IRS Releases New Paid Preparer’s Child Tax Credit Checklist, Form 8967

The Internal Revenue Service has released a new due diligence checklist to assist professional tax preparers in 2014.  The three-page Form 8967 is part of the IRS initiative to provide checklists to help improve the accuracy of returns.  It is optional for 2013. 

                    

 The new form asks 21 questions about each child claimed on a tax return.  There are questions about residency, relationship to taxpayer, support, citizenship, adoption, id numbers, physical presence, and other criteria to establish eligibility for the Child Tax Credit.  There are also nine references to other IRS Publications, pointing the preparer to the detailed guidance in order to answer each question correctly.  No stone is left unturned on this beast of a form. 

Since a portion of the Child Tax Credit is refundable, it’s a common area on the tax return for truth-stretching (i.e. fraud).  Form 8967 provides a means for the preparer to document dependent status and ensure, to the best of his or her knowledge, an accurate credit claim.  It could definitely prove to be valuable in the event of an IRS audit – and woe be to preparers who have difficulties with returns and do not have proper documentation on file. 

The introduction of more “due diligence” questions is not a surprise.  The IRS has been aggressive in its release of due diligence materials (see our Taxing Subjects post last year at http://blog.drakesoftware.com/2012/12/extreme-makeover-tax-forms-edition.html).  Recent due diligence documentation has included the expansion of the EIC checklist, Form 8867, to four pages (there are stiff penalties for not filing this form when required); the addition last year of a page 2 to Form 8863, which included more fact-checking questions to validate claims for education credits; and the addition of more questions on page 1 of Form  8812 – Child Tax Credit. 

Will the new Form 8967 help improve return accuracy?  Will preparers use their best judgment and complete the form only for taxpayers who appear questionable?  Or, will they complete the form for all taxpayers (with dependents) and eliminate the risk of being caught in an audit with partial documentation. Or, will they simply ignore them altogether in the hopes that they will lose less time in the preparation of each return and risk the consequences if they are audited.  Only time – and the amount of regulatory documentation required – will tell.

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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