Final Regulations Cover Tax Return Preparer Due Diligence Penalty Under Sec. 6695(G)

NSTPCode Section, Internal Revenue Service (IRS), Penalties

Tax Return Preparer Due Diligence Penalty Under Sec. 6695(G)
The Internal Revenue Service has issued final regulations on the tax return preparer penalty to reflect the Tax Cuts and Jobs Act (TCJA) expansion of the scope of the tax return preparer due diligence penalty under Code Sec. 6695(g). The final regulations apply to the child tax credit (CTC)/additional child tax credit (ACTC), the American opportunity tax credit (AOTC) and the new due diligence requirements for the head of household filing status. Prior to 2016, Code Sec. 6695(g) imposed a penalty on tax return preparers who failed to comply with due diligence requirements set out in regulations with respect to determining eligibility for, or the amount of, the earned income credit (EIC). For tax years beginning after December 31, 2015, the scope of Code Sec. 6695(g) was expanded to apply the penalty to tax return preparers who fail to comply with due diligence requirements with respect to determining eligibility for, or the amount of, the child tax credit (CTC), additional child tax credit (ACTC) and the American opportunity tax credit (AOTC). The TCJA amended Code Sec. 6695(g) to expand the scope of the penalty to tax return preparers who fail to comply with due diligence requirements with respect to determining eligibility to file as head of household, for tax years beginning after December 31, 2017. In July 2018, IRS issued proposed regulations that amended portions of previously proposed regulations to reflect the TCJA provision which provided that the penalty applies to preparer due diligence with respect to eligibility to file a return or claim for refund as head of household. IRS has issued final regulations that incorporate the TCJA change and withdraw the existing temporary regulations. The final regulations apply to tax returns and claims for refund for tax years beginning after December 31, 2015, that are prepared on or after December 5, 2016. However, the rules relating to the determination of a taxpayer’s eligibility to file as head of household under Reg § 1.6695-2(b) apply to tax returns and claims for refund for tax years beginning after December 31, 2017.