A funny thing happened in WASHINGTON —The Internal Revenue Service announced that it is issuing proposed regulations that would require paid tax return preparers, beginning in 2012, to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC).
The EITC benefits low-and moderate-income workers and working families and the tax benefit varies by income, family size and filing status. Unlike most deductions and credits, the EITC is refundable –– taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.
Form 8867 was created, to assist preparers in meeting the requirement by obtaining eligibility information from their clients. Preparers have been required to keep copies of the form, or comparable documentation, which is subject to review by the IRS. Effective Jan. 1, 2012, preparers will now need to file the Form 8867 with each return claiming the EITC.
It is estimated that as many as one in five eligible taxpayers fail to claim the EITC because they tend to not hire paid preparers. Some of those who do claim it either compute it incorrectly or are ineligible, because they do not have the training to claim correctly.