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Earned Income Credit Additional Due Diligence Questions

IncomeDoes the income that the taxpayer is reporting seem sufficient to support the taxpayer and the qualifying children that are being claimed?  If no, additional questions pertaining to both the income and the children should be asked.
Self-Employment IncomeAsk your client…

  • How long have you owned your business?needs
  • Do you have any documentation to substantiate your business?
  • Who maintains the business records for your business?
  • Do you have separate banking accounts for personal and business transactions?
  • Have you been issued a 1099-MISC to support the income?

Ask yourself…

  • Did the client provide satisfactory records of all income and expenses?
  • Are the expenses being reported consistent with this type of business?
  • In your opinion, is the amount of expenses being reported reasonable?
  • Does anything seem missing?

Head of HouseholdAsk your client…Details about their marital status

  • Have you ever been married?
  • Is your spouse deceased?
  • Are you divorced? – Can you provided a copy of your divorce decree if requested by the IRS?
  • Are you separated? – Can you provide a copy of a separate maintenance agreement if requested by the IRS?
  • Are you married but living apart from your spouse?
  • Have you lived apart from your spouse for the last 6 months of the year? – Can you provide a copy of any documentation verifying that you lived apart from your spouse (lease agreement, utility bill, etc.) if requested by the IRS?
  • Did you maintain more than half of the cost of the home? – Can you provide a copy of any documentation verifying that you maintained more than half the cost of the home (utility bill, property tax bill, rent receipts, grocery receipts, etc.) if requested by the IRS?

Qualifying ChildrenChildren over 18 years of age who are full time students, or permanently and totally disabled:
Ask your client…

  • What school did the child attend? – Can you provide a copy of any documentation verifying that the child was a full time student (student records) if requested by the IRS?

Children who are permanently and totally disabled:Ask your client…

  • What type of disability does the child have?
  • Does the child receive SSI or other disability payments?
  • Do you have a letter from the child’s doctor, healthcare provider stating that the child is permanently and totally disabled?

Relationship – if other than the taxpayer’s son or daughterAsk your client…

  • Does the child’s biological parents live with the child?  If no, where are the biological parents?
Updated on September 9, 2020

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