Form 8867: Instructions for Paid Tax Return Preparers
IRS Form 8867 serves as a due diligence checklist for tax return preparers. It helps ascertain a taxpayer’s eligibility for specific tax credits or for head-of-household filing status, ensuring compliance and accuracy.
What is Form 8867?
Form 8867, titled “Paid Preparer’s Due Diligence Checklist,” is an IRS document that paid tax return preparers must complete. It verifies eligibility for certain refundable credits and head-of-household filing status. This form serves as a due diligence tool to ensure compliance with IRS regulations and maintain the accuracy of tax filings. By completing Form 8867, preparers affirm they have taken reasonable steps to determine a taxpayer’s eligibility for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and/or Head of Household (HOH) filing status. Its purpose is to prevent improper claims and uphold professional standards in tax preparation. Accurate completion of Form 8867 is crucial for avoiding penalties and ensuring ethical practices.
Purpose of Form 8867
The primary purpose of Form 8867 is to ensure that paid tax return preparers exercise due diligence when preparing returns claiming certain tax benefits. It serves as a checklist to guide preparers in verifying a taxpayer’s eligibility for the Earned Income Credit (EIC), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Other Dependent Credit (ODC), the American Opportunity Tax Credit (AOTC), and Head of Household (HOH) filing status. By requiring preparers to complete this form, the IRS aims to reduce errors and fraudulent claims. Form 8867 helps maintain the integrity of the tax system by prompting preparers to gather necessary information, ask relevant questions, and document their due diligence efforts. Ultimately, it promotes accurate tax filings and prevents taxpayers from claiming credits or filing statuses for which they do not qualify, minimizing potential penalties and audits.
Who Must File Form 8867?
Paid tax return preparers are required to file Form 8867. This applies when they prepare a return for a taxpayer claiming the EIC, CTC/ACTC/ODC, AOTC, or using Head of Household filing status.
Paid Tax Return Preparers
Paid tax return preparers play a vital role in ensuring tax compliance. They are obligated to complete and file Form 8867 when preparing tax returns for clients claiming specific credits or using the Head of Household filing status. This requirement stems from the IRS’s due diligence regulations, designed to maintain the accuracy of tax filings and prevent improper claims.
The form acts as a checklist, guiding preparers through the necessary steps to verify a taxpayer’s eligibility for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), or Head of Household (HOH) status. It’s essential to complete Form 8867 truthfully and accurately, following all instructions provided by the IRS to uphold professional standards.
Failure to comply with these requirements can lead to penalties and other adverse consequences for the preparer.
Credits and Filing Status Covered by Form 8867
Form 8867 covers the Earned Income Credit (EIC), Child Tax Credit (CTC)/Additional Child Tax Credit (ACTC)/Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and Head of Household (HOH) filing status.
Earned Income Credit (EIC)
When preparing a return with the Earned Income Credit (EIC), paid preparers must complete Form 8867 to demonstrate due diligence. This form helps determine if the taxpayer is eligible for the EIC by verifying several factors. The preparer must ask the taxpayer questions to ensure they meet all the requirements. This includes verifying residency, qualifying child status, and income limits.
Form 8867 assists in documenting that the preparer has made reasonable inquiries. It verifies eligibility, helping maintain the accuracy of tax filings and preventing improper claims. Preparers must ensure that the information provided is truthful and accurate. Complete the actions described on Form 8867 for EIC claims. Failing to comply with these due diligence requirements can result in penalties for the preparer.
Child Tax Credit (CTC) / Additional Child Tax Credit (ACTC) / Other Dependent Credit (ODC)
For the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and Other Dependent Credit (ODC), paid tax preparers must also complete Form 8867. This ensures they have performed due diligence in determining the taxpayer’s eligibility for these credits. The form requires the preparer to ask specific questions and verify information related to the qualifying child or other dependent.
This includes confirming the dependent’s age, relationship to the taxpayer, and residency requirements. The preparer must also document the steps taken to verify this information, such as reviewing relevant documents. Accurately completing Form 8867 is crucial for avoiding penalties and ensuring compliance with IRS regulations. It helps confirm that the taxpayer meets all the necessary criteria for claiming these valuable credits. Proper due diligence protects both the taxpayer and the preparer.
American Opportunity Tax Credit (AOTC)
When preparing a tax return where the American Opportunity Tax Credit (AOTC) is claimed, paid preparers are required to complete Form 8867. This is to demonstrate that they have fulfilled their due diligence obligations. They must determine if the student meets the criteria for the AOTC, including pursuing a degree or other credential and attending school at least half-time.
Preparers must also verify that the expenses claimed qualify for the AOTC, such as tuition, fees, and course materials. Asking pertinent questions and documenting the responses received from the taxpayer is essential. Maintaining records of the information relied upon to determine eligibility is vital. These requirements help ensure that the AOTC is claimed correctly and prevent fraudulent claims. Following these instructions protects both the taxpayer and the preparer from potential penalties.
Head of Household (HOH) Filing Status
When a taxpayer files as Head of Household (HOH), paid preparers must exercise due diligence, documented on Form 8867. The preparer needs to confirm that the taxpayer is unmarried and pays more than half the costs of keeping up a home for a qualifying child. Asking the right questions is critical in determining eligibility.
The preparer must inquire about the taxpayer’s marital status, any dependent living in the home, and the expenses paid toward maintaining the household. They need to verify the relationship between the taxpayer and the qualifying child. Supporting documentation, such as rent receipts or utility bills, may be necessary to confirm expenses. Failing to perform this due diligence can result in penalties. Therefore, accuracy and thoroughness are paramount when claiming HOH filing status.
Due Diligence Requirements
Paid tax return preparers must meet specific due diligence requirements when preparing returns involving the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and Head of Household (HOH) filing status. These requirements are outlined in Form 8867.
Preparers must ask appropriate questions to determine the taxpayer’s eligibility for the credits or HOH status. They must keep records of how and when the questions were asked and the taxpayer’s responses. Preparers should also review information provided by the taxpayer and reasonably conclude that it is correct. They cannot ignore information that is provided to them or that they know about. Completing Form 8867 accurately and truthfully is crucial; Failure to meet these requirements can result in penalties.
Record Retention Requirements
Paid preparers must retain specific records related to Form 8867 for three years. These records substantiate due diligence efforts in determining eligibility for credits or Head of Household filing status.
How Long to Keep Records
Maintaining thorough records is paramount for paid tax return preparers completing Form 8867. The IRS mandates that you retain specific documentation related to the form for a period of three years. This retention period begins from the latest of several dates, ensuring comprehensive coverage.
These dates include the date you signed the return, the date you submitted the return to the taxpayer, or the return’s due date. Keeping records allows you to substantiate your due diligence efforts in determining a taxpayer’s eligibility for the Earned Income Credit (EIC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Other Dependent Credit (ODC), American Opportunity Tax Credit (AOTC), and/or Head of Household (HOH) filing status.
These records, whether stored electronically or on paper, must be readily available upon request by the IRS. Failure to comply with these record retention requirements can result in penalties and other adverse consequences. Proper documentation is key to demonstrating your adherence to professional standards.