Review of IRS Webinar on Family Child Care

Today the IRS broadcasted a webinar "Tax Related Guidance for Child Care Providers" to explain some of the unique tax rules affecting family child care providers.

The hour-long broadcast covered reporting of income, record keeping tips, business use of the home calculation, depreciation and the Food Program and food expenses.

You can view this webinar at www.irsvideos.gov . To see a copy of the power point slides, click here.

The webinar host referred the audience to the IRS Child Care Tax Center where additional IRS resources are posted.

The webinar host pointed out that the IRS will look for unreported income by examining a child care provider's contract for language about fess such as: late pick up fees, registration fees, transportation fees, and other fees.

In other words, providers who have such fees in their contract will be assumed to have collected these fees, even if they weren't! To protect themselves, providers who are not consistently collecting fees listed in their contract should start collecting them or take them out of their contract. See more in my Commentary to the IRS Child Care Audit Technique Guide.

The host advised providers to report only the "net" income or expenses when reporting Food Program income and expenses. Unfortunately, this advice is contradicted by the IRS Audit Child Care Provider Audit Technique Guide which says, "the netting method is not a preferred method since an [IRS] Examiner will always be looking for the food reimbursement amounts."

The IRS added this language to the Audit Guide at my request after I pointed out that using the netting method has created confusion for many child care providers and tax preparers. For further information about netting, see my article "Are CACFP Reimbursements Taxable Income?"

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Comments

[Jessie]

It was interesting to listen to the agents comment on the questions. Even to the IRS Agents, the tax law is complicated and difficult to understand and they want the laymen to understand! Thanks to Tom we have a better understanding and advocate in this industry...

[Income Tax]

IRS continues to keep us abreast of their current updates and the law. i find the website to be extremely informative and easy to use.

[Natalie]

Thank you for this VERY helpful review! I think there is still a lot of confusion out there about the food program reimbursements being taxable income. In every workshop, I have a least a couple providers emphatically argue that they were told they are not. I'm excited to hear you will be doing a workshop on this topic at the conference!

[J. DiCosimo]

The information presented during the webinar regarding food reimbursements not only is contradicted in the audit technique guide (as Tom mentioned in his review), but as a CPA I would never recommend my that amounts be netted because it creates a poor audit trail. I will continue to report the food reimbursements and food expenses separately to avoid confusion.