- Compute the credit accurately using Form 8867. Form 8867 requires practitioners to calculate the EITC amount using the Earned Income Credit Worksheet on Form 1040, U.S. Individual Income Tax Return, or a self-constructed worksheet containing the same information.
- Determine reasonableness of information furnished. According to Form 8867, to comply with the knowledge requirements, you must not know or have reason to know that any information used to determine your client’s eligibility for the EITC is incorrect. Also, you can’t ignore the implications of the information furnished and must make reasonable inquiries if the information appears to be incorrect, inconsistent or incomplete. Document your inquiries and the responses.
- Retain Form 8867 and supporting information for at least three years. Keep completed copies of Form 8867, the Earned Income Credit Worksheet and records about how and when you obtained the information.
If you receive Letter 4989, follow these practice tips:
- Review last year’s returns with EITC claims. For EITC returns without Form 8867, determine the reason why the form was not filed with the return. Modify your firm’s procedures to ensure future compliance.
- Review your e-filed returns twice before you submit them. Ensure Form 8867 is being transmitted if your client is claiming the EITC.
- Document and make copies of all related due diligence for an EITC return, including Form 8867, the Earned Income Credit Worksheet, and records of how and when you obtained the information used to complete due diligence. Retain these research records for at least three years, as required.
- Conduct firm training and communicate due diligence procedures. The IRS offers an online EITC Due Diligence Training Module to help practitioners file accurate returns.
- Modify your quality review process. A checklist can help your firm establish the proper review process for EITC due diligence requirements.
Many practitioners are claiming the EITC for their clients for the first time and may be unaware of the IRS’ due diligence requirements. Follow the tips outlined here to help ensure that your firm is meeting compliance standards and filing accurate returns claiming the EITC.
About the Author
Jim Buttonow, CPA, CITP—Jim is Vice President of Product Development and Cofounder of the tax technology company New River Innovation. Jim's professional mission is to apply emerging technology to problems faced by tax professionals after they file.
Jim is a CPA and former IRS Large Case Team Audit Coordinator. He worked at the IRS for 19 years. Since leaving the IRS, Jim has represented many clients before the IRS. At New River Innovation, Jim is the chief architect of Beyond415 (Beyond415.com), an award-winning technology for tax practitioners to efficiently handle IRS issues, notices and audits. Through Beyond415, Jim also develops and presents CPE series on IRS practice and procedure for issues that arise after filing, such as audits, notices and discrepancies. Jim regularly speaks on compliance trends and post-filing practice efficiency strategies for CPA and accounting firms.