Thursday, May 23, 2013


The IRS-required excessive “due diligence” forced upon tax return professionals who prepare returns with Earned Income Credit (EIC) claims, and the potential for increased preparer penalties related to the EIC, cause tax pros who actually do prepare returns with these claims (I expect that there are tax pros who, because of this, will no longer accept new clients that qualify for the EIC) to charge an increased fee for tax return preparation. 

This is appropriate and proper.  Filing an EIC claim takes much more time than claiming other tax benefits.  The fee for tax preparation is based on the time involved to prepare a return.  Even when a tax pro charges by the form, the cost for preparing the EIC forms is based on the increased time involved.

The Earned Income Credit is a welfare benefit for the working poor that is distributed via the tax return.  Taxpayers who legitimately qualify for the EIC are low-income individuals who, in many cases, cannot afford to spend extra money on tax preparation.

The Earned Income Credit is the only federal welfare program that I know of where the beneficiary must directly pay for the administrative costs of delivering the benefit.  It is as if the beneficiary must pay a “processing fee” for receiving his/her Aid to Families with Dependent Children welfare check.  Or individuals who qualify for the food stamp program must pay the supermarket an additional “processing fee” when purchasing food (“OK, that is $2.50 for the cereal plus a 5% welfare surtax for using your Families First card.”).

And this administrative cost is not deducted from the benefit payment.  It must be paid up-front – weeks before receiving the actual benefit payment.

This really makes sense!


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