If you are paid to prepare a tax return claiming the earned income tax credit (EITC), child tax credit (CTC), additional child tax credit (ACTC), credit for other dependents (ODC), or American opportunity tax credit AOTC), or beginning with returns filed in 2019, head of house hold (HOH) filing status, due diligence regulations now require you to complete and submit Form 8867, Paid Preparer's Due Diligence Checklist, with each return. See the Form 8867 instructions for more information. We modified the Form 8867 to include ODC and the HOH filing status.
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 the eligibility criteria for HOH filing status and each refundable credit for each claim you prepare.
Completing and submitting the Form 8867 is one of your due diligence requirements. There is a $500 penalty for not meeting this requirement. penalty. This penalty is adjusted annually for inflation under Internal Revenue Code section 6695. The penalty for returns prepared after 2018 is $520.
Due Diligence Requirements and Form 8867
To meet your due diligence requirements, for every tax return or claim for refund you prepare claiming the EITC, CTC/ACTC/ODC, AOTC or HOH filing status, you must:
- Complete the form with information you get from your client or that you reasonably obtained
- Complete all required parts of the form
- Submit the completed Form 8867 with each e-file tax return you send us or attach the completed Form 8867 to each paper return or claim for you refund you prepare for your client.
- If you are not the signing tax return preparer, give the completed Form 8867 to the signing preparer either electronically or on paper.
Parts of the Form 8867
- Question 1 asks whether you completed the return from information your client or that you reasonably obtained
- Questions 2-4 address compliance with the four due diligence requirements
- Question 5 asks whether you relied on and retained any documents from your client to determine eligibility for the HOH filing status or the credit(s) ,or to compute the amount of the credit(s) and you to list those document(s)
- Questions 6-8 address your client's ability to substantiate the eligibility information reported on the return. This includes whether you asked about any prior year credit disallowance and had adequate information to prepare a correct Schedule C for your client
- Questions 9-14 ask specific questions for each of the credits and for HOH filing status
- Last, in question 15, paid preparers must answer an eligibility certification
Tips on completing Form 8867
You need to answer the questions covering refundable credit and HOH filing status eligibility on 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 or HOH filing status 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 Publication 3524, EITC Eligibility Checklist, (Also available in Chinese, Korean, Russian, Spanish and Vietnamese) or 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 Publication 972, Child Tax Credit.
For HOH filing status, try Publication 501, Exemptions, Standard Deductions and Filing Information
To verify your clients can prove their refundable credit or HOH filing status claim, see our article, Forms 886 Can Assist You.
If you give your client a tax return claiming a refundable credit or HOH filing status 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.
What Happens if IRS Receives a Credit or HOH Filing Status Claim Missing the Form 8867?
If the Form 8867 is not included with claims for the EITC, CTC/ ACTC/ODC, AOTC or HOH filing status, you may get a warning letter or an alert with your acknowledgements during the filing season.
- Letter 5364 is sent to those who prepare paper returns without a Form 8867
- Letter 5364 en Español (.pdf format)
- Acknowledgement Alerts sent electronically to those preparers who e-file EITC, CTC/ACTC/ODC, AOTC or HOH filing status returns without Form 8867.
We can't associate a Form 8867 with a return that is already processed. So please don't submit the form separately. Doing so has no effect on a potential penalty assessment.
If we continue to receive EITC, CTC/ACTC/ODC, AOTC or HOH filing status claims prepared by you missing the Form 8867, we continue to send warning letters. We may also send you Letter 1125 with Form 5816, Report of Tax Return Preparer Penalty Case, assessing the Due Diligence penalty. For returns prepared after 2018, the penalty is $520 for each missing form.
What Should I Do if I Receive a Warning?
Don't ignore the letter. Change your procedures to ensure Form 8867 is completed and submitted with every refundable credit and HOH filing status claim. Make sure your return preparation software includes 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.
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?
What if I Don't Agree with the Penalties?
Additional Due Diligence Resources
- Form 8867
- Form 8867 Instructions
- Refundable Credit Due Diligence Law
- Consequences of Not Meeting Your Due Diligence Requirements