Form 8867: Paid Preparer’s Due Diligence Checklist
Guidance is available to assist in completing Form 8867, ensuring accuracy when addressing due diligence requirements․ Specific sections of the checklist address the EIC, CTC/ACTC/ODC credits, and AOTC, alongside Head of Household filing status․
Overview of Form 8867
Form 8867, titled “Paid Preparer’s Due Diligence Checklist,” is a crucial document for tax professionals․ It ensures thorough compliance when claiming certain tax credits or Head of Household (HOH) filing status on behalf of their clients․ The form mandates that paid preparers exercise due diligence in determining a client’s eligibility for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), and the American Opportunity Tax Credit (AOTC)․
This form is not merely a procedural formality but a safeguard against improper claims, which can lead to penalties for both the preparer and the taxpayer․ By completing Form 8867, the preparer affirms that they have thoroughly vetted the taxpayer’s information, asked relevant questions, and reviewed documentation to support the credit or filing status being claimed․ The IRS provides detailed instructions for completing the form, which must be followed meticulously to avoid errors and ensure compliance․ Accurate completion and proper record retention related to Form 8867 are key aspects of a tax preparer’s professional responsibility․
Purpose of Form 8867
The primary purpose of Form 8867 is to ensure that paid tax preparers conduct thorough due diligence when assisting taxpayers in claiming specific tax benefits․ These benefits include the Earned Income Credit (EIC), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Other Dependent Credit (ODC), the American Opportunity Tax Credit (AOTC), and the Head of Household (HOH) filing status․ By requiring tax preparers to complete this checklist, the IRS aims to reduce errors and fraudulent claims associated with these tax provisions․
Form 8867 serves as a structured framework, guiding preparers through a series of questions and documentation requirements designed to verify a taxpayer’s eligibility․ It prompts preparers to gather necessary information, evaluate its credibility, and understand the applicable tax laws․ This process helps to protect the integrity of the tax system by minimizing improper payments and ensuring that only those who genuinely qualify receive these valuable tax benefits․ Ultimately, the form promotes accountability and professionalism among tax preparers while safeguarding taxpayer rights and responsibilities․
Who Must File Form 8867?
Any paid tax return preparer who is responsible for preparing a tax return or claim for refund that includes any of the following must file Form 8867: the Earned Income Credit (EIC), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Other Dependent Credit (ODC), the American Opportunity Tax Credit (AOTC), or Head of Household (HOH) filing status․ This requirement applies regardless of whether the preparer ultimately determines that the taxpayer is eligible for the credit or filing status․
The determining factor is whether the preparer played a significant role in determining eligibility for these benefits․ If a paid preparer assists a taxpayer in claiming any of these credits or HOH status, they are obligated to complete and file Form 8867 with the taxpayer’s return․ This ensures that the preparer has exercised due diligence in verifying the taxpayer’s qualifications for these tax benefits, thus upholding the integrity of the tax system and preventing erroneous or fraudulent claims․
Credits Covered by Form 8867
Form 8867 serves as a due diligence checklist for paid tax preparers who assist taxpayers in claiming specific tax credits․ These credits include the Earned Income Credit (EIC), a benefit for low- to moderate-income working individuals and families․ The form also encompasses the Child Tax Credit (CTC) and the Additional Child Tax Credit (ACTC), which provide tax relief for families with qualifying children․ Furthermore, it covers the Other Dependent Credit (ODC), offering a credit for taxpayers with other qualifying dependents who are not children․
The American Opportunity Tax Credit (AOTC), designed to help students and families with the costs of higher education, is also addressed by Form 8867․ Finally, the form extends to situations where the Head of Household (HOH) filing status is claimed․ By including these credits and filing status, Form 8867 ensures that preparers conduct thorough due diligence to confirm the taxpayer’s eligibility for these valuable tax benefits․
Earned Income Credit (EIC)
The Earned Income Credit (EIC) is a significant tax benefit for eligible low- to moderate-income workers and families․ When preparing a tax return claiming the EIC, paid preparers must exercise due diligence and complete Form 8867․ This form requires preparers to ask specific questions to determine the taxpayer’s eligibility for the credit․
These questions address factors such as the taxpayer’s residency, qualifying child relationships, and income levels․ Preparers must document the information provided by the taxpayer and retain records to support their due diligence efforts․ The goal is to ensure that only those who meet the EIC requirements receive this valuable credit․ By following the guidelines outlined in Form 8867, preparers play a crucial role in maintaining the integrity of the EIC program and preventing erroneous claims․
Failure to comply with EIC due diligence requirements can result in penalties for paid preparers․
Child Tax Credit (CTC)/Additional Child Tax Credit (ACTC)/Other Dependent Credit (ODC)
The Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and Other Dependent Credit (ODC) offer tax relief for families with qualifying children or other dependents․ Paid preparers claiming these credits must complete Form 8867 to demonstrate due diligence․ This involves asking specific questions about the child’s or dependent’s age, relationship to the taxpayer, and residency․
Preparers also need to verify that the child or dependent meets the requirements for being claimed on the tax return․ Accurate record-keeping of the information obtained from the taxpayer is essential․ The instructions for Form 8867 provide guidance on the questions to ask and the documentation to retain․
By fulfilling these due diligence requirements, preparers help ensure that only eligible taxpayers receive the CTC, ACTC, and ODC․ Non-compliance can lead to penalties․ Therefore, a thorough understanding of Form 8867 and its instructions is vital for paid preparers․
American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education․ Paid preparers must exercise due diligence when claiming the AOTC, which involves completing Form 8867 and asking specific questions to determine eligibility․
This includes verifying that the student meets the requirements, such as pursuing a degree or other credential, being enrolled at least half-time for at least one academic period beginning during the year, and not having completed the first four years of higher education․
Preparers should also confirm that the student has not already claimed the AOTC for more than four tax years and has not been convicted of a felony drug offense․ Obtaining and retaining relevant documentation, such as Form 1098-T, is crucial for supporting the AOTC claim and demonstrating due diligence․
Head of Household (HOH) Filing Status
Claiming Head of Household (HOH) filing status requires meeting specific criteria, and paid preparers must exercise due diligence in verifying eligibility․ Form 8867 requires preparers to ask questions and document information to determine if the taxpayer qualifies for HOH status․
This includes confirming that the taxpayer is unmarried and pays more than half the costs of keeping up a home for a qualifying child․ The qualifying child must live with the taxpayer for more than half the year, with certain exceptions for temporary absences․
Preparers must also ensure that the taxpayer is not a qualifying child of another person․ Additional considerations apply if the qualifying child is married․ Proper documentation, such as rent receipts or mortgage statements, should be obtained and retained to support the HOH claim and demonstrate due diligence in accordance with Form 8867 instructions․
Completing Form 8867: Section I ⎼ Due Diligence Requirements
Section I of Form 8867 focuses on the general due diligence requirements that apply to all credits covered by the form․ This section requires paid preparers to answer questions about their inquiries made to the taxpayer․ This section aims to confirm that they have gathered sufficient information to determine eligibility for the Earned Income Credit (EIC), Child Tax Credit (CTC)/Additional Child Tax Credit (ACTC)/Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and/or Head of Household (HOH) filing status․
Preparers must document the questions they asked the taxpayer to determine eligibility for the claimed credits or HOH status․ This includes documenting any contradictory information received and how it was resolved․ It is imperative that the preparer retain records of these inquiries and the taxpayer’s responses․
Answering these questions accurately and thoroughly is crucial for demonstrating compliance with due diligence requirements and avoiding penalties for non-compliance․ Completing Section I carefully ensures that the preparer has taken the necessary steps to properly assess the taxpayer’s eligibility․
Completing Form 8867: Section II ⎼ Credit-Specific Questions (EIC)
Section II of Form 8867 delves into specific questions related to the Earned Income Credit (EIC)․ This section requires paid preparers to demonstrate they’ve gone beyond general inquiries and addressed key aspects of EIC eligibility․ Preparers must ask specific questions to determine if the taxpayer meets the requirements for claiming the EIC, including questions about qualifying children, residency, and income․
The questions in Section II focus on verifying the qualifying child’s age, relationship to the taxpayer, and residency․ The form also prompts preparers to inquire about the taxpayer’s income and whether it meets the EIC requirements․ It is crucial to document all responses and reconcile any inconsistencies to ensure accurate credit claims․
Failure to complete Section II with due diligence can lead to penalties, emphasizing the importance of thorough questioning and accurate record-keeping․ This section is critical in ensuring that only eligible taxpayers receive the EIC, maintaining the integrity of the tax system․
Completing Form 8867: Section III ⎼ Credit-Specific Questions (CTC/ACTC/ODC)
Section III of Form 8867 focuses on credit-specific questions for the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and Other Dependent Credit (ODC)․ Paid preparers are required to ask detailed questions and document the responses to ensure the taxpayer meets all eligibility requirements for these credits․ The questions cover various aspects, including the child’s age, relationship to the taxpayer, residency, and whether the child is claimed as a dependent on another return․
For the CTC and ACTC, preparers must verify the child is under 17 at the end of the tax year and meets the definition of a qualifying child․ For the ODC, preparers must confirm the dependent meets the age, residency, and support requirements․ It’s also crucial to ascertain whether the taxpayer is the primary caregiver and if the child or dependent has sufficient income to support themselves․
Accurate completion of Section III is vital to prevent errors and potential penalties․ Preparers should maintain thorough records of all information gathered and any supporting documentation provided by the taxpayer․
Record Retention Requirements
Tax preparers have a legal obligation to retain specific records related to Form 8867 for a defined period․ These record retention requirements are crucial for demonstrating due diligence and substantiating the claims made on behalf of taxpayers for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and Head of Household (HOH) filing status․
The IRS mandates that preparers retain Form 8867 itself, along with any supporting documentation used to determine eligibility for the credits or HOH status․ This includes worksheets, taxpayer-provided documents, and any internal notes or calculations made during the preparation process․ These records must be kept for three years from the latest of several dates․
Maintaining these records, either in paper or electronic format, is essential for defending against potential audits or inquiries from the IRS․ Failure to comply with record retention requirements can result in penalties and other adverse consequences․
Penalties for Non-Compliance
Failure to comply with the due diligence requirements associated with Form 8867 can result in significant penalties for paid tax preparers․ The IRS takes these requirements seriously, as they are designed to ensure the accuracy and integrity of claims for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and Head of Household (HOH) filing status․
Penalties can be imposed for various reasons, including failing to complete Form 8867 accurately, not retaining the required records, and not meeting the due diligence standards when determining a taxpayer’s eligibility for these benefits․ The amount of the penalty can vary depending on the specific violation․
To avoid penalties, preparers must thoroughly understand the due diligence requirements, ask appropriate questions to determine eligibility, and accurately document their findings․ Staying up-to-date with the latest IRS guidance and seeking professional advice when needed is crucial for ensuring compliance and protecting against potential penalties․
Where to Find Form 8867 and Instructions
Tax professionals can easily access Form 8867, “Paid Preparer’s Due Diligence Checklist,” and its comprehensive instructions through the Internal Revenue Service (IRS) website․ The IRS website (www․irs․gov) serves as the primary source for all tax forms, instructions, and publications․
To locate Form 8867, navigate to the “Forms and Instructions” section of the IRS website and search for “Form 8867․” You can download the form and its accompanying instructions in PDF format․ The instructions provide detailed guidance on completing each section of the form, including the due diligence requirements for the EIC, CTC/ACTC/ODC, AOTC, and HOH filing status․
Tax software providers also typically include Form 8867 as part of their software packages․ This allows preparers to complete the form electronically and file it along with the client’s tax return․ Always ensure that you are using the most current version of the form and instructions, as the IRS may update them annually․