IRS Issues Rules Relating to the Tax Return Preparer Due Diligence Penalty (T.D. 9799; NPRM REG-102952)

CCH Tax Day Report

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 P.L. 114-113) that expanded the scope of the due diligence requirements so that they apply to returns or claims for refund of 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).

Under Code Sec. 6695(g), the due diligence requirements apply to each credit claimed. 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.

The temporary regulations 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. Form 8867 has been revised for the 2016 tax year and is a single checklist to be used for all applicable credits (EIC, CTC/ACTC, and/or AOTC).

The tax return preparer must not know, or have reason to know, that any information used by the tax return preparer in determining the taxpayer’s eligibility for, or the amount of, any applicable credit and claimed on the return or claim for refund is incorrect. The examples in the temporary regulations demonstrate when a tax return preparer has satisfied the due diligence knowledge requirement.

The temporary regulations also reflect the change made by the Tax Increase Prevention Act of 2014 (P.L. 113-295), requiring the IRS to adjust the penalty for inflation for returns or claims for refund filed after December 31, 2014.

T.D. 9799, 2016FED ¶47,058

NPRM REG-102952-16, 2016FED ¶49,724

Other References:

Code Sec. 6695

CCH Reference – 2016FED ¶39,968

CCH Reference – 2016FED ¶39,969

Tax Research Consultant

CCH Reference – TRC INDIV: 57,266.10

CCH Reference – TRC INDIV: 57,454.10

CCH Reference – TRC IRS: 6,116



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