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A Few Thoughts on the Earned Income and Additional Child Tax Credit

One of the issues Congress is trying to address for the upcoming tax season is the amount of tax fraud related to two of the more popular tax credits: the Earned Income Credit (EIC) and Additional Child Tax Credit (ACTC). In order for a preparer to file a return with EIC, they must complete a due diligence checklist with the taxpayer. However, if the return is self-prepared, this checklist is not required. I have had clients come to me in the past and tell me that they used “Joe Smith” as a preparer last year, but he filed the return as self-prepared in order to side-step the due diligence requirement. This is one of the reasons Congress is now urging the Treasury to require the due diligence checklist for ALL returns.

In theory, this is a step in the right direction as it increases the accountability of individuals who self-prepare and should decrease the amount of fraud related to the credits. However, the cynic in me says that adding another form will not deter those people who are actively trying to defraud the system. I am interested to see the effect this has on the error rate for these credits.


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