remember, one of the most common issues with due diligence is the knowledge requirement. Make sure you meet the knowledge requirement by continuing to explore and asking additional questions, documenting your client's response and, if needed, request documentation. And remember, you should keep your records for 3 years. Remember as well though that the IRS does attempt to contact you by way of Letter, phones calls. And we do those educational Knock and Talk Visits before we actually reach the point where we have to do a due diligence exam which at all cost we want to avoid by trying to educate you before that point. The last thing to remember, there are consequences for failing to meet your due diligence requirement, but we will attempt to contact you before escalating to those aggressive treatment. That's all I have for now. Veronica, back to you. TUBMAN: Thanks Shanonda. Audience, we are planning additional webinars throughout the year. To register for an upcoming IRS webinar, please visit IRS.gov using keyword, webinars, and select the Webinars or Tax Professionals, excuse me, Practitioners or Webinars for Small Businesses. And we will be offering certificates and CE credits for other upcoming webinars. You may also visit the IRS Video Portal at www.irsvideos.gov. The IRS Video Portal contains videos and audio presentations on topics of interest to small businesses, individuals and tax professionals. You will also find video clips of tax topics and archived versions of live webinars like this. We want to remind you Continuing Education Credit or Certificates of Completion are not offered if you view an archived version of any of our webinars on the IRS Video Portal. Again, a big thank you to Piper, Denise, Shanonda for a great webinar and for sharing their expertise; and to Naomi for coming on and answering your question. I also want to thank you, our attendees, for attending today's webinar: Understanding Paid Preparer Due Diligence Requirements. For those of you that attended today for at least 50 minutes to 100 minutes after the official start time of the web conference, you will receive a Certificate of Completion that you use with your credentialing organization for possible CPE credit. If you're eligible for continuing education from the IRS and registered with your valid PTIN, your credit will be posted in your PTIN account. If you are eligible for continuing education from the California Tax Education Council, your credit will be posted to your CTEC account as well. If you qualify and have not received your certificate and/or credit by February 6th, please e-mail us at SBSE.SL.Web.Conference.Team@IRS.gov. The e-mail address is also on the slide. If you are interested in finding out who your local Stakeholder Liaison is, you may send us an e-mail using the address shown on the slide and we'll send you that information right out. We would appreciate it if you would take a few moments to complete a short evaluation before you exit. If you'd like to have more sessions like this one, let us know. If you have thoughts on how we can make them better, please let us know that as well. If you have any request for future webinar topics or pertinent information you'd like to see in an IRS Fact Sheet, a Tax Tip or an FAQs on IRS.gov, please include your suggestions in the comment section of the survey. Click the, Survey, button on the left side of your screen to begin. If it doesn't come on, check to make sure you've disabled your pop-up blocker. It has been my pleasure to be here with you today. And on behalf of the Internal Revenue Service and our presenters, we would like to thank you for attending today's webinar. It is so important for the IRS to stay connected with the tax professional community, industry association, federal state government organizations and individual taxpayers. You make our job a lot easier by sharing the information that allows for proper tax reporting. Thanks again for your time and attendance and we wish you much success in your business or practice. This concludes today's webinar. You may exit the webinar at this time. Thanks, again.