If you are paid to prepare a tax return claming an earned income tax credit (EITC), a child tax credit (CTC), an additional child tax credit (ACTC), or an American opportunity tax credit AOTC), due diligence regulations now require you to complete and submit the Form 8867, Paid Preparer's Due Diligence Checklist. See the Form 8867 instructions for more information. We modified the Form 8867 to include the CTC, the ACTC, and the AOTC and streamlined the format.
Completing the form is not a substitute for actually performing your required due diligence and completing all required forms and schedules when preparing the return for your clients. But, using the Form 8867 ensures you consider all refundable credit's eligibility criteria for each claim you prepare.
Completing and submitting the Form 8867 is one of your refundable credit due diligence requirements.There is a $500 penalty for not meeting this due diligence requirement. penalty. This penalty is adjusted annually for inflation under Internal Revenue Code section 6695(g) and (h). The penalty for taxable years beginning in 2016 is $510. It will remain at $510 for taxable years beginning in 2017.
To meet your due diligence, you must:
You need to answer the questions covering refundable credit eligibility on the Form 8867 using information from your client or information you know is true about your client and your client's situation. The form doesn't address all the eligibility requirements for each of the credits and you, as the preparer, must be aware of all the requirements. The IRS has developed tools, publications and forms to help you.
For the EITC, try the Publication 3524, EITC Eligibility Checklist, (Also available in Chinese, Korean, Russian Spanish and Vietnamese) or the Publication 596, Earned Income Credit, Also available in Spanish), to help you determine eligibility.
For the CTC or the ACTC, try the interactive tax assistant Is My Child a Qualifying Child for the Child Tax Credit? or the Publication 972, Child Tax Credit.
To verify your clients can prove their refundable credit claim, see our article, Forms 886 Can Assist You.
If you give your client a tax return claiming a refundable credit or electronic version to sign and send in, you must attach the completed Form 8867 to the return. Be sure to stress the importance of sending in all the forms to the IRS. Also, keep a list of all the documents including the Form 8867 you gave to your client.
If the Form 8867 is not included with claims for the EITC, the CTC, the ACTC or the AOTC, you may get a warning letter or an alert with your acknowledgements during the filing season.
We can't associate a Form 8867 with return that is already processed. So please don't submit the form separately. Doing so has no affect on your penalty assessment.
If we continue to receive EITC, CTC, ACTC, or AOTC claims prepared by you missing the Form 8867, we continue to send warning letters. We may also send the Letter 1125 with the Form 5816, Report of Tax Return Preparer Penalty Case, assessing the Due Diligence penalty of $510 for each missing form.
Don't ignore the letter. Change your procedures to ensure the Form 8867 is completed and submitted with every refundable credit claim. Make sure your return preparation software includes the Form 8867. Off the shelf software, intended for individual filing, doesn't include the form.
For returns submitted electronically, make sure the setting on your software is not disabled. For paper returns, make sure you let your clients know the importance of submitting all the forms you include. And, keep a record of the forms you included in the package you give your clients.
We can't associate a Form 8867 with return that is already processed. So please don't submit the form separately. Doing so has no effect on your penalty assessment.
If you did not prepare any client return(s) and are no longer a paid preparer, please see What Can I Do to Protect my EFIN and PTIN?