Practical Manual to Due Diligence

Each year, paid preparers complete more than half the Form 1040 returns claiming the earned income tax credit (EITC), child tax credit/additional child tax credit/credit for other dependents (CTC/ACTC/ODC), American opportunity tax credit (AOTC) and/or head of household (HOH) filing status. This means you play a key role in ensuring taxpayers correctly claim these credits and the right filing status. Refundable credit errors continue at a high rate, which results in the Treasury paying out billions of dollars in error each year. Recognizing the significant role, you play in taxpayers correctly claiming these benefits, Congress enacted the paid preparer due diligence penalty under Internal Revenue Code § 6695(g). Treasury Regulation § 1.6695-2 details specific requirements a paid preparer must meet.