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Due diligence for refundable credits and head of household

SEE 3 Chapter 10 · IRS outline 1B6, 1D7

The earned income credit, the child tax credits, the American opportunity credit and head of household status put cash in families' pockets, and they are where the IRS sees the most errors. So the Code asks more of paid preparers here than anywhere else: four specific due diligence steps on Form 8867, with a $650 penalty for each miss. This chapter follows Theo through his first full credit season with Lily, the Okafors and a walk-in named Tasha.

In this chapter

1. Why credits get special due diligence
2. Requirements 1 and 2: Form 8867 and the computation
3. Requirement 3: the knowledge requirement
4. Requirement 4: keeping the records
5. Counting penalties, firm liability and the isolated-failure exception
6. Credit-by-credit traps and what the client risks

This chapter has 6 lessons and 50 practice MCQs with explanations, plus flashcards and a recall sheet.

What this chapter covers

• Form 8867
• knowledge, completion, computation and retention
• the $650 penalty
• firm liability
• the EIC, CTC, AOTC and HOH questions

Chapter 9: Preparer penalties, signatures and records · Chapter 11: Power of attorney: Form 2848