The IRS has issued temporary and proposed regulations modifying the existing rules relating to the tax return preparer due diligence penalty under Code Sec. 6695(g). Existing regulations imposed due diligence requirements on tax returns relating to the earned income credit. The temporary regulations implement recent law changes made by the Protecting Americans from Tax Hikes Act of 2015) that expanded the scope of the due diligence requirements so that they apply to returns involving the child tax credit (CTC), additional child tax credit (ACTC), and the American opportunity tax credit (AOTC), in addition to the earned income credit (EIC).

The temporary regulations provide that a separate penalty applies with respect to each credit claimed on a return or claim for refund. The temporary regulations provide several examples to demonstrate how multiple penalties could apply when one return or claim for return is filed. This penalty is imposed on me as the paid preparer, and not on my clients. A separate penalty can be imposed on the client if they knowingly furnish incorrect information.

The temporary regulations also clarify that completion of Form 8867, Paid Preparer’s Due Diligence Checklist, can be based on information provided by the taxpayer to the preparer or otherwise reasonably obtained or previously known by the preparer. Basically, I have to fill this form out because I'm the paid preparer, a form that would not otherwise need to be completed if the return did not have a paid preparer.

I must not know, or have reason to know, that any information used by determining the taxpayer’s eligibility for, or the amount of, any credit and claimed on the return is incorrect.

What this effectively means I MAY have to ask additional questions in the return preparation process if I find that you are eligible for any of these credits.