IRS Penalizes Tax Preparers without EITC Checklists

The Internal Revenue Service is warning tax preparers who do not send a Form 8867, “Paid Preparer’s Earned Income  Credit” Checklist,” with the tax returns they file for clients who claim the Earned Income Tax Credit that they are subject to a $500 penalty per return.

In an email to tax professionals last Friday, the IRS noted that it sent Letter 4989 warnings to preparers who did not comply for tax year 2011. Starting this month, the IRS will be sending nearly 800 of those tax preparers notices of proposed penalties for their continued failure to attach the form for tax year 2012 returns.

The IRS announced last month that it is starting its annual round of EITC due diligence compliance audits in which IRS auditors visit the offices of tax preparers (see IRS Launches This Year’s EITC Audits). The IRS auditors review the preparer’s EITC returns looking at their due diligence records, including checklists and worksheets.

A report this month from the Treasury Inspector General for Tax Administration found an increasing level of noncompliance by tax professionals with the IRS’s EITC due diligence requirements for making sure that taxpayers actually qualify for the tax credit (see IRS Finds Increased Noncompliance by Tax Preparers on EITC Claims). As of March 2, 2013, TIGTA had identified 122,133 paid tax preparers filing 708,298 tax returns claiming $2 billion in EITC without the required Form 8867 attached to the tax return. This equates to more than $354 million in penalties that can potentially be assessed by the IRS.

For more details on the EITC Due Diligence requirements for tax preparers, visit www.EITC.irs.gov.