IRS paid preparer due diligence compliance program is not something new to the tax industry, but the IRS is continually adopting new tactics and adding new things to the program. The paid preparer due diligence compliance program includes earned income credit (EITC), the child tax credit (CTC), additional child tax credit (ACTC), the other dependents (ODC), the American opportunity tax credit (AOTC) and the head of household (HOH) filing status.
As a paid preparer the four most important due diligence requirements are:
Complete and submit form 8867 – for each return, you prepare that claims EITC, CTC, ACTC, ODC, AOTC and/or HOH filing status.
Compute the credits based on the facts – Complete the appropriate worksheets for each credit based on information provided by your client.
Ask all the right questions – Ask questions to your clients and document their answeres. also. take lots of notes on verbal interview process. Sometimes, this is not the most pleasant process and involves asking very personal questions but keep in mind the rule of thumb is the more information you get the better it is when it comes to preparer audits.
Keep records – Maintain copies of all documents your client gave you on which you relied on to determine eligibility for the credits or HOH filing status or to compute the amount of the credits.
We all have heard the saying “you can’t be too careful”. Your best option when it comes to Due Diligence Audit is knowing the rules and having the documentation/notes to back it all up!
Preparer Due Diligence Law – Here is the link to the IRS website, which will provide you with a lot more information on this topic.