Do you get your taxes prepared by a tax professional? If so, he or she will be asking you more questions this year. That’s because paid preparers are now required to complete a Due Diligence Checklist Form (Form 8867) which covers three key areas relevant on many taxpayer returns. Sandy Furuya, Senior Accounting Manager at Wamhoff Financial Planning and Accounting, outlines these areas and the information you’ll need to provide.
What is the Due Diligence Checklist Form 8867 and what does it cover?
- This form is required by the PATH Act (Protecting Americans from Tax Hikes) enacted by congress in December of 2015, and makes refundable credits subject to due diligence. These include the three areas listed below.
- The Earned Income Tax Credit eligibility requirements for all taxpayers as well as taxpayers with a child.
- The Child Tax Credit and Additional Child Tax Credit.
- The American Opportunity Tax Credit.
What will I need to provide this year that I didn’t last year?
- All documents requested to verify that the child did reside with the taxpayer will need to be retained in the tax file.
- School records may need to be obtained.
- Verification of the children’s social security numbers, by obtaining the actual social security card.
- Verification of the taxpayer’s and spouse’s income (all sources).
- Detailed statement for college tuition and expenses as well as the Form 1098-T which is supplied by the college or university.
- Form 1099-Q (529 distributions) to ensure the tuition credits are not overstated. Keep in mind that this form may come in a grandparent’s name as well.
- Form 8867 must be completed in full and filed with the tax return. Failure to do so will result in penalties.
- All questions must be documented and kept in the tax file.
What if I do my own taxes using a tax preparation software?
- You cannot rely on the software to meet the due diligence requirements.
- You must complete Form 8867 in its entirety and submit it with your tax return in order to be compliant with this law.
What else do I need to know for this year’s filing season?
- Your refund may be delayed as a result of a new law aimed at detecting and preventing fraud.
- Even if you file early, the IRS cannot issue refunds until at least February 15th. This gives them more time to help detect and prevent fraudulent returns and refunds.
- Once you file, you can visit the “Where’s My Refund” tool at IRS.gov, or use the IRS2Go app on your mobile phone.