The Earned Income Tax Credit (EITC) is a popular tax credit for low-and moderate-income workers and working families. Approximately one in five eligible taxpayers do not claim the EITC, but many who do claim the credit do so incorrectly or are even ineligible. In order to ensure that the credit is taken by those taxpayers who do qualify, the IRS is now requiring all paid tax return preparers to file a due diligence checklist, or Form 8867, with any federal tax return that is claiming the EITC. This form is normally required to be completed and filed in a preparer’s records, but now the form must also be included with the returns.
Unlike most deductions and credits, the EITC is refundable, meaning that taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit is $5,751.
To make sure that eligible taxpayers receive the correct credit amount, this new reporting regulation requires preparers to file the Form 8867 with each return that claims the EITC, effective January 1, 2012. In addition, the penalty for noncompliance with the due diligence requirement has increased from $100 to $500.
More information about EITC and the due diligence requirement for tax return preparers is available on IRS.gov.
