Consequences of Not Meeting Your Due Diligence
Requirements
People who come to you, a
tax return preparer, expect you to know the tax law and prepare an accurate
return. Also, if you are paid to prepare
earned income tax credit (EITC), child tax credit (CTC) or American opportunity tax credit (AOTC)
claims, you must meet your due diligence requirements. Refer to our Refundable
Credit Due Diligence Law and Regulation page for more information. on the
requirements. There are consequences of not meeting your due diligence for you,
for your client, and if you are an employee, your employer.
Incorrect Refundable Credits Returns Affect Your
Clients, You and Your Employer
If we examine your
client's return and deny all or a part of the EITC, the CTC, or the AOTC, your
client:
·
must pay back any
amount in error with interest;
·
may be subject to
the 20 percent accuracy-related penalty and the 75 percent fraud penalty
·
may need to file
the Form 8862, Information To Claim Earned Income Credit;
·
may be banned
from claiming one or more of the refundable credits for the next two years if
we find the error is because of reckless or intentional disregard of the rules;
or
·
may be banned
from claiming one or more of the refundable credits for the next ten years if
we find the error is because of fraud.
If we examine the EITC,
the CTC or the AOTC claims you prepared and we find you did not meet all four
due diligence requirements, the consequences for you are:
·
a $510 penalty
(indexed for inflation) for each failure to comply with your due diligence
requirements (reference: IRC section 6695(g) and (h))
·
A minimum penalty
of $1,000 if you prepare a client return and IRS finds any part of the amount
of taxes owed is due to an unreasonable position (reference: IRC section
6694(a))
·
A minimum penalty
of $5,000 if you prepare a client return and IRS finds any part of the amount
of taxes owed is due to your reckless or intentional disregard of rules or
regulations (reference: IRC 6694(b))
IRS can also penalize an
employer or employing firm if an employee fails to comply with the due
diligence requirements. There are only specific circumstances when an employer
is subject to the due diligence penalty (reference: Treasury Regulations
1.6695.2(c)). See our Due Diligence FAQs for the circumstances and ways an
employer can prevent penalties.
*The penalty is $500 for
each credit claimed on a return. This could mean up to three due diligence
penalties per return when the return has claims for the EITC, the CTC and the
AOTC or for a tax year 2016 tax return a penalty of $,530.
The penalty for the 2015
tax year is $500. The penalty for tax year 2016 and 2017 returns is $510.
If you receive a return-related penalty, you can also
face:
·
Suspension or
expulsion of you or your firm from IRS e-file
·
Disciplinary
action by the IRS Office of Professional Responsibility
·
Criminal
penalties for filing fraudulent returns
·
Injunctions
barring you from preparing tax returns or imposing conditions on the tax
returns you may prepare
No comments:
Post a Comment