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.
Due Diligence Requirements and Form 8867
To meet your due diligence, you must:
- Complete the form with information you get from your client or that you reasonably obtained
- Complete the form for every tax return, amended return, or claim for refund you prepare claiming the EITC, the CTC, the ACTC, and the AOTC
- Complete all required parts of the form
- Submit the completed Form 8867 with each electronic return claiming the EITC, the CTC, the ACTC, or the AOTC you send or attach the completed Form 8867 to any EITC, CTC, ACTC, or AOTC return or claim for refund you mail for your client, or give to your client to send
- 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 if you got the information to complete the return from your client or was the information reasonably obtained by you
- Questions 2-4 address compliance with the four due diligence requirements
- Question 5 asks you if you relied on any documents to determine eligibility or to compute the amount of the credit and has a place for you to list the document(s)
- Questions 6-8 address your client's ability to substantiate the information reported on the return this includes asking about any prior year credit disallowance and having adequate information to prepare a correct Schedule C for your client
- Questions 9-11 are specific questions for each of the credits
- Last, paid preparers need to complete a new credit eligibility certification
Tips on completing Form 8867
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.
What Happens if IRS Receives a Refundable Credit Claim Missing the Form 8867?
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.
- 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, or the AOTC returns without Form 8867.
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.
What Should I Do if I Receive a Warning?
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?
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
- Appeal of Due Diligence Penalties