In my recent post about fraud and the earned income credit, I got a comment from someone who pointed out that tax fraud is committed by people from all walks of life, not just the lower-income folks who qualify for refundable credits.
This is a valid point.
In a lot of discussions among tax pros, I have observed that we universally hate the EIC and don’t want to deal with it, nor do we want to deal with “those people” who qualify for the EIC.
But here’s my question for us tax pros: among small business owners who get paid in cash, how many of those business owners are being honest about their cash receipts on their tax returns?
We all know the answer is that there’s nearly a 100% chance that the business owner is putting some of that cash in his pocket and not reporting it on his tax return.
Is this not tax fraud?
Yes. Yes it is.
So where is our outrage over this type of client?
Where are the blog posts talking about “those people” and the stunts they try to pull on their tax returns, and how we don’t want to work with them?
Why is our ire reserved for the EIC and the people who qualify for it?
I rarely hear any of us complain about this type of client.
Some of us fire the bad apples among our business clients. That’s what I do when I even so much as suspect bad behavior. But I also know preparers who simply look the other way and have a “don’t ask, don’t tell” policy with business clients.
EIC clients who are trying to commit fraud are indeed dangerous to us tax pros … but so is the small business client who’s trying to commit fraud.
So why does the EIC client get all of our scorn, while nothing gets said about the sketchy business client?
I do think it’s valid to say we don’t like dealing with the EIC because of the paperwork and compliance burden.
And it’s valid to say we think refundable credits should be taken out of the tax code and replaced with some other system for making those payments to people who qualify.
But I think we as tax pros should be careful about condemning the low-income person who happens to qualify for a refundable credit.
Because if we’re handing out condemnation of clients for engaging in behavior that puts us as preparers in a bad position, there’s plenty of condemnation go around.
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