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IRS Due Diligence Compliance Efforts for Tax Returns Claiming EITC, Child Tax Credit, and American Opportunity Education Credit for 2017 Tax Season

October 13, 2016


The IRS is trying to ensure that paid preparers are following their due diligence requirements on returns that claim the Earned Income Tax Credit (EITC), the Child Tax Credit, and/or the American Opportunity Education Credit.

At the present time, the IRS paid preparer compliance efforts are focused on the Earned Income Tax Credit. However, with the expansion of the due diligence requirements, the IRS will also begin to send educational letters for the Child Tax Credit and the American Opportunity Education Credit. In the future, the knock and talk visits and due diligence audits will focus on these two credits as well as the Earned Income Tax Credit.

EITC Paid Preparer Compliance Efforts
The IRS uses a risk based scoring model to determine if a tax preparer needs to be contacted regarding their preparation of returns that claimed EITC. This model looks at certain characteristics on each EITC return the tax preparer has filed, determines if there may be a high likelihood of errors on these returns, and assigns a risk level to that tax preparer.

Based on the tax preparer’s risk level and a review of what the IRS believes may have caused the potential errors, the IRS will determine what type of contact is needed.

The type of contact based on the preparer’s risk score could be one of the following:

  • Pre-Filing Season Educational Letters

    The vast majority of the outreach to tax preparers will be through educational letters that the IRS will send to preparers that they believe are filing EITC returns that contain errors. These letters will be going out to selected preparers between October 2016 and January 2017.

    The types of educational letters that the IRS will be sending to selected tax preparers are:

    • Preparer may have prepared inaccurate returns that claimed EITC
    • Preparer may have not met their due diligence requirements for returns with qualifying children and self-employment income
    • Preparer may not have met their due diligence requirements for returns with qualifying children
  • Knock and Talk Visits

    These visits by the IRS are educational in nature and are designed to inform the tax preparer about potential errors they have observed, offer tips and tools for the preparer to improve the accuracy of their EITC returns, and explain the potential costs if they do not improve.

    Penalties are not assessed on these visits, however, the IRS will be monitoring the preparer’s EITC returns for the upcoming season and if the IRS does not see any improvement they may conduct a due diligence audit during the tax season.

    These visits will occur in November and December 2016.

  • Due Diligence Audits

    As in the past, the IRS will be conducting due diligence audits for 2015 tax returns beginning this month (October 2016). Tax preparers with the highest risk scores are selected for a due diligence audit.

    The vast majority of the IRS due diligence audits will be conducted by the IRS visiting the tax preparer’s office.

    The IRS will also be conducting correspondence due diligence audits this year. This means that the audit will be conducted via the mail instead of in-person.

IRS Paid Preparer Compliance Efforts for Additional Refundable Credits
With the expansion of the paid preparer due diligence requirements, the IRS will be reaching out with educational letters this year as follows for the two additional refundable credits:

  • American Opportunity Education Credit

    Beginning November 2016, the IRS will send educational letters to a small number of tax preparers who the IRS believes may have made errors on returns that claimed the American Opportunity Education Credit on 2015 federal tax returns.

  • Additional Child Tax Credit

    Beginning November 2016, the IRS will begin sending educational letters to a select number of preparers who the IRS believes may have made errors on returns that claimed the Additional Child Tax Credit on 2015 federal tax returns.

To learn more about the IRS EITC paid preparer compliance program see the following on the IRS EITC Central website:

Although the above sites relate to EITC only, they will begin to apply to the Additional Child Tax Credit and American Opportunity Education Credit in the future.

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