Due Diligence Requirements |
|
Those who prepare Earned Income Tax Credit (EITC) claims must not only ask all the questions required on Form 8867, Paid Preparer's Earned Income Credit Checklist, but must also ask additional questions when information seems incorrect, inconsistent or incomplete.
Those who prepare EITC claims must meet four due diligence requirements. Those who fail to meet the due diligence requirements can be assessed a 100 dollar penalty for each failure. Treasury Regulation 1.6695-2 sets out the four requirements.
Requirement |
Description |
1. Completion of Eligibility checklist |
- Either complete Form 8867 or its equivalent
- Complete checklist based on information provided by the taxpayer for the preparer
|
2. Computation of the Credit |
- Keep the EIC worksheet or an equivalent that demonstrates how the EIC was computed
|
3. Knowledge |
- Not know or have reason to know that any information used in determining the taxpayer's eligibility for, or the amount of, the EIC is incorrect
- Not ignore the implications of information furnished or known
- Make reasonable inquiries if information furnished or known appears to be incorrect, inconsistent or incomplete
|
4. Record Retention |
- Retain Form 8867 and EIC worksheet or the equivalent
- Maintain record of how and when the information used to complete these forms was obtained
- Verify the identity of the person furnishing the information
- Retain records for 3 years after the June 30th following the date the return or claim was presented for signature
|
Proposed Regulations Better Define Due Diligence Requirements
New proposed regulations provide additional guidance for the due diligence “knowledge” requirement, setting a standard for its application and adding a documentation requirement were published in 2008. This section of the proposed regulations is in direct response to the tax professional community’s request for more specificity around EITC due diligence. Read an excerpt of the proposed regulations relating to EITC due diligence.
Additional Information and Resources:
Publication 4687, EITC Due Diligence--Get the Facts Here...
EITC Due Diligence Compliance Program
How do I Report Suspected Tax Fraud
Standards of Practice
Department of Justice Tax Schemes and Scams
EITC Toolkit for Tax Preparers
Tax professionals prepared over 70 percent of the EITC claims last year. That's why the IRS is providing you with the EITC Toolkit for Tax Preparers to put everything you need at your fingertips to make preparing the EITC claims easier for you.
Return to EITC for Tax Professional's Page
|
|
|
Page Last Reviewed or Updated: January 12, 2009