The problem with some tax practitioners is they want to substitute their judgment, for that of Congress.
This is understandable, because Congress lately has shown as much judgment as (to use one of my mother's favorite phrases) God gave a goose.
However, when Congress says to use 2019 earned income if you want, instead of 2020 earned income if that is less, then that's what Congress meant. If they had wanted to say "as long as 2020 is greater than zero," they could have said it. When a statute is clear, it doesn't need imaginary words. We pay judges to remind lawyers of that, all the time.
And it's not like this is a brand-new question. It was around last year; it's just that it applied to disasters on a smaller scale.
Does anyone remember IRS putting out a news release that said, "We have noticed that some taxpayers in disaster areas are claiming EIC based on 2017 income when they had zero 2018 income, and we really can't allow that, so stop doing it!" ?
No? I didn't think so.
The Taxpayer Certainty and Disaster Tax Relief Act of 2019 included retroactive tax relief for those impacted by certain federally declared disasters for tax year 2018. The 2018 Publication 596 is not being revised at this time. Instead, consider whether the following important changes impact your 2018 tax return.
The tax benefits provided by this federal disaster relief include an election to use your 2017 earned income to figure your 2018 earned income credit. You may be able to use your 2017 earned income to figure your 2018 earned income credit (EIC) if:
- Your 2017 earned income was greater than your 2018 earned income.
- Your main home, or the main home of your spouse if filing jointly, was located in one of the federally declared disaster zones (or the disaster area outside of the disaster zone if you, and your spouse if filing jointly, were displaced from the main home due to the disaster) during any portion of that disaster's incident period occurring in 2018.
"The problem with some tax practitioners is they want to substitute their judgment, for that of Congress"
Well luckily for us, a lot of the tax practitioners here have no judgment so that shouldn't be an issue. As for me, I've seen the posts that have appeared but I am reasonably confident that the issue won't pop up for me this year. But the posts kinda remind me of the old "tastes great/less filling" beer commercials so I have read them for their entertainment value.
Here is another way of looking at it. The discussion so far has focused on W-2 filers. What about the self-employed taxpayer who had a $20,000 profit in 2019 but shows a loss of $5,000 for 2020. (Probably owns a cafe.)
Do you really think Congress meant to tell him, "we're going to punish you for being part of small business, the backbone of America blah blah blah, but we're going to reward that employee of yours that you paid $10,000 on a W-2" ?
Of course then you get into the issue of Optional Method for SE Tax. It's my hypothetical, so he doesn't qualify.
I predict the IRS solution for this will be to tell practitioners and taxpayers to report $1 of interest to avoid a zero-AGI return. That's what they did with Rev Proc 2020-28, for EIP qualifiers. But I wouldn't do it until IRS gives the OK.
I called the Practitioner Line in the IRS, they transferred me to the EITC department, and the guy told me without earned income you would not be able to use the provision, but to tell you the truth, I do not trust his answer, the guy did not sound smart to me. I was in a virtual workshop today and they assure people that with 0 earned income, (unemployment only) you could use the provision assuming you had earned income and the EITC in 2019. Interesting? In my opinion, the guy from the workshop seemed to be more knowledgeable than the IRS, but who is right? Just asking.
It has been pointed out, numerous times, that ANYTHING that one is told over the phone when speaking to ANYONE at the IRS is completely & utterly useless. If it is not in writing, one can NOT rely on it.
"the game of life is hard to play"
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@abctax55 "If it is not in writing, one can NOT rely on it."
And even then --- remember when IRS put in writing that prison inmates did not qualify for an EIP? The inmates were better at reading the law than IRS; they went to court; and IRS backed down. Not to mention 2020 decedents who are now collecting recovery rebate credits, in many cases after widows and orphans returned the EIP.
@athaureaux6 " I was in a virtual workshop today and they assure people that with 0 earned income, (unemployment only) you could use the provision assuming you had earned income and the EITC in 2019."
Let's avoid red herrings.
"Unemployment only" is not a condition. It's irrelevant. It's likely that most people with earned income in 2019 collected some unemployment in 2020, but not everyone would have, and it doesn't matter.
"Assuming you had . . . the EITC in 2019." No, you don't need EITC in 2019. You just need earned income in 2019.