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The IRS is increasing its oversight over claims for the Earned Income Tax Credit (EITC) and is demanding help from paid tax preparers. The EITC is a refundable credit, meaning that it's payable to a taxpayer even if it exceeds tax liability. When the EITC is higher than a person's amount of tax, the result is a credit that's refunded to the individual.

Over 26 million people received nearly $59 million of EITC payments for the 2009 tax year. IRS audits have determined that a substantial percentage of EITC claims are illegitimate. Consequently, tax return preparer study provides a number of due diligence requirements when dealing with taxpayer qualification for the EITC.

Now, the IRS intends to implement a new process for tax preparer work involving EITC claims. Existing requirements remain for tax practitioners to possess adequate knowledge that individuals claiming the EITC are eligible. Computation of the credit uses the same special IRS tables, which are built into tax preparer software.

The new provisions affect the EITC eligibility checklist and retention of records mandated by IRS tax preparer guidelines. The previous rule dictated that tax professionals retain the checklist for 3 years after the June 30th following the tax return date. Under the newly proposed rules, tax preparers send the checklist with the tax return claiming the credit.

IRS Form 8867 is the Paid Preparer's Earned Income Credit Checklist. This is the same due diligence form that tax practitioners have completed in past years. The new provisions to submit the form replace the previous IRS tax preparer requirement to retain the form and have it available for IRS inspection upon request.

The procedure for completing Form 8867 is the same as past tax preparation training. An EITC credit is aimed at helping working individuals with low incomes - particularly those with family to support.

Consequently, the EITC tables provide maximum credit for taxpayers with children. The due diligence checklist questions the validity of claims for an eligible child. The EITC rules demand that eligible children live with the taxpayer for at least half the year in the US and not have attained age 19 - or age 24 for full-time students. Therefore, questions arise on the checklist about birth dates, school status, living arrangements, and location of a child's other parent.

The IRS imposes penalties for failure to complete the Form 8867. That now becomes easier to enforce on professionals whose tax preparer duties starting in 2012 will include sending the checklist with each tax return claiming the EITC.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for paid tax preparers and tax professionals. Access to free questions for the tax return preparer study is available on their website.

By Sawyer Adams
Article Source: http://EzineArticles.com/?expert=Sawyer_Adams