Recent Tax Updates

Reminder of the Federal Refund Delays and Expansion of Preparer Due Diligence Requirements

January 11, 2017

Delay in Refunds
Remember that for returns that claim the Earned Income Tax Credit (EITC) or the Additional Child Tax credit that any refund on these returns will not be released until February 15.

The IRS will begin to release the refunds on these returns starting February 15. However the IRS is cautioning everyone that these refunds may not be deposited in bank accounts until the week of February 27. The reason for this is due to several factors, including banking and financial systems requiring time to process the deposits.

Therefore any return claiming one of these credits that is prepared in January or early February will not be deposited in the normal IRS refund timeframe.

For more information see Refund Timing for Earned Income Credit and Additional Child Tax Credit Filers on the IRS website.

Expansion of Preparer Due Diligence Requirements
Remember that the preparer due diligence requirements now apply to the child tax credit and the American Opportunity Education credit as well as the earned income tax credit (EITC). This means that even if a return does not claim EITC the Form 8867 will still be required if the child tax credit or the American Opportunity credit (which is claimed on Form 8863 – Education Credits) is claimed on a federal return.

This has resulted in a complete redesign of the Form 8867 (Paid Preparer’s Due Diligence Checklist) to focus on the following:

  • The questions related to the qualifying children were removed but the requirement to answer those questions is covered in question 2.
  • The questions now focus on what the preparer has done to satisfy the knowledge requirement, asking for the documents that were relied upon to be listed and asking additional questions regarding the claiming of the earned income tax credit, the child tax credit and the American Opportunity education credit.

It also means that the Section 6695 penalty amount of $510 can be imposed for each of the three credits on each return. This could result in a $1,530 penalty being imposed if all three credits are claimed on a return and the IRS determines during a Due Diligence Audit that the preparer did not follow their due diligence requirements.

For more information on the expanded due diligence requirements see the following on the EITC Central website: