Tax Prep Dispatch: This Really Happened

For years, most of my time at tax sites has been spent doing quality review. And for years, I have noticed recurrence of many of the same errors. These problem issues are covered in training, included in the Publication 4012, Volunteer Resource Guide and other resources, yet they seem to repeat. I started wondering why.

Here are some likely reasons:

  • For most VITA programs, about 50 percent of the volunteer preparers are new each year.
  • Most returning volunteer preparers don’t think about taxes between April 15 and the beginning of the next filing season.
  • Sometimes the wrong way is the easier way.
  • Sometimes the wrong way is the more logical way.
  • Sometimes the wrong way seems to help the taxpayer.
  • Tax preparation requires intense attention to detail and the preparer is in a location where it is difficult to concentrate – usually under the anxious eye of a taxpayer in a noisy boisterous tax site.
  • Volunteers are human.
  • Tax law is complex. Let me say that again: tax law is complex. Much of it is illogical and counter-intuitive. Moreover, it is always changing.
  • The software doesn’t always assist preparers in doing it right. Yet mostly it does, making preparers a little too trusting.

This is why we do quality review – always, on every return. The most recent IRS SPEC Quality Statistical Sample (QSS) results show a fantastic 98.52 percent accuracy rate. Congratulations to us! Nonetheless, during these last weeks of the filing season, we must be extra vigilant to make sure every return is correct. The returns at the end of the season are usually the most challenging and, let’s face it, we are tired.

Quality reviewers, heads up! Here are some errors that I saw just last week. I was at several different VITA and TCE tax sites that use three different software applications. So these really happened and could happen anywhere.

Self-Employment Income on Line 21

Error: The taxpayer did some consulting work and the income was reported on Form 1099-MISC, box 7, nonemployee compensation. The preparer entered the income on Schedule 1, Line 21, Other income. It should have been reported on Schedule C-EZ or Schedule C.

Details: This classic error made a big difference on the tax return. Since the income was over $400, the taxpayer owed self-employment tax. The taxpayer was able to reduce taxable income by claiming business expenses and he also got a qualified business income deduction. Since income on line 21 is not considered earned income, once it was moved to Schedule C, he got some EITC and the additional child tax credit.

Comment: Preparers - particularly those who are new or certified at the Basic level - are often flummoxed by a Form 1099-MISC. Putting it on line 21 seems like a logical, easy solution. Doesn’t “Miscellaneous income” sound like “Other income”? Besides, because of the self-employment tax, reporting it on line 21 often saves the taxpayer money, making it even more tempting.

EITC

Error: A wrong box was checked, which blocked calculation of the EITC.

Details: On every software, there are a few places where checking a certain box can block the EITC. For example, on the TaxSlayer Dependent/Qualifying Child page, it says: "Check if you wish not to claim this dependent for Earned Income Credit purposes."

Comment: In this case, the preparer had no idea why he had checked that box for an EITC qualifying child. He didn’t even remember doing it. This kind of human error is one of the reasons we do reviews. Quality reviewers should always look for an EITC amount on Form 1040, line 17a. If there is no EITC (or the amount doesn’t look right), check it out. Although less than half of VITA taxpayers get EITC, reviewers should do a quick check on every return. If there is no EITC, know the reason why. Run through the likely possibilities in your mind:

  • No earned income
  • Income too high
  • Married filing separately
  • Taxpayer has no qualifying child and is under age 25 or age 65 or older
  • Investment income is more than $3,500
  • Taxpayer has an ITIN

Do this every time. If quality review doesn’t catch missing EITC, that money is probably gone forever.

ACA Individual Shared Responsibility Payment

Error: The single taxpayer did not have health insurance all year and qualified for the affordability exemption. The return reflected the $695 individual shared responsibility payment.

Details: His income was just over the filing threshold. Once I went through all the calculations, he did qualify for the affordability exemption and did not have to pay the $695 penalty.

Comment: It’s pretty easy to check out the affordability exemption using the Center on Budget and Policy Priorities online calculator: ACA Related to Exemptions Tool. Although this is the last tax year we need to deal with this, it’s worth it to put this link on every desktop.

Child Tax Credit/Additional Child Tax Credit

Error: The preparer answered a question incorrectly, which prevented calculation of the child tax credit and additional child tax credit.

Details: On most tax software there is a question like this about each dependent: "Was this person a U.S. citizen, U.S. national or U.S. resident alien?" The preparer had checked, “No,” even though the taxpayer and family were all U.S. citizens and had all lived the whole year – heck, their whole lives – in Chicago.

Comment: When this was pointed out to the preparer, he was dumbfounded. Chalk this one up to good old human error.

Bank Account Number

Error: The preparer had entered the account number wrong.

Details: He entered the account number the same wrong way twice! Tired eyes saw the four zeroes in a row as three.

Comment: It’s really important that we don’t send the taxpayer’s money off to the wrong place. That is a mistake that can be extremely difficult to correct.  Even though most software requires that the preparer enter the routing number and account number twice, please, reviewers, check it over.

Child and Dependent Care Credit

Error: The taxpayer qualified for the child and dependent care credit, but the preparer did not enter child care information.

Details: The child care question on Form 13614-C, Intake, Interview & Quality Review, (page 2, Part IV, question 5) was answered, “Yes” by the taxpayer. The preparer told me that she saw the “Yes” answer, but the documents provided to her by the taxpayer did not include any receipt or other verification of child care expenses. Turns out the taxpayer knew the exact amount paid and with one phone call was able to get the provider’s federal employer identification number.

Comment: Volunteers sometimes assume that they just enter the documents the taxpayer provides. We are preparing – not auditing – and often we don’t need to see proof. A conversation with the taxpayer can lead to the information that is needed. Bottom line: talk to taxpayers and really listen to what they say!

Foreign Tax Credit

Error: The preparer didn’t enter the $45 foreign tax credit indicated on the taxpayer’s Form 1099-DIV.

Details: Though certified at the Advanced level, this new preparer thought VITA had to leave all foreign issues alone.

Comment: Site staff need to create an environment where experienced preparers and reviewers are always open to questions from the new folks. This new preparer should have asked about that foreign tax before ignoring it. Note: those statements from investment companies are such a challenge – even for experienced preparers. They provide pages and pages of information and most of it is superfluous to tax preparation. Honing in on the relevant numbers needed from Form 1099-DIV, 1099-INT and 1099-B can be such a project. Even preparers who know to enter foreign tax can miss those tiny little numbers.

Missed W-2

Error: The preparer neglected to enter one W-2.

Details: The taxpayer and his wife had six different W-2s. Two of the W-2s were from the same employer. The preparer assumed those two W-2s were just a lot of copies of the same W-2.

Comment: This could have been prevented by more careful inspection of the W-2s. Also, matching up the answer to the number of jobs question on Form 13614-C (page 2, Part III, question 1) to the number of W-2s could have caught the problem.

(Full disclosure: In this case, the preparer was me. Argh! Thank you, reviewer!) Another thing about W-2s – reviewers should always check both federal and state withholding amounts for all income documents. 

Summary

We have less than three weeks left of a challenging filing season. Here’s a reminder of some obvious ways to cope.

  • Take particularly good care of the volunteers. Wonderful snacks, breaks when possible and promises of an after-season celebration can help them during the last push.
  • Remember that it’s OK to say, “No,” to taxpayers when your site is full. We can’t help everyone.
  • Give volunteers even more TLC. Sincere thanks and acknowledgement of a job well-done can do wonders.
  • Quality review everything. If you’re not doing this already, double down. The last returns are the hardest and everyone is tired.
  • Plan for summer tax preparation sessions. Let everyone know about any services offered after April 15. If that Uber driver hasn’t filed his 2016 and 2017 returns when he’s in your office on busy April 13, it can wait a few weeks more. Knowing the summer hours can take some pressure off current operations.

And, please, remember to take care of yourself. The finish line is just around the corner.

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