What form must a tax preparer complete for each refundable credit and HOH filing status claim?
Form 8867, Paid Preparer’s Due Diligence Checklist
Form 8867 must be completed for each EITC, CTC, ACTC, ODC, AOTC, and/or HOH filing status claim prepared, every year, without exception.
What refundable tax credits require paid preparers to meet due diligence requirements?
- Earned Income Tax Credit (EITC)
- Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC)
- Other Dependents Credit (ODC)
- American Opportunity Tax Credit (AOTC)
- Head of Household (HOH) filing status
Note: While HOH is not a credit, it is subject to the same due diligence requirements.
What are the four due diligence requirements for tax preparers regarding refundable credits and HOH filing status?
- Complete and submit Form 8867.
- Compute the credit.
- Apply the Knowledge Requirement.
- Keep records for three years.
These requirements are mandatory for each EITC, CTC/ACTC/ODC, AOTC, and/or HOH filing status claim prepared.
What is the Knowledge Requirement for tax preparers?
Preparers must apply a common-sense standard to the information provided, evaluate completeness, recognize inconsistencies or falsehoods, conduct thorough interviews, and document responses.
The IRS assesses over 90% of due diligence penalties for failure to comply with the knowledge requirement.
How long must a tax preparer retain records used to determine eligibility for refundable credits?
Three years
Records must be retained from the latest of the tax return due date, the electronic submission date, or the date the return was provided to the signing preparer.
True or False:
Tax preparers must always request proof of relationship and residency for a qualifying child before submitting a claim for a refundable credit.
False
Preparers should request additional documentation only if the information provided seems incorrect, inconsistent, or incomplete.
What are the most common errors on refundable claims that tax preparers should avoid?
- Claiming a child who is not a qualifying child.
- Married taxpayers claiming the EITC without filing a joint return.
- Income-reporting errors.
These issues account for more than 60% of errors on refundable claims.
What are the eligibility requirements for claiming the Credit for Other Dependents?
(ODC)
- The person must be claimed as a dependent on the taxpayer’s retun and meet the requirements to be a qualifying child or a qualifying relative.
- The same dependent cannot be used to claim the CTC or ACTC
- The person is a U.S. Citizen, U.S. national or a U.S. resident alient
The ODC is a $500 nonrefundable credit. The dependent does not have to have a SSN for the taxpayer to claim the credit.
What are the eligibility requirements for the American Opportunity Tax Credit?
(AOTC)
- Attend an eligible educational institution
- Have qualifying college expenses
- Only available for the first four years of post-secondary education
The educational institution must be eligible to participate in a U.S. Department of Education student aid program.
What expenses do not qualify for the American Opportunity Tax Credit?
- Insurance of any type
- Medical costs
- Room and board
- Transportation
- Sports, games, hobbies, or non-credit courses
- Any personal, living, or family expenses
These expenses remain nonqualifying even if required by the college for enrollment or attendance.
What is considered an eligible expense when claiming the American Opportunity Tax Credit?
- Tuition
- Required enrollment fees
- Course materials (e.g., books, supplies, and equipment) needed for attendance or coursework, even if not paid directly to the school.
How many years can a taxpayer claim the American Opportunity Tax Credit (AOTC)?
Four tax years total
The AOTC can only be used for a maximum of four years towards post-secondary education expenses.
What are the requirements for claiming the Child Tax Credit?
- The child must be under 17 years old.
- The child must have a valid Social Security number.
- The child must be claimed as a dependent.
- The child must meet the residency requirement.
A qualifying child must be a U.S. citizen, U.S. national, or U.S. resident alien and live with the taxpayer for more than half the year.
Can a taxpayer claim both the Child Tax Credit (CTC) and the Credit for Other Dependents (ODC) for the same child?
No
A taxpayer cannot use the same dependent to claim both the CTC (or ACTC) and ODC.
What is the penalty for tax preparers failing to exercise due diligence with refund claims on returns filed in 2026 (2025 tax year returns)?
$650 per failure to comply with due diligence requirements.
- This penalty applies per credit, and there is no maximum dollar penalty amount.
- The OBBBA imposes a new penalty of $1,000 per failure for “COVID-ERTC promoters” who fail to comply with due diligence requirements regarding eligibility or credit calculation for the Employee Retention Tax Credit
What types of bans can the IRS impose on the taxpayer related to the AOTC, EITC, or CTC?
- 2-Year Ban: For reckless or intentional disregard of the credit rules.
- 10-Year Ban: For fraud related to the credit.
What actions might the IRS take against a preparer for failing to meet due diligence requirements?
- Disciplinary action by the OPR.
- Suspension or expulsion from the IRS e-file program.
- Injunctions barring the practitioner from preparing tax returns in the future.
The IRS can also refer cases to the U.S. Department of Justice for preparers making fraudulent refund claims.
What is the purpose of Schedule 8812 (Form 1040)?
To claim Credits for Qualifying Children and Other Dependents
When is Form 8862, Information to Claim Certain Credits After Disallowance used?
Must complete Form 8862 and attach it to the tax return to claim the EIC, CTC/ACTC/ODC, or AOTC if both of the following
apply.
* Your EIC, CTC/ACTC/ODC, or AOTC was previously reduced or disallowed for any reason other than a math or clerical error.
* You now want to claim the credit that was previously reduced or disallowed and you meet all the requirements for the credit.
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Essential Tax Law Updates for Representation12
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Unit 1: Legal Authority of the IRS30
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Unit 2: Practice Before the IRS31
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Unit 3: Authorizations and Disclosures31
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Unit 4: Circular 230 and Best Practices31
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Unit 5: Practitioner Standards and Tax Advice28
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Unit 6: Due Diligence for Refundable Credits and HOH Filing Status19
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Unit 7: Recordkeeping Requirements and Penalties51
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Unit 8: Practitioner Misconduct23
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Unit 9: Tax Payments and IRS Collections48
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Unit 10: The IRS Examination Process32
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Unit 11: IRS Appeals and the U.S. Tax Court19
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Unit 12: The IRS E-File Program29
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Unit 13: Identity Theft and Safeguarding Taxpayer Data25
