Auditing for Due Diligence Compliance

Audits for compliance with EITC due diligence requirements are another tier of our EITC Preparer Compliance Program. We look at returns with a high chance of errors completed by the same preparer and use that information to select preparers for audits. We may have contacted the preparer using one of the other tiers of our Preparer Compliance Program but we don't use all of them for every preparer. See EITC Preparer Compliance - Focused and Tiered for information on the other tiers).

Audit Visits

IRS employees are visiting preparers for due diligence audits without pre-scheduling the audit. We previously sent the preparers a Letter 4833 and are auditing their current year returns.
Before the tax filing season begins, we do due diligence audits based on the prior year returns and do schedule an appointment for the audit.


All IRS employees have an official IRS picture ID.

What Happens During the Audit?

During these audits, we review at least 25 EITC returns. We look at the return and the following for each return:

  • the preparer's due diligence records,
  • the probing questions asked and the client's responses, and
  • all questionnaires, checklists, and worksheets.

 

We specifically look for evidence the preparer met the knowledge standard. To meet the knowledge standard, a preparer must:

  • Know the law;
  • Ask the right questions, especially when the client gives information that appears incorrect, inconsistent or incomplete; 
  • Document the questions asked and the responses given by your client; and
  • Get all the facts to make sure your client truly qualifies for EITC.


While auditing for due diligence, we also ensure that the preparer is in compliance with the PTIN, Preparer Tax Identification Number requirements and his or her personal tax return filing requirements.  

What Happens if My Records Don't Show I Met my EITC Due Diligence Requirements? 

We do charge penalties when we find the preparer did not comply with EITC Due Diligence requirements. We greatly improved our audit selection process to find a high potential for a preparer to be filing returns with EITC errors. Using this new process, we penalized over ninety percent of the preparers audited.

We charge most of the penalties to preparers who did not meet the knowledge standard. The penalties range from $500 to $5,000 per incident so can be substantial. Read more about penalties and the consequences of filing EITC returns incorrectly here.

What if I Don't Agree with the Penalties?

See, Appeal of EITC Due Diligence Penalties

Are You a Certified Acceptance Agent?

To reduce the burden on preparers, IRS combines the due diligence audits with certified acceptance agent visits as needed.

Additional Resources Links 


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Page Last Reviewed or Updated: 09-Jul-2014