Case Study: Earned Income Tax Credit Due Diligence Penalties

Case Type: Representation before the Appeals Division of the IRS for Tax Preparer Earned Income Tax Credit Due Diligence Penalties


    • 26 U.S. Code § 6694

 – Understatement of taxpayer’s liability by tax return preparer

    • 26 U.S. Code § 6695

 – Other assessable penalties with respect to the preparation of tax returns for other persons

    • 26 CFR 1.6695-2

 – Tax return preparer due diligence requirements for determining earned income credit eligibility

A Tax Preparation Firm in the United States retained representation for tax resolution services with our organization after an investigation by the IRS culminated in a $90,000.00 penalty for failure to meet earned income tax credit due diligence requirements. John Ferguson, a federally authorized tax practitioner and business tax attorney, was assigned to the case. Based on a thorough review of the current law, the internal work papers per 6103 disclosure, and the facts and circumstances of the case (i.e., lack of evidence to substantiate the penalty), it was determined by our practitioner that there were significant hazards of litigation if the IRS were to take the case to court. Using this standard and our years of experience negotiating and settling cases with the IRS, our practitioner settled the case for $50,000.00 producing a savings to the client of $40,000.00.

It should also be noted that post-settlement our practitioner is preparing the handbook that has the internal ethical guidelines and procedures for the client’s duties and obligations under Circular 230. He is placing particular emphasis on the documentation and due diligence requirements for tax returns that have Earned Income Tax Credits. Mr. Ferguson plans to have a semi-annual review after each filing season with the client to ensure compliance to the guidelines and procedures. This demonstrates our commitment to our clients, not only during active representation, but also to protect, preserve, and prepare them for the future.

About Five Stone Tax Advisers

Five Stone Tax Advisers has years of experience negotiating directly with the IRS to get the best possible outcome for you. Our International Tax Advisory and Compliance unit has a team of tax attorneys, certified public accountants and enrolled agents that form a single sourced point of contact that will provide services for all the legal, compliance and financial reconstruction aspects of offshore account cases.

Five Stone Tax
by Five Stone Tax

Five Stone Tax is America’s trusted tax adviser, offering full-service tax solutions with the goal of making sure all of our clients pay the lowest amount of taxes legally possible. As the most effective tax representation company in America, our team consists of the best Property Tax Consultants, Tax Attorneys, Enrolled Agents, case managers, and administrators in the industry.

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