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New Preparer Due Diligence Requirements and Tax Cuts and Jobs Act (TCJA)
Preparer addresses client concerns and sets up appointment (Due Diligence CTC-ODC Part I)
Preparer’s office interview with client (Due Diligence CTC-ODC Part 2)

Tracey: Hello, Good to see you again Jeff Jeff: Good to see you too Tracey.

Tracey: ... and you must be Mia.

Mia: Yes, and thank you again for adding me to your client list. I really appreciate it.

Tracey: You’re welcome. Since, I know we both have busy days, let’s get started.

Mia: Well here’s the information you asked for in your email.

I'm sorry about the kids folders, but I thought you'd want that separated.

Jeff: That's my Mia... she's always organized and efficient, that's what I love about her.

Mia: [laughs] Ok, thank you Jeff.

Tracey: Mia, separate folders. You just became my favorite client.

Mia: Well thank you. I just want this to run as smoothly as possible for all of us Tracey: Before we begin, Jeff, I want to remind you and to let you know, Mia, that as a paid tax preparer, I’m required to practice due diligence.

I will ask you both a series of questions to ensure you both claim the correct credits and filing status on your tax returns.

In addition, I need to confirm that you both agree to discuss your tax preparation details in front of one another.

Jeff: Yes, I do.

Mia: [laughs] Well if you do, I do Jeff.

Tracey (to Jeff): Jeff let’s start with you.

I see your employer is the same, and that you had wages of $90,000, and you have $66 in interest income.

What about the child support and any other income?

Jeff: There is no other income, but I received $200 a month in child support for Chelsea and Danny.

Tracey: Did the kids live with you all last year?

Jeff: Yes, they did. Only exceptions were weekends and four weeks during the summer.

Can you believe that Danny is 18 and Chelsea is 15? Danny’s going to be going off to college this fall.

Tracey: Wow College! That is great news!

Now I have two more questions for you - as I asked in my email – Did you sign Form 8332, to allow your ex-wife to claim the kids on her tax return?

Also, did you include a list showing all the household bills you pay?

Such as mortgage, cable, gas, water, etc.?

Jeff: Well, Form 8332? Nope, don’t need it.

I’ve got the kids and we agreed that I’m going to claim them.

I do have a list… I pay for mortgage, water, electricity, yard care and most of the groceries.

Mia: I pay for the cable, phone and gas bill. I help with the groceries too, with all three kids and Jeff here to feed, I seem like I'm always at the store instead of at home.

Tracy: [laughs] Well, that’s perfect.

Tracey: So Jeff. I'll need to confirm that your social security number along with the kids is correct.

So is that correct?

Jeff: Yes ma’am, that’s correct, nothing’s changed here.

Tracy: That's great. it appears that you will be able to file head-of-household again this year, Child Tax Credit for Chelsea plus the Credit-for-Other Dependents for Danny, Jeff: That's good. Can I claim Mia’s son Micah as a dependent for either credit?

Tracey: No, I’m afraid not.

At this point, Micah doesn’t meet the relationship test to be your qualifying child for the Child Tax Credit, and he’s not your qualifying relative for the Credit-for-Other Dependents Mia: So, If Jeff is head-of-household, what about me?

I pay for all my son’s expenses, including private school.

His father hasn’t been in the picture for years.

I even support my mother who still lives in Mexico.

Tracey: That’s a good question. Let me look at the documents that you provided… It’s great how you outlined everything, your expenses and broke them out by month.

and looking at your spreadsheet, Jeff pays 2/3 of the household expenses and you pay 1/3.

Based on this, you would not qualify to claim head-of-household with Micah, but you can claim him for Child Tax Credit.

Mia, I understand why I’m not head-of-household for Micah, but ...

since I support my mom, can I be head-of-household for her?

This is so complicated.

Tracey: I understand your confusion, but first let’s confirm whether your mom is your dependent.

Jeff: This sounds really tax techie, that’s exactly why we’re sitting here right now, right babe?

Mia: I agree Jeff! Right now I am so confused.

Tracey: I’ve got you guys ok.

So Mia, I see you provided your mom’s ITIN number.

This is the first step in meeting the credit-for-other-dependents rules.

Tell me about her monthly income sources? And how much of it you provide?

Mia: As you can see from my paperwork, I'm a US citizen, but my mother is not.

She lives on her own in Mexico and she gets a small pension of $250 a month.

And I send her $600 a month. And that's it.

Tracey: Well, that would give your mom, -let's do some calculations, $850 a month, and a yearly income of $10,200 Now with that I have good news and bad news.

The bad news is, even though your mom meets the test to be your dependent as a qualifying relative, you can’t claim her for the Credit-for-Other Dependents, because she’s not a US citizen or resident.

However, the good news is, you can claim head of household because she’s living in a separate home and you pay over half of her household expenses.

Mia: So let me see if I understand.

I get to claim Head of Household for my mom, because I provide more than half of her support and I get to take the child tax credit for Micah, right?

Overall, that's not so bad.

Tracey: Yes, I think you got it. There you go! And I'm glad I can help to clear this up.

Jeff: Tracey, I must say your service is priceless, especially with that discount.

Tracey: [laughs] I am glad you think so.

So now let's go over some other credits and deductions on your returns…