Question

Question 41 of 75. Aurora, a self-employed taxpayer, reports all her income on Sc hedule C. During the tax interview, Aurora's Tax Professional determines that Auror O Inform Aurora about her eligibility for the O Document the questions they asked and Aurora's answers to the questions pertaining to the O Prepare the return in a way that is disadvantageous to the taxpayer. OTell Aurora that the return will most likely be audited by the Internal Revenue Service. credit and attach documentation of her income and expenses to the return. income. Mark for follow up

Answer 1

Answer: Option-(b): Document the questions they asked and Aurora's answers to the questions pertaining to the income. Reason: It is given that Aurora, a self-employed, single taxpayer, reports all her income on Schedule C. During the tax interview her Tax Professional determines that Aurora may qualify for the Earned Income Credit. To confirm her eligibility for this credit, the Tax Professional should document the questions they asked and Aurora's answers to the questions pertaining to the income as required by EITC due diligence, IRC §6695 (g) Provisions contained in EITC due diligence, IRC §6695(g) is produced below for reference: How does EITC due diligence apply to Schedule C claims prepared by paid tax practitioners? EITC due diligence, IRC 56695(g), requires paid tax return preparers to make additional inquiries of taxpayers who appear to be making inconsistent, incorrect or incomplete claims related to their self-employment when the tax return includes the earned income tax c All additional inquiries made to comply with EITC due diligence and the client's responses must be documented. The stotute requires the EITC return preparer to be reasonable, well-informed, a wledgeable in W. Paid tax return preparers generally can rely on the taxpayer's representations, but EITC due diligence requires the paid preparer to take additional steps to determine that the net self-employment income used to calculate the amount of or eligibility for EITC is correct and complete Tax preparers should ensure that the amount of net self-employment income reported is correct. Taxpayers sometimes want to over-report or under-report their income to qualify for or maximize the amount of EITC. The preparer should ask sufficient questions of clients claiming self-employment income to be satisfied that: 1 the client is actually conducting a business 2. the client has records to support income and expenses, or can reasonably reconstruct income and expenses records, and 3. the client has included all income and related expenses on Schedule C, Profit or Loss from Business (Sole o o Source: https://www.eitc.irs.gov/tax-preparer-toolkit/schedule-c-and-record-reconstruction-training/eitc-due-diligence-and-self