The IRS has issued temporary and proposed regulations (T.D. 9799, REG-102952-16) that modify the existing rules on the tax return preparer due diligence penalty under Section 6695(g). The temporary regulations implement changes made in the Protecting Americans from Tax Hikes Act of 2015 that expanded the scope of the due diligence requirements. Prior requirements and penalties were related to the earned income credit. Now, the due diligence requirements also apply to tax returns that claim a child tax credit, additional child tax credit or the American opportunity tax credit.
The new rules apply to returns or claims for refund prepared on or after Dec. 5, 2016, for tax years beginning after Dec. 31, 2015. The revised Form 8867, Paid Preparer’s Due Diligence Checklist, is a single checklist for all of these applicable credits.
The tax return preparer must not know or have reason to know that any information used to determine the taxpayer’s eligibility for, or the amount of, any applicable credit or claim is incorrect. A $500 penalty applies to each due diligence failure, adjusted for inflation, so 2016 is $510.
The IRS is accepting comments on proposed regulations REG-102952-16 until March 6, 2017.