Form 8867
Published on November 26, 2024
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
When does my tax preparer have to include Form 8867 and does it protect me?
Form 8867, the IRS’s “Paid Preparer’s Due Diligence Checklist,” is a checklist that tax preparers use to make sure they have followed the necessary steps when helping clients claim certain tax credits.
Note: Tax preparers are professionals who assist in completing and filing tax returns, ensuring compliance with tax laws, while clients are the individuals or entities who seek these services to fulfill their tax obligations accurately.
This checklist is required by the IRS whenever a tax preparer is helping someone claim credits like the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), or the American Opportunity Tax Credit (AOTC). These credits can provide tax refunds that are larger than what a person has paid in, so the IRS requires extra verification to ensure the credits are being claimed properly.
Form 8867 basically shows that the preparer has reviewed the client’s eligibility thoroughly to avoid any errors or issues that might lead to an IRS audit.
For clients, this form is a safeguard to help avoid mistakes that could delay refunds or lead to penalties. For preparers, it’s a way to show due diligence, meaning they’ve followed the correct steps to ensure accuracy. If a tax preparer skips this form when required, they could face a penalty of $580 per missed form. This checklist helps both the taxpayer and the preparer feel confident that the return follows IRS rules for these valuable credits.
When is a tax preparer required to use Form 8867?
Tax preparers are required to use Form 8867 when a tax return includes claims for certain credits, specifically the EITC, CTC, ACTC, AOTC, or if the return uses the Head of Household status. This form includes steps for checking details like income levels, dependents’ eligibility, and residency.
For example, if a taxpayer is claiming the Child Tax Credit, the preparer would use the checklist to confirm that the dependent children meet the age and residency requirements.
If a tax preparer doesn’t file Form 8867 correctly, the penalty usually falls on the preparer, not on the client. The IRS may fine them because they are responsible for checking eligibility details.
However, if the IRS later finds that the client received credits they didn’t qualify for, the IRS can adjust the client’s tax return. In that case, the client may have to repay the credit amount, with added interest or penalties, even though they wouldn’t be penalized directly for the preparer’s failure to submit Form 8867.
So, while the penalty applies to the tax preparer, the client could still be affected if there’s an error in the credit claimed.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file US tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
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How often do tax preparers need to submit Form 8867?
They need to complete and file Form 8867 once a year for each eligible tax return as a way to confirm they’ve done the required checks and asked the necessary questions for the client’s claimed credits.
What types of documentation should a tax preparer keep as proof of due diligence?
To show they’ve done their due diligence, tax preparers need to keep certain records. This includes Form 8867 itself, copies of any documents the client provided to prove their eligibility for credits—like income records, child residency proof, or school records (for education credits).
Preparers should also keep notes of any discussions or questions they asked to make sure the client was eligible for the credits. These records need to be kept for at least three years, in case the IRS ever requests proof that the preparer verified the credits correctly.
Can Form 8867 be filed electronically, or is a paper submission required?
Form 8867 can be either filed electronically or on paper, depending on how you’re filing the tax return itself. If a tax return is being e-filed, Form 8867 can be attached electronically and submitted directly to the IRS as part of that online filing.
Many people prefer e-filing since it’s faster and helps reduce errors. If a tax return is being filed on paper, then Form 8867 should be printed out and physically attached to the return before mailing it to the IRS.
Both e-filing and paper-filing ensure that tax preparers can meet IRS requirements for certain tax credits, like the Earned Income Tax Credit (EITC) or Child Tax Credit, by showing they’ve taken the necessary steps to verify eligibility. It’s also important for tax preparers to keep a record of Form 8867 along with related documents in case the IRS requests proof of due diligence. This record-keeping can be done electronically or in paper form, whatever is most convenient.
Are there any exceptions to the Form 8867 requirement?
Yes, there are situations where tax preparers don’t need to file Form 8867.
If a tax return doesn’t include any of the credits that require Form 8867—such as the Earned Income Tax Credit, Child Tax Credit, or American Opportunity Tax Credit—the form isn’t needed. Similarly, if a tax preparer only works on returns without these credits, they won’t have to use Form 8867 at all.
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