EITC Due Diligence Requirements |
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Paid preparers must meet four due diligence requirements on returns with EITC claims or face possible penalties. New expanded regulations clarify these requirements and set a performance standard for the "knowledge" requirement--what a reasonable and well-informed tax return preparer, knowledgeable in the law, would do.
When preparing EITC returns and claims for refund, paid preparers must:
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Evaluate information received from clients
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Apply a consistency and reasonableness standard to the information
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Ask additional questions if the information appears incorrect, inconsistent or incomplete
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Document and retain the record of inquiries made and client responses
The updated Treasury Regulation §1.6695-2, effective for EITC returns and claims for refund filed after December 31, 2008, includes examples where paid preparers may need to ask additional probing questions.
The four due diligence requirements are:
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
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2. Computation of the Credit |
- Keep the EIC worksheet or an equivalent that demonstrates how the EIC was computed
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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 a reasonable and well-informed tax return preparer, knowledgeable in the law, would conclude the information furnished appears to be incorrect, inconsistent or incomplete
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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
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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
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Page Last Reviewed or Updated: January 13, 2009