A more complex result of tax reform is a re-invigorated emphasis on compliance.
You, the taxpayer, can’t just say, “I’m HOH” or “my mom is my dependent.” You are expected to follow the rules and be able to document and prove the truth of certain statements.
EIC, CTC, AOTC, ODC, AOTC and HOH, all deliver great tax advantages. Electing any of these without proper cause is considered fraud, and these frauds have been running rampant in recent years. Some estimate 1 out of every 3 EIC claims is fraudulent. Most returns with EIC also involve at least one more of these acronyms.
To fight back, there are penalties. In fact, if you lie to me, the IRS can fine me, too. Thus, if you qualify for EIC, CTC, AOTC, ODC, AOTC and/or HOH, and you file your taxes through a professional, be prepared to complete and sign additional paperwork that outlines the qualifying factors. Fun stuff for all of us.
The IRS has stepped up investigations of preparers who have high numbers of taxpayers taking these credits. Once they find a preparer with inadequate documentation, they fine the preparer, but there is little evidence they follow up with the actual taxpayers.
DIY? Apparently nothing has changed on the compliance front. Hmmm.