As your tax professional, we may be asking you
additional questions next year that are required by the Tax Cuts and Jobs Act.
Tax preparers must collect new information from clients who qualify for any of
the following tax credits:
- Earned Income Tax Credit (EIC)
- Child Tax Credit (CTC)
- American Opportunity Tax Credit (AOTC)
- Head of Household filing status (HOH)
In addition to interviewing you and gathering the
required information needed to answer all of the due diligence questions on
Form 8867, Paid Preparer's Due Diligence Checklist, we are now required to ask
additional questions if the information you provide seems incorrect,
incomplete, or inconsistent. So please don't think we got extra nosy! It's the
IRS's way of cracking down on fraud.
Tax preparers must keep copies for three
years (either paper or electronic) of any documents provided by you that were
relied on to determine whether any child is a qualifying child. We must also
keep all worksheets showing how the credit was computed.
Penalty
for Failure to Perform Due Diligence
For returns filed in 2019, the penalty is $520 per
failure to meet the due diligence requirements.
This penalty applies to each credit that is subject to the due diligence
requirements. As a result, a single
return could contain more than one $520 penalty!
IRS
Letter 5025
The IRS is sending letters to tax professionals who have submitted returns with questionable
claims for refundable credits and head of household status errors. Letter 5025 is generated as an educational
effort to notify preparers who submit a high number of returns containing these
credits that they may not have met the due diligence requirements. While the letter is informational only, it
serves to notify the tax professional that the IRS is monitoring returns
prepared by them. The letter advises tax
preparers to educate themselves on the due diligence requirements by taking an
online training module.
Form
8867
If you're curious about the list of questions that we
may have to ask you, you can view them on the due diligence checklist at this
link: https://www.irs.gov/pub/irs-pdf/f8867.pdf