The IRS Grilling IRS applies more scrutiny to child-related tax credits
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The IRS Grilling IRS applies more scrutiny to child-related tax credits

The IRS Grilling IRS applies more scrutiny to child-related tax credits

Get ready to answer additional questions this year if you claim some tax credits related to children and college costs.

You may already be familiar with the additional questions and documentation required when you use the Earned Income Tax Credit (EIC). Starting this year, the IRS is applying the same level of scrutiny to three more credits:

  • Child Tax Credit (CTC)
  • Additional Child Tax Credit (ACTC)
  • American Opportunity Tax Credit (AOTC)

Clarify child qualifications. For the CTC and ACTC credits, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives or other guardian. That is an issue particularly relevant to divorced parents, since only one parent is allowed to claim these credits.

More documents. If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide a tuition statement from the college or university. This is known as a Form 1098-T. You will also need receipts for related expenses, such as school textbooks.

Other common errors. You may also be asked to double check your forms to avoid submitting information that is incorrect, incomplete or inconsistent. Incorrect Social Security numbers and dates of birth for the dependents on your return are two common sources of error.

Cracking down on “improper payments.” Some of those common errors have helped to make the EIC and the other credits a major source of what the IRS calls “improper payments.” In fact, the agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t actually qualify to receive them.

Don’t take it personally. In order to crack down on the problem, the IRS is requiring tax preparers to ask more questions. The agency’s new rules also have sharper teeth. Starting this year, tax preparers who don’t document their compliance with these new requirements could face fines of up to $510 per return.

So, please understand: if you get more questions than you are used to or are asked for additional documents, it’s not personal! It’s just what is now required.