Due Diligence Requirements for Refundable Tax Credits

Categories: Ethics, IRS CE
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About Course

This self-study ethics program provides an in-depth examination of the preparer due diligence requirements under IRC §6695(g) as applied specifically to refundable tax credits — the Earned Income Tax Credit, the Child Tax Credit and Additional Child Tax Credit, the American Opportunity Tax Credit, and Head of Household filing status. The course addresses the knowledge requirement and proper completion of Form 8867, the due diligence challenges specific to verifying self-employment income for EITC eligibility, the documentation distinctions among the credit-specific due diligence requirements, the EITC disallowance periods under IRC §32(k), the per-failure penalty structure, and the range of consequences a practitioner faces for a pattern of noncompliance, extending beyond the statutory penalty to OPR referral and Circular 230 sanctions.

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What Will You Learn?

  • Apply the four specific due diligence requirements of IRC §6695(g) and Form 8867 to a return claiming a refundable credit
  • Explain the knowledge requirement and distinguish inquiry that satisfies it from inquiry that does not
  • Identify the specific due diligence challenges associated with verifying self-employment income for Earned Income Tax Credit eligibility
  • Apply Head of Household filing status due diligence requirements, including verification of a qualifying person and the cost of maintaining a household
  • Distinguish the due diligence documentation required for the Child Tax Credit and Additional Child Tax Credit from that required for the American Opportunity Tax Credit
  • Explain the EITC disallowance periods under IRC §32(k) and the practitioner's role when a client has a prior disallowance
  • Apply the per-failure penalty structure under IRC §6695(g) to a return claiming multiple credits and filing statuses
  • Identify the range of consequences beyond the statutory penalty, including OPR referral and Circular 230 sanctions, for a pattern of due diligence failures

Course Content

Module 1 – The Knowledge Requirement and Form 8867 Completion
This module examines the independent knowledge requirement under Treasury Regulation §1.6695-2 and the specific documentation steps required to properly complete Form 8867 for each refundable credit claimed.

  • The Knowledge Requirement and Form 8867 Completion

Module 2 – Self-Employment Income and EITC-Specific Due Diligence Challenges
This module addresses the heightened due diligence challenges specific to self-employment income claimed in support of the Earned Income Tax Credit, including inconsistent or unverifiable income documentation.

Module 3 – Head of Household and Child-Related Credit Due Diligence
This module covers the specific inquiry and documentation standards applicable to Head of Household filing status and child-related credits, including the qualifying child residency and relationship tests.

Module 4 – Consequences of Noncompliance: Penalties, Disallowance Periods, and OPR Referral
This module reviews the civil penalty framework under IRC §6695(g), the credit disallowance periods that can follow a due diligence failure, and the circumstances under which a pattern of noncompliance is referred to OPR.

Final Assessment – Due Diligence Requirements for Refundable Tax Credits
This final assessment consists of 10 multiple-choice questions covering all four modules of this course. A passing score of 70% or better is required.

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