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Form 8867: Everything Tax Preparers Need to Know
Form 8867: Everything Tax Preparers Need to Know
Tax preparers play a vital role in ensuring clients' tax returns are accurate. But when it comes to claiming refundable credits like the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC), extra care is needed. That’s where Form 8867—also known as the Paid Preparer’s Due Diligence Checklist—comes in.
If you prepare tax returns that include refundable credits, you must complete and file Form 8867 with the IRS. Failure to do so can lead to penalties, making it essential to understand the 8867 form and how to use it correctly.
Table of contents
What is Form 8867?...Read more
Who Needs to File Form 8867?...Read more
How to File Form 8867?...Read more
When is Form 8867 Due?...Read more
Common Mistakes When Filing Form 8867...Read more
What Happens If a Tax Preparer Fails to File Form 8867?...Read more
Can Form 8867 Be Filed Electronically?...Read more
Conclusion...Read more
What is Form 8867?
Form 8867 is a due diligence checklist required by the IRS for tax preparers who help clients claim certain tax credits. These credits include:
- Earned Income Tax Credit (EITC)
- Child Tax Credit (CTC) / Additional Child Tax Credit (ACTC)
- American Opportunity Tax Credit (AOTC)
- Credit for Other Dependents (ODC)
- Head of Household (HOH) filing status
Who Needs to File Form 8867?
Any tax professional who prepares a return that claims one of the above credits must file Form 8867. This applies to both individual tax preparers and tax firms.
Even if a client provides all the necessary details, the preparer is responsible for verifying the information before submitting the return. If an IRS audit later finds incorrect claims, both the preparer and client may face financial consequences.
For example, if a taxpayer claims the Child Tax Credit but doesn’t meet income or residency requirements, the IRS may require them to pay back the credit—even if the mistake was due to their tax preparer’s error.
How to File Form 8867?
Form 8867 must be submitted electronically or on paper, along with the tax return. Here’s how tax preparers can file it correctly:
- Answer the Checklist Questions Carefully – The form includes multiple questions about the taxpayer's eligibility for credits. Fill them out accurately.
- Keep Supporting Documents – Maintain proof such as income statements, school records, and residency documents.
- Submit with the Tax Return – If e-filing, attach Form 8867 electronically. If filing a paper return, include a printed copy.
- Retain Records for Three Years – The IRS may request documentation to verify due diligence, so keep all records for at least three years.
When is Form 8867 Due?
Form 8867 is due at the same time as the tax return it accompanies. This means:
- For individual tax returns (Form 1040), it must be filed by April 15 (or the extended deadline if applicable).
- If a tax return is amended later to claim a refundable credit, Form 8867 must be included with the amendment.
Common Mistakes When Filing Form 8867
Even experienced tax preparers can make errors when filing Form 8867. Here are some of the most common mistakes:
- Skipping the Form – Some preparers forget to include Form 8867 when filing returns that claim refundable credits. This leads to penalties.
- Not Keeping Proper Records – The IRS requires tax preparers to keep supporting documents (income records, school proof, etc.) for at least three years.
- Assuming Clients are Eligible – Just because a client believes they qualify for a credit doesn’t mean they actually do. Prepares must verify eligibility.
- Incorrectly Answering Questions – Incomplete or incorrect responses on the form can trigger IRS audits.
- Failing to Submit with Amended Returns – If a tax return is amended to claim a credit later, Form 8867 must be included with the amendment.
Quick tip
Make sure to review IRS guidelines every year. Tax credit requirements can change, and missing an update could lead to errors and penalties.
What Happens If a Tax Preparer Fails to File Form 8867?
If a tax preparer fails to submit Form 8867 when required, they could face:
- A $580 penalty per missing form
- IRS audits and further penalties if the credits were improperly claimed
- A damaged reputation if clients face issues due to incorrect filings
Can Form 8867 Be Filed Electronically?
Yes! Form 8867 can be filed electronically if the tax return itself is e-filed. This is the preferred method since it:
- Reduces errors
- Ensures faster IRS processing
- Automatically includes Form 8867 in the return submission
Conclusion
Form 8867 is a critical requirement for tax preparers who help clients claim refundable credits like the EITC or Child Tax Credit. The IRS requires this form to prevent errors and fraud, and failing to file it can result in serious penalties.
To stay compliant, tax preparers must follow due diligence procedures, keep supporting records for at least three years, and submit the form with tax returns. By doing so, they can avoid fines, protect their clients, and maintain a trustworthy reputation.
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