Posted 10/6/11

PROPOSED RULES REQUIRE FILING OF DUE DILIGENCE CHECKLIST WITH ALL 2012 EITC CLAIMS

The IRS has issued proposed regulations that require paid tax return preparers to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC). The proposed rules would apply to tax years ending on or after December 31, 2011. This is the same form that preparers must complete and retain in their own records.

The IRS created Form 8867, Paid Preparer's Earned Income Credit Checklist, to help preparers obtain eligibility information from their clients. Preparers have to keep copies of the form, which is subject to review by the IRS. Now the IRS has taken the extra step of requiring that this form be filed with each return claiming an EITC credit.

Further details can be found in the proposed rules, REG-140280-09 Comments on the proposed regulations are due by November 10, 2011, and a public hearing is scheduled for November 7, 2011. Information on how to submit comments is contained in the regulations.

The EITC is targeted to low-and moderate-income workers and working families, and the tax benefit varies by income, family size and filing status. Unlike most deductions and credits, the EITC is refundable −− taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.

Although as many as one in five eligible taxpayers fail to claim the EITC, some of those who do claim it either compute it incorrectly or are ineligible. The IRS said it is implementing this requirement as part of its efforts to ensure that the credit is given only to eligible taxpayers. For 2009, over 26 million people received nearly $59 billion through the EITC. Tax professionals prepare close to 66 percent of these claims.