Academic journal article Journal of Accountancy

New Law, Proposed Regs Heighten EITC Preparer Due Diligence

Academic journal article Journal of Accountancy

New Law, Proposed Regs Heighten EITC Preparer Due Diligence

Article excerpt

The Sec. 6695(g) penalty for failure by preparers to exercise due diligence with respect to the earned income tax credit (EITC) increased from $100 to $500 effective for returns required to be filed after Dec. 31, 2011.

The measure was enacted in late October as part of the U.S.-Korea Free Trade Agreement Implementation Act of 2011, P.L. 112-41. The EITC penalty applies to each failure of a tax return preparer to exercise due diligence in determining taxpayer eligibility for or the amount of an EITC.

Also in October, the IRS proposed regulations (REG-140280-09) that would add new due-diligence requirements and procedures for the refundable credit. Existing regulations (Regs. Sec. 1.6695-2) require preparers to complete Form 8867, Paid Preparer's Earned Income Credit Checklist, or to otherwise record the information it requires for each return claiming the EITC and keep it in the preparer's records. The checklist must be based on information provided by the taxpayer to the preparer or otherwise reasonably obtained by the preparer.

The proposed regulations would require preparers to submit Form 8867 with the tax return on which the EITC is claimed and would not allow any substitute for the form. Return preparers would also be required to keep a copy of the form and of any document that the taxpayer supplied and the preparer relied upon to complete Form 8867. Return preparers would be required to retain this information for three years from the return due date (without regard to any extension) or the date the return or claim for refund was filed, whichever is later. …

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