What Is Form 8867 and When Do You Need to File It?
Understand Form 8867, its filing requirements, key sections, and the importance of accurate completion to ensure compliance and avoid penalties.
Form 8867 is a document for tax preparers to ensure compliance with IRS due diligence requirements. It verifies eligibility for refundable credits, helping maintain the accuracy of tax filings and preventing improper claims. Understanding how and when to file Form 8867 is essential to avoid penalties and uphold professional standards.
Who Must Complete This Form
Form 8867, the Paid Preparer’s Due Diligence Checklist, is mandatory for tax professionals preparing returns that claim specific refundable credits. These include the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), American Opportunity Tax Credit (AOTC), and the Credit for Other Dependents (ODC). The IRS requires tax preparers to use this form to document their compliance with due diligence standards, such as verifying eligibility for these credits and calculating the correct credit amounts.
The primary goal is to prevent improper claims and ensure only eligible taxpayers benefit. Tax preparers must adhere to Treasury Regulation 1.6695-2, which outlines due diligence standards. These include interviewing clients, reviewing documents, and retaining records. Non-compliance results in penalties, currently set at $560 per failure, per return, as of 2024. This underscores the importance of completing Form 8867 accurately.
When This Form Is Required
Form 8867 must be submitted with any tax return claiming the specified credits. The IRS uses this form to confirm that tax preparers have met due diligence requirements. Filing it promptly is essential, as delays or omissions can lead to penalties.
Key Sections and Their Purpose
Form 8867 guides tax preparers through a checklist to meet due diligence standards. The identification section requires the preparer’s personal information, including their Preparer Tax Identification Number (PTIN), to ensure accountability.
Subsequent sections focus on verifying eligibility for each credit. For the EITC, preparers must confirm the taxpayer’s earned income and filing status, using documentation such as W-2 forms. Sections for the CTC and AOTC require verification of qualifying dependents and educational expenses, respectively.
Consequences of Incorrect Filing
Incorrectly filing Form 8867 can have serious financial and professional consequences. The IRS imposes a $560 penalty per failure, per return, which can add up if multiple errors are made.
Beyond financial penalties, errors can harm a preparer’s reputation. Clients rely on accuracy and expertise, and mistakes can erode trust, resulting in lost clientele. Repeated inaccuracies may lead to audits or investigations, potentially resulting in more severe consequences if negligence or misconduct is found.
Records to Retain
Tax preparers must maintain accurate records to comply with IRS due diligence requirements. These records must be kept for at least three years from the latest of the following dates: the return’s due date, the date it was filed, or the date Form 8867 was submitted.
Documents to retain include copies of Form 8867, worksheets used to calculate credits, and supporting documentation provided by the taxpayer. For example, birth certificates or school records may be needed to verify dependents for the CTC, while Form 1098-T and receipts for educational expenses should be retained for the AOTC. Signed statements from clients attesting to the accuracy of their information are also important.
Digital tools can help securely store and organize these records, reducing the risk of loss. Failure to retain proper documentation can result in penalties, even if the form was completed accurately. By keeping detailed records, tax preparers protect themselves from audits and demonstrate a commitment to professional standards.