Tax Preparer Due-Diligence Finalized

The IRS has finalized proposed regulations under IRC Sec. 6695(g), but what does this mean for paid tax preparers? A lot and a little depending on your preparedness as a tax preparer. The changes in the regulations are centered around due-diligence requirements and the penalties for noncompliance for misfiling or misusing credits.

Three of the main credits are the earned income tax credit, the child tax credit, and the American opportunity tax credit. Each of these can be applied by meeting the criteria, but apparently in years past, some preparers have been fudging the numbers and requirements allowing people filing to have credits available that should have been restricted.

Additionally, as of the Tax Cuts and Jobs Act, the filing status of head-of-household filing status to the list of due diligence provisions has been added. This has been applied to any filing after November 7, 2018.

To be sure you are complying with the due-diligence requirements, the preparer must submit the Form 8867, also known as the Paid Preparer’s Due Diligence Checklist, and must submit a worksheet for due-diligence for each credit claimed. The preparer must retain the form 8867 for three years for legitimacy and records keeping as well. The regulations contain further examples for preparers to reference.

If you’re a preparer and have questions or simply want to have your taxes done by professionals, contact us at the Center for Financial, Legal & Tax, Inc.