Form 8867 – Paid Preparer’s Due Diligence Checklist in Tax Compliance
Form 8867, the Paid Preparer’s Due Diligence Checklist, is a crucial tool for tax preparers to demonstrate compliance with due diligence requirements. It serves as a safeguard against errors, omissions, and fraudulent activities in tax filings.
Key Features and Components:
The form requires preparers to confirm their adherence to due diligence standards related to determining eligibility for certain tax benefits, such as the Earned Income Tax Credit (EITC). It includes sections for documenting the preparer’s inquiries, verifications, and records supporting the information on the return.
Relevant Filing and Compliance Requirements:
IRS regulations mandate the completion of Form 8867 when a preparer claims the EITC, the Child Tax Credit, the Additional Child Tax Credit, or the American Opportunity Credit for a client. Failing to submit the form when required can result in penalties and potential disallowance of credits on the client’s return.
Penalties for Non-Compliance:
Non-compliance with the due diligence requirements outlined in Form 8867 can lead to significant penalties for tax preparers, including monetary fines and potential suspension or revocation of their preparer tax identification number (PTIN). Clients may also face consequences, such as losing tax credits or refunds.
Importance in Tax Resolution and Financial Compliance:
Form 8867 plays a critical role in maintaining the integrity of the tax system by ensuring that eligible taxpayers receive the appropriate credits without fraudulent claims. Compliance with the checklist helps tax preparers uphold professional standards, avoid penalties, and protect clients from legal and financial implications of non-compliance.