Below are 4 kind’s of Tax Credits you could get a Due Diligence Penalty for:

1. Earned Income Tax Credit (EITC)
2. American Opportunity Tax Credit (AOTC)
3. Child Tax Credit (CTC)
4. Head of Household Status (IRC § 6695(g))

How much is the Penalty?

• $560 per failure, with no maximum.

How you get the penalty?

• If preparers don’t exercise “due diligence” (verifying eligibility and properly documenting it) when claiming these credits or head of household status for clients, they face hefty fines for each violation.
• The IRS takes these credits seriously to prevent fraud and overpayments.

What Due Diligence is Required to avoid penalty?

Two of the due diligence requirements are knowledge and record-keeping.

As part of meeting these two requirements, for each of the above tax benefits claimed a preparer must:

1. Not know, or have reason to know, that any information used by the tax return preparer in determining the taxpayer’s eligibility to file as head of household or in determining the taxpayer’s eligibility for, or the amount of, the credits and claimed on the return or claim for refund is incorrect.
2. Do not ignore the implications of information furnished to or known by the preparer.
3. Make reasonable inquiries if a reasonable and well-informed tax return preparer knowledgeable in the law would conclude that the information furnished to the preparer appears incorrect, inconsistent, or incomplete.
4. During the client interview, record the inquiries and the client’s answers.
5. Keep a copy of the completed Form 8867, Paid Preparer’s Due Diligence Checklist.
6. Keep a copy of the worksheets or computations used to compute the amount of the claimed credit(s)
7. Keep a record of how and when the information used to complete Form 8867 and the worksheets or computations was obtained by the preparer, including the identity of any person furnishing the information, as well as a copy of any document that the taxpayer provided and on which the preparer relied to complete Form 8867 and/or the worksheets or computations.

We at Nunn Better Tax Resolution understand this puts a burden on you when we request information for due diligence purposes.

We ask for your patience and understanding when we request any information. We are trying to protect the integrity of your tax return, comply with IRS requirements, and avoid these draconian penalties. [/vc_column_text][/qode_elements_holder_item][/qode_elements_holder][/vc_column][/vc_row]