The Tax Cuts and Jobs Act of 2017 (Public Law 115-97) modified the child tax credit (CTC) to provide a nonrefundable credit for qualifying dependents other than children (ODC) and amended Section 6695(g) to add due diligence requirements to cover eligibility to file as Head of Household (HOH) starting with tax year 2018.

Recent guidance by the IRS (Issue Number: 2020-07) for 2019 requires paid tax preparers that complete six or more 2019 and to complete and attach a Form 8867, Paid Preparer’s Due Diligence Checklist with the prepared return when filed for 2019. This is an attempt by IRS to prevent misunderstanding, fraud, and abuse by preparers and taxpayers who claim the five areas below: 

  • Head of Household filing status,
  • Earned Income Tax Credit,
  • Child Tax Credit/Additional Child Tax Credit,
  • American Opportunity Tax Credit, and
  • Credit for Other Dependents

These have been areas of misunderstanding, fraud, and abuse for decades. 
“The IRS has recently sent letters to tax preparers who completed six or more 2019 paper returns claiming refundable tax credits without attaching Form 8867 - Paid Preparer’s Due Diligence Checklist.”

Therefore, preparers are required to complete the Form 8867 and will feel more of a burden to ask questions and receive answers from clients claiming any of the five areas. 
To comply with all due diligence requirements for claiming the applicable credit(s) and/or Head of Household (HOH) filing status on the return of the taxpayer, the preparer must certify that he/she:

  1. Interviews the taxpayer, asks adequate questions, contemporaneously document the taxpayer’s responses on the return or in your notes, review information to determine if the taxpayer is eligible to claim the credit(s) and/or filing status and to compute the amount(s) of the credit(s);
  2. Complete this Form 8867 truthfully and accurately and complete the actions described in this checklist for any applicable credit(s) claimed and HOH filing status if claimed;
  3. Submit Form 8867 as required; and Keep all five of the following records for three years from the latest of the dates specified in the Form 8867 instructions under Document RetentionRead More