EITC Due Diligence Penalties


Don’t Get Blindsided by the IRS: Vital Information about the IRS’s EITC Due Diligence Penalties

The IRS Hopes to Blindside Private Tax Preparers

The IRS has launched a campaign to step up Corkboard letters spelling out "Tax Refund" on top of an IRS form 1099efforts in enforcing the Earned Income Tax Credit (EITC) duty of due diligence. The Internal Revenue Service has recently raised penalties for when a tax preparer fails to meet his or her duty of due diligence. This change is relevant to tax preparers all throughout Metro Detroit. The IRS has assumed a predatory role in enforcing its new policies. Previously, the penalty for failure to meet the standard for due diligence was only $50, and was rarely enforced. With the new regulations in place, the IRS has not only raised the penalty from $50 to $500, but it has sent out more auditors specifically looking to take advantage of unsuspecting preparers.

The Due Diligence Requirement Standards

In order to avoid getting blindsided by EITC penalties, there are four due diligence requirements that you must follow. First, complete and submit the eligibility checklist for your client. Second, compute the credit in accordance with IRS standards. The third requirement is to use your knowledge to ask the right questions, and to make additional inquiries when the information given to you by your client seems incorrect, inconsistent or incomplete. The fourth requirement is to keep accurate and detailed records by retaining completed Form 8867, a record of the completed Earned Income Tax Credit Worksheet, and a record of how and when you obtained the information, including a copy of any document that was provided by the taxpayer client. The IRS website offers due diligence advice for all tax preparers. Any tax preparer interested in avoiding penalties from the IRS should look at the website to take advantage of the due diligence training module, and advise associates to do the same.

Failing to Meet the EITC Requirements Has Become Very Costly

Due to the number of fraudulent returns in recent years, the IRS increased the Earned Income Tax Credit Due Diligence Penalty from $50 to $500 for every single fraudulent return submitted. Internal Revenue Code § 6695(g) states: “Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements… with respect to determining eligibility for, or the amount of, the credit allowable by section 32 shall pay a penalty of $500 for each such failure.” If you prepare tax returns for a living, you could soon be hit with a very large total in penalty fees, and you can’t afford to pay $500 per fraudulent return

The Benefits of Having an Experienced Tax Attorney on Your Side

A confrontation with the IRS can be very discouraging, especially when you lack the experience to deal with these issues on your own. Just because you are a tax preparer, does not mean that you do not need the assistance of an expert and unbiased tax preprarer defense attorney. Tax attorneys provide clients with valuable experience in negotiating with the IRS and lowering the amount of EITC penalties. At Ayar Law Group we have helped numerous tax preparers from around Detroit, Michigan to handle their due diligence audit. We have seen the IRS assess penalties of tens of thousands of dollars to tax preparers. We have helped our clients greatly decrease these penalties stemming from due diligence reviews. If you are a tax preparer facing a due diligence audit by the IRS, do not waste another minute because interest and penalties will continue to accrue. Get the benefits of hiring a tax attorney right away!

Venar Ayar

Michigan tax lawyer, Venar R. Ayar, founder of Ayar Law Group, holds ten years of experience as an accounting specialist and tax lawyer. He earned his Juris Doctor at the University of San Diego School of Law, receiving a Master of Laws in Taxation—the highest degree available in tax. His main focus has become Michigan tax resolution as well as IRS tax resolution, including individual and business tax matters; tax planning, tax compliance and white-collar criminal defense. His business background has helped him to become personable and understanding in his work. Representing clients before the IRS, Ayar’s practice and experience has proved him as an honest and dedicated leader in the realm of Michigan tax lawyers.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.