Our due diligence compliance program focuses on paid preparers who file returns and claims for refund claiming the earned income tax credit (EITC), child tax credit/additional tax credit/credit for other dependents (CTC/ACTC/ODC), American opportunity tax credit (AOTC) and head of household (HOH) filing status.
The program is:
We look at returns a preparer completed with a high likelihood of errors claiming the EITC, CTC/ACTC/ODC, AOTC or HOH.
We take actions in line with the likely errors. We consider the errors may be caused by.
Our tiered approach can include:
Find out more about the Consequences of Not meeting Due Diligence Requirements.
Why Have a Preparer Compliance Program?
We know most paid preparers practice due diligence and prepare accurate returns for their clients. The preparer compliance program helps to ensure you compete on a level playing field with your peers.
Paid preparers complete the majority of returns claiming the EITC, CTC/ACTC/ODC, AOTC or HOH filing status. As part of the tax preparation community, you are crucial in reducing errors.
Some errors can be caused by misinterpreting the law or accepting questionable client-provided information at face value. Other errors can be due to reckless or intentional disregard of the law or fraud.
The Tax Return Preparer Toolkit Can Help You Avoid Errors
In the Toolkit, we provide education and resources to help paid preparers strengthen due diligence practices and avoid errors.
- Take the online Due Diligence Training Module, to help refresh your tax law and due diligence knowledge. The training is available in English and Spanish an may qualify you for one continuing education credit.
- Learn how to meet due diligence requirements while preparing returns with self-employment income using our Schedule C and Record Reconstruction Training. Plus, get tips on helping your clients reconstruct their business records.
- View the popular Due Diligence Videos to help you improve your due diligence interview process.
- Attend our due diligence webinars or the annual Nationwide Tax Forums.
- View archived Nationwide Tax Forum Videos at not cost.
- Visit our Frequently Asked Questions page for more guidance.
Where Do We Find Most Errors?
Not attaching Form 8867, Paid Preparers Due Diligence Checklist
The IRS can assess a penalty against a paid preparer who does not submit the form with returns or claims for refund when required. The penalty for a return or claim filed in 2021 is $540 per tax benefit claimed, and up to $2,160 per return. The form must be submitted to the IRS electronically or be attached to each return mailed to the IRS. Find out more about Form 8867 here.
Many EITC errors are due to:
- claiming a child who does not meet the relationship or residency test,
- over-or under-reporting income or business expenses to maximize the credit, or
- filing as single or head of household when the correct filing status is married filing jointly or separately.
Common CTC/ACTC errors include claiming the credit for a child who:
- is over 16 years old at the end of the tax year,
- doesn't meet the dependent qualifying child requirements, or
- was not a U.S. citizen, national or resident.
The most common AOTC errors are claiming the credit for a student:
- who didn't attend an eligible educational institution,
- who already completed the first four years of post-secondary education,
- for whom qualifying college or other post-secondary education expenses weren't paid, or
- for whom the credit was already claimed for four tax years.