A small tax firm checklist for Form 8867 before you transmit

This page is general information, not legal advice. About Form 8867, the current Form 8867 PDF, the Instructions for Form 8867, and the paid preparer due diligence training page are the texts to read. Have counsel review your due diligence process before you treat this as the firm's process. This page does not invent which credits are covered beyond those IRS pages, and it does not state penalty dollar amounts.

Paid preparers of federal income tax returns or claims involving the earned income credit (EIC), child tax credit (CTC) / additional child tax credit (ACTC), credit for other dependents (ODC), American opportunity tax credit (AOTC), and/or head of household (HOH) filing status must meet due diligence requirements in determining the taxpayer's eligibility for, and the amount of, the credit and filing status. (About Form 8867)

Only paid tax return preparers should complete Form 8867. If you were paid to prepare a return for any taxpayer claiming the EIC, the CTC/ACTC/ODC, the AOTC, and/or HOH filing status, you must complete Form 8867 and meet the other due diligence requirements in the instructions. Form 8867 must be filed with the taxpayer's return or amended return that claims those benefits. Check the boxes on the form for every benefit you determined the taxpayer is eligible for. (Instructions for Form 8867)

Circular 230 sets standards of competency, diligence, and other ethical behavior for tax professionals who practice before the IRS. Form 8867 is the numbered checklist for the credits and HOH status listed above. It does not replace the rest of Circular 230. (Office of Professional Responsibility and Circular 230)

You comply with the due diligence requirements in the Treasury Regulations for those credits and HOH status if you do all of the following: meet the knowledge requirement, complete Form 8867 truthfully and accurately and complete the actions it describes, submit Form 8867 in the manner required, and keep the five records listed later. The knowledge requirement means you interview the taxpayer, ask adequate questions, contemporaneously document the questions and the taxpayer's responses on the return or in your notes, and review adequate information to determine eligibility and to figure any credit amounts. (Instructions for Form 8867)

You must not use information you know, or have reason to know, is incorrect. You may not ignore the implications of information provided to or known by you. You must make reasonable inquiries if a reasonable and well informed tax return preparer, knowledgeable in the law, would conclude that the information appears incorrect, inconsistent, or incomplete. Document those inquiries in your files, along with the responses, at the time you ask them. (Form 8867 PDF)

• Part I questions 1 through 8 apply to every benefit on this Form 8867, including the knowledge, inquiry, record, Form 8862, and Schedule C questions when they apply.
• Complete Part II only when the return claims EIC, Part III for CTC/ACTC/ODC, Part IV for AOTC, and Part V for HOH.
• Part VI is the eligibility certification. A person at the firm answers whether the answers on this Form 8867 are true, correct, and complete.
• If credits were disallowed or reduced in a previous year for a reason other than a clerical or math error, the instructions point you to Form 8862. Do not transmit while that recertification is still an open question.
• Tools can draft a chase for a missing organizer answer. They do not prepare, file, or sign the return. Your CPA reviews and signs every return.

The IRS paid preparer due diligence training page is the current training list for those same credits and HOH status, including Schedule C issues when EIC is claimed. Use it as training, not as a substitute for notes in this client's file. (Due diligence training)

Keep all five of these records: a copy of Form 8867; the applicable worksheet(s) or your own worksheet(s) for any credits claimed; copies of any documents provided by the taxpayer on which you relied; a record of how, when, and from whom the information used to prepare Form 8867 and the worksheets was obtained; and a record of any additional information you relied on, including questions you asked and the taxpayer's responses. Keep those records for 3 years from the latest of the due date of the tax return (not including extensions); the date the return was filed if you are a signing preparer filing electronically; the date the return was presented to the taxpayer for signature if you are a signing preparer not filing electronically; or the date you submitted to the signing preparer the part of the return you were responsible for if you are a nonsigning preparer. Records may be kept on paper or electronically in the manner described in Rev. Proc. 97-22. (Instructions for Form 8867)

Put Form 8867, the worksheets, the source documents, and the interview notes in the same client folder as the return. Notes sitting in one preparer's inbox are not the file. If the return later changes, complete Form 8867 again against this transmit, not last week's draft.

A person stops the electronic filing when Form 8867 is incomplete, the knowledge notes are missing, a required worksheet is missing, Form 8862 is still an open recertification question, identity on Form 8867 does not match the return, or a fact the client just changed would change eligibility. Failure to meet the due diligence requirements could result in a penalty for each failure. The current Form 8867 PDF says you may have to pay a penalty for each failure to comply related to a claim of an applicable credit or HOH filing status, and it sends you to the instructions for the amount. This page does not restate that amount. (Form 8867 PDF)

How that sits on the season board is the CPA firm tax season workflow. Put the Form 8867 row next to the Form 8879 row so no one transmits on a signed PIN with an empty due diligence file.

One row per client, tax year, and Form 8867. Duplicate a row if more than one paid preparer completed a Form 8867 for the same return, or if the return changed and you completed the form again.

Run this list before transmit, not after an acknowledgement:

• The return actually claims EIC, CTC/ACTC/ODC, AOTC, and/or HOH, so Form 8867 belongs in this file.
• Every applicable part of Form 8867 is complete, including Part VI.
• Contemporaneous notes of questions and answers are in the file.
• Worksheets and relied on documents are in the same folder.
• Form 8862 is complete if the instructions require recertification, or marked not applicable.
• A person, not a tool, confirmed the file is complete.
• Do not transmit until every row above is yes.

Download the Form 8867 pre transmit checklist and due diligence notes tracker. The tax season operator can draft the chase when notes or a signed Form 8867 are still missing. Your staff approve what goes out. Your CPA reviews and signs every return.