Due Diligence Guidance

The IRS outlines specific due diligence requirements, particularly for tax preparers working with certain credits such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), American Opportunity Tax Credit (AOTC), and Head of Household filing status. Tax preparers are required to:

1. Collect Accurate Information: Obtain sufficient documentation and verify information provided by the client.

2. Ask Relevant Questions: Use reasonable judgment to confirm eligibility for credits and deductions.

3. Maintain Records: Keep thorough records of the questions asked, client responses, and supporting documentation for at least three years.

4. Complete Required Forms: File IRS Form 8867, the Paid Preparer’s Due Diligence Checklist, for applicable returns.

Failure to comply with due diligence requirements can result in monetary penalties and damage to the preparer’s professional reputation. This guidance underscores the importance of adhering to ethical standards and protecting the integrity of the tax system.

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