EIC Due Diligence.

• Author: Laffie, Lesli S.

New regulations (TD 8905, 10/17/00) detail the due diligence requirements for paid preparers of returns or refund claims involving the earned income credit (EIC). Sec. 6695(g), added by the Taxpayer Relief Act of 1997, must meet these requirements for applicable returns to avoid a $100-per-occurrence penalty.

Under Regs. Sec. 1.6695-2, a paid preparer must:

1. Complete Form 8867, Paid Preparer's Earned Income Credit Checklist (or otherwise record the information needed to complete the checklist).

2. Complete the EIC Worksheet contained in the Form 1040 instructions (or otherwise record the information needed to complete the worksheet).

3. Have no knowledge or reason to know that the information used to determine eligibility for (or the amount of) the EIC is incorrect.

4. Retain the checklist, worksheet and other records used to determine eligibility for and the amount of the EIC for three years after the June 30 following the date the return or refund claim...