Scroll down for news on these hot topics:
- EITC and ACTC Relief: Temporary Special Rule for Determination of Earned Income
- Due Diligence Rules When Electing to Use 2019 Earned Income for the 2020 EITC or ACTC
- Coronavirus Updates
- Due Diligence Training Module Updated for 2021
- Tax-Free CARES Grant for Higher Education
- Due Diligence Regulation
- Nationwide Tax Forum Due Diligence Training Available Online
- Is Your Client's Address Up to Date?
- IRS Educational Letters to Paid Tax Return Preparers Who May Not Be Meeting Due Diligence Requirements
- IRS Due Diligence Telephone Calls
- When Can Your Clients Expect Their Refunds?
- Paid Preparer Due Diligence Penalties Can Be Costly
- IRS Compliance Strategy Brings Injunctions
- Educational Opportunities
- Protect Your EFIN and PTIN
- Don't Miss Any Refundable Credit News
EITC and ACTC Relief: Temporary Special Rule for Determination of Earned Income
Your client may elect to use their 2019 earned income to figure their 2020 EITC or ACTC or both credits if their 2019 earned income is more than their 2020 earned income. This temporary relief is provided through the Taxpayer Certainty and Disaster Tax Relief Act of 2020. For details, see Publication 596 , Earned Income Credit, and the Instructions for Schedule 8812, Additional Child Tax Credit .
Due Diligence Rules When Electing to Use 2019 Earned Income for the 2020 EITC or ACTC
If you prepare a 2020 return for a taxpayer electing to figure the EITC, ACTC or both credits using their 2019 earned income, the due diligence requirements for paid return preparers apply to your computation of earned income for both 2020 and 2019.
See Due Diligence Law for more Information.
The IRS has established a special section focused on steps to help taxpayers, businesses and other affected by the coronavirus on IRS.gov.
Due Diligence Training Module Updated for 2021
The due diligence training module for 2021 has been released in both English and Spanish. We encourage you to take the Refundable Credit Best Practices Due Diligence Training Module, which is free. You may earn one continuing education credit. If you already took the course this year, we encourage you to review the updates, but you will not receive another credit.
Tax-Free CARES Grant for Higher Education under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
There’s good news if your client received an emergency financial aid grant from their school because they were financially impacted by the coronavirus (COVID-19) pandemic.
The grant is tax-free to your client. Don't include it as income on their 2020 tax return. Since the grant is tax-free, grant funds used to pay for educational expenses can't be used to claim the American opportunity tax credit, lifetime learning credit or the tuition and fees deduction.
For more information on this topic, please see FAQs: Higher Education Emergency Relief Fund and Emergency Financial Aid Grants under the CARES Act or Publication 970, Tax Benefits for Education .
Due Diligence Regulation
Nationwide Tax Forum Due Diligence Training Available Online
The IRS Nationwide Tax Forum Online (NFTO) provides information from the speakers at the IRS Nationwide Tax Forums. Each online, self-study seminar includes an interactive video synchronized with a PowerPoint presentation, along with downloadable slides and transcripts.
NFTO seminars may be taken for either continuing professional education credit or audit. NFTO is registered with the Internal Revenue Service and the National Association of State Boards of Accountancy as an approved sponsor of continuing professional education for certified public accountants and enrolled agents.
The Nationwide Tax Forum videos are free and focus on refundable credit due diligence requirements (including Head of Household filing status) and the due diligence compliance process.
Is Your Client's Address Up to Date?
Preparers should ensure clients keep their address up to date with the Internal Revenue Service. This will minimize delays in the receipt of IRS letters or refunds. Your client can find information on updating their address with the IRS here.
IRS Educational Letters to Paid Tax Return Preparers Who May Not Be Meeting Due Diligence Requirements
IRS sends educational letters to certain paid preparers to raise awareness of potentially questionable returns they filed and to assist them in improving their compliance with due diligence requirements. IRS will continue to monitor returns submitted by the preparers to see if their accuracy improves. You can view the letters, in both English and Spanish, here.
The IRS may contact potentially noncompliant paid preparers by telephone to review due diligence rules and discuss possible consequences if they continue to send IRS questionable returns. The calls are exempt from IRS directives on not calling taxpayers. The IRS will not discuss specific client information or ask the preparer to disclose client information.
When Can Your Clients Expect Their Refunds?
If your clients claim the earned income tax credit (EITC), the additional child tax credit (ACTC) on their tax returns, by law the IRS, can’t issue the refund before mid-February.
Paid Preparer Due Diligence Penalties Can Be Costly
The $500 penalty for each failure to meet your due diligence requirements is adjusted for inflation for the earned income tax credit (EITC), the child tax credit/additional child tax credit/credit for other dependents (CTC/ACTC/ODC), the American opportunity tax credit (AOTC), or Head of Household (HOH) filing status. The penalty is $540 per failure for returns or claims filed in 2021.
Paid preparers must exercise due diligence by keeping records, conducting interviews and asking adequate questions to determine whether a taxpayer meets all the eligibility requirements.
The penalty applies to each credit and claim for HOH filing status incorrectly included on a tax return. For example, the penalty asserted against a preparer can be $2,160 for a return or claim filed in 2021 if the preparer fails to meet due diligence requirements for all three credits (i.e., EITC, CTC/ACTC /ODC and AOTC) and HOH filing status.
IRS Compliance Strategy Brings Injunctions
The Tax Division of the U.S. Department of Justice can ask federal courts to permanently bar certain preparers from preparing federal tax returns for others if preparers fail to meet due diligence requirements. Recent injunctions permanently barred preparers whose incorrect returns resulted in millions of dollars in losses to the federal government.
Learn more about refundable credit eligibility rules, paid preparer due diligence requirements and more. Many of the educational opportunities offer continuing education credits.
Protect Your EFIN and PTIN
Keep yourself and your practice safe from fraud. We have found unauthorized uses of Preparer Tax Identification Numbers (PTINs) and Electronic Filing Identification Numbers (EFINs). Find out more on our page, What Can I Do to Protect my EFIN and PTIN?
Don't Miss Any Refundable Credit News
Visit What's Hot on Earned Income Tax Credit & Other Refundable Credits for more news related to refundable credits.