The IRS recently finalized regulations that impose a penalty
on tax return preparers who do not follow due-diligence requirements when
preparing returns for taxpayers claiming any of the
l Head
of Household filing status
l The
American Opportunity Tax Credit
l The
Earned Income Tax Credit
l The
Additional Child Tax Credit
l The
Child Tax Credit
While the proposed regulations, according to the IRS, have
only been altered slightly, the organization did remove the temporary
regulations issued with the proposed regulations back in 2016.
Though the changes are slight, before them, the due
diligence requirements and penalties were only in affect for claims related to
the Earned Income Tax Credit. Now, however, the other items in the above list
are now affected as well.
How to Comply
Many tax preparers are concerned about how they will be
affected by the new rules and how to ensure they are in compliance.
Fortunately, reaching compliance is simple.
Taxpayers must submit Form 8867, which is a due diligence
checklist. They also have to complete the due diligence worksheet for IRS forms
related to the credit in question. On this form, they will need to show how the
credit was computed.
Also, in order to determine that the taxpayer is being
honest, the preparer is required to make and document any inquiries related to
validation of the credit and eligibility for it.
Preparers are also required to retain all forms and records
for a minimum of three years.