What This Notice Means
This notice goes to paid tax return preparers. The IRS is auditing returns you prepared that claimed one or more of these:
- Earned Income Tax Credit (EITC)
- American Opportunity Tax Credit (AOTC)
- Child Tax Credit, Additional Child Tax Credit, or Credit for Other Dependents
- Head of household filing status
Your clients' returns are being examined, and your due diligence on those returns is part of the picture. The IRS wants you following your due diligence requirements so you and your clients avoid penalties and other unwanted actions.
What to Do
- Read the notice carefully and note any dates and instructions in it.
- Pull your files for the returns involved: intake questionnaires, the documents you reviewed, your notes, and the required due diligence records.
- Review the rules. Internal Revenue Code section 6695(g) and Treasury Regulation section 1.6695-2 set out what's required.
- Keep copies of everything you provide to the IRS.
Common Mistakes the IRS Looks For
- EITC: underreported wages or misreported Schedule C income and expenses; children who don't meet the relationship test or didn't live with the client more than 6 months; married clients not filing jointly who don't meet the additional rules; household helpers with no matching W-2, 1099-MISC, or 1099-NEC.
- AOTC: no Form 1098-T or less than half-time attendance at an eligible institution; no qualified expenses; four years of post-secondary school already completed or the credit already claimed for four years; no degree or credential being pursued.
- CTC, ACTC, ODC: a child or dependent who didn't meet the relationship, residency, or age requirements.
Get Help Early
An audit tied to your preparer conduct is not the time to wing it. You can authorize a representative with Form 2848 to deal with the IRS for you. Get organized before the first conversation.
If you're a preparer who received a CP590A notice and want representation in the audit, call us at (813) 229-7100.