Paid tax return preparers are required to exercise due diligence when preparing any client’s return or claim for refund. Form 8867, Paid Preparer’s Due Diligence Checklist, must be filed with the tax return for any taxpayer claiming the Earned Income Credit (EIC), the Child Tax Credit and/or the Additional Child Tax Credit (CTC/ACTC), and the American Opportunity Tax Credit (AOTC).
As part of exercising due diligence, the preparer must
- interview the client,
- ask adequate questions,
- obtain appropriate and sufficient information to determine the correct reporting of income, claiming of tax benefits (such as deductions and credits), and compliance with the tax laws.
To meet these due diligence requirements, the preparer may need to ask additional questions and obtain additional information to determine eligibility for, and the amount of, the EIC, the CTC/ACTC, or the AOTC. Failure to meet the EIC, CTC/ACTC, or the AOTC due diligence requirements could result in a penalty for each failure.
To comply with the due diligence requirements set forth in Treasury Regulations for the EIC, the CTC/ACTC, or the AOTC claimed on a return or claim for refund, a paid preparer should do all of the following:
- Complete Form 8867 truthfully and accurately and complete the actions described on Form 8867 for each credit claimed.
- Submit Form 8867 with the tax return in the manner required.
- Meet the knowledge requirement by interviewing the taxpayer and asking the client adequate questions to determine if the taxpayer is eligible to claim the credit(s) and in what amount(s). At the same time, the preparer should document the questions and the taxpayer’s responses in their notes at the time of the interview. (See here for more information on the knowledge requirement and documenting responses.)
- Keep all five (5) of the following records for three (3) years from the latest of when the return was due (not including extensions) or when the return was actually filed:
- A copy of Form 8867;
- The applicable worksheet(s) or your own worksheet(s) for any credits claimed;
- Copies of any documents provided by the taxpayer on which you relied to determine eligibility for, and the amount of, the credit(s);
- A record of how, when, and from whom the information used to prepare Form 8867 and worksheet(s) was obtained; and
- A record of any additional questions you may have asked to determine eligibility for, and amount of the credits, and the taxpayer’s answers.
When preparing the tax return in TaxSlayer Pro, the due diligence questions become available when the program has determined that the taxpayer qualifies for any of the EIC, the CTC/ACTC, or the AOTC, based on the information entered in the return so far. At that point, you'll see a new menu item, Preparer Due Diligence, appear in the left side menu.
Note: This is a guide on completing Form 8867 in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
Instructions for Form 8867 - Paid Preparer's Due Diligence Checklist
Paid Preparer Due Diligence Training Module
Desktop: Form 8867 - Paid Preparer Knowledge Requirements and Documenting Taxpayer Responses
ProWeb: Form 8867 - Paid Preparer Knowledge Requirement and Documenting Taxpayer Responses