Tax Preparers who submit any federal return claiming the Earned Income Tax Credit (EITC), will need to file a due diligence checklist, Form 8867, with each return. Form 8867 is the due diligence requirement, passed by Congress a decade ago, which aims to reduce errors on returns that use the EITC, which happens to be most professional tax preparers. Previously, preparers have been required to keep copies of the checklist, or similar documentation, which could be reviewed by the IRS at any time.
However, starting yesterday, January 1st, 2012, the IRS will require any return submitting a EITC claim to file Form 8867. The addition of this form will also help streamline the congressional act and IRS mandate to increase penalties for noncompliance. The fine for noncompliance for the checklist will raise from $100 to $500.
The earned income tax credit mainly benefits lower or middle class workers and working families. The credit began in 1975, mainly as a way to offset high social security taxes and provide incentives to work. The credit allows taxpayers to get a refund, even if they owe no taxes, although the maximum return is $5,751. The tax benefit varies from person to person.
Alongside the requirement to complete the new checklist, those who do claim EITC and complete it incorrectly could face hefty penalties. One out of every five taxpayers does not claim the EITC. Of those few who do, many are not eligible or incorrect. However, nearly 26 million people received almost $59 billion through this initiative. Make sure that you discuss applying for the Earned Income Tax Credit with your tax preparer.