The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) expanded the preparer due diligence requirements to include additional refundable credits and made other changes that will have an impact on individuals and preparers that claim the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Education Credit. This page is to keep you informed about these changes and to give details on what the due diligence requirements are for EITC and other refundable credits.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), in addition to extending expired provisions, also included what are called “program integrity” provisions which will affect tax preparers and taxpayers who claim the Earned Income Tax Credit, the Child Tax Credit, and/or the American Opportunity Education Credit as follows:
Refunds for Federal Returns with EITC and/or Additional Child Tax Credit Will Not be Released Until February 15
The PATH Act included a provision that requires the IRS (beginning with the 2017 filing season) to not release the refund on federal returns that claim the Earned Income Tax Credit or additional Child Tax Credit until February 15.
Therefore, any return that claims one of these credits that is prepared in the early part of the filing season will not be released for up to 4 weeks (depending on when the return is filed) instead of the standard 21 days or less timeframe.
Expansion of EITC Due Diligence Requirements to Other Refundable Credits
Congress expanded the EITC due diligence requirements under Code Section 6695 (including the $500 penalty) to include the Child Tax Credit and the American Opportunity Education Credit beginning with Tax Year 2016 individual federal returns.
As a result of this change the Form 8867 will be modified as follows:
For more details on these changes see the draft of the 2016 Form 8867 on the IRS website.
The IRS is in the process of modifying the due diligence regulations for the addition of the Child Tax Credit and the American Opportunity Education Credit. As the details of the new regulations become known this page will be updated to let you know what these new diligence requirements will be for the upcoming 2017 filing season.
Additional EITC Changes
The PATH Act made the following changes that may affect individuals who claim EITC on their returns:
Changes for Child Tax Credit and the American Opportunity Education Credit
The PATH Act made the following changes for returns that claim the Child Tax Credit or the American Opportunity Education Credit:
For more information on these changes, see the Joint Committee on Taxation’s Technical Explanation of the Protecting Americans from Tax Hikes Act of 2015 – the program integrity provisions begin on page 118.
Due Diligence Requirements for Return Preparers
IRS code section 6695(g) gives the IRS authority to penalize a tax preparer $500 for each return for which the preparer fails to comply with the due diligence requirements imposed by the Treasury Secretary by regulation with respect to determining the eligibility for, or the amount of credit allowance for the Earned Income Tax Credit, Child Tax Credit or the American Opportunity Education Credit.
The Due Diligence Requirements for preparers are all of the following:
See the EITC Due Diligence Law and Regulation page on the EITC Central website for more information. At the present time, the Law portion of this website has not been updated for the expansion of due diligence to the Child Tax Credit and American Opportunity Credit as stated in the PATH Act because it does not apply to Tax Year 2015 federal returns.
For more information on other aspects of due diligence and refundable credits, see the following pages on the EITC Central website:
IRS Use of Private Debt Collection Agencies
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Expired Individual Federal Tax Provisions
May 10, 2017
Reminder to Watch for Phishing Email Schemes
March 22, 2017
IRS Identity Verification Letters
March 1, 2017
Additional Reminders for this Filing Season
February 16, 2017
Useful IRS Webpages
February 1, 2017
Reminder of the Federal Refund Delays and Expansion of Preparer Due Diligence Requirements
January 11, 2017
Expiring ITINs and Tax Scams Aimed at Tax Preparers
January 6, 2017