Thomson Reuters has released a Checkpoint special report, Preparer Due Diligence Requirements Expanded to Cover More Credits, which identifies some of the questions and actions tax and accounting professionals must employ in order to protect themselves from the due diligence penalty associated with the Protecting Americans From Tax Hikes (PATH) Act of 2015.
The PATH Act expanded the preparer due diligence requirements (and penalty for failure to comply) to the Section 24 Child Tax Credit (CTC), including the additional CTC, and the Section 25A(i) American Opportunity Tax Credit (AOTC). Under these requirements, paid return preparers must take specific steps to determine the taxpayer’s eligibility for, or the amount of, the EIC, CTC and AOTC. Failing to do so can result in a penalty of $510 per failure for taxable years beginning in 2016 or 2017, which means a “same as last year” approach won’t cut it for returns containing CTC or AOTC this year.
“Establishing appropriate procedures to ensure compliance with the due diligence requirements and then routinely following those procedures is paramount to avoiding the due diligence penalty,” said Blake Smith, senior director, product development, Checkpoint with the Thomson Reuters Tax & Accounting business. “This report provides practitioners with helpful guidance to avoid incurring unnecessary penalties.”
This report examines the due diligence penalty and explains how practitioners can satisfy its requirements. It also provides a due diligence checklist for tax preparers.
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