One Return, Four Penalties: Due Diligence for EITC, CTC, AOTC, and Head of Household

About the course

One return carrying EITC, CTC, AOTC, and Head of Household produces four separately-testable preparer penalty exposures under IRC §6695(g). The same four due diligence requirements — the knowledge requirement, the record retention requirement, the eligibility documentation requirement, and the Form 8867 completion requirement — apply to each of the four items independently. A preparer who signs the return signs one Form 8867 that covers all four; each line the preparer answers, or fails to answer correctly, is a separately-testable due diligence position.

This course covers the §6695(g) framework and applies it to each of the four items. Coverage includes the substantive eligibility rules for EITC (earned income calculation, qualifying child tests, investment income limitation), CTC and ACTC (qualifying child under IRC §152, income phase-outs), AOTC (qualified education expense definition under §25A, four-year limitation), and Head of Household (residency tests, support tests, qualifying person requirements). Each substantive rule feeds a specific line on Form 8867 and a specific documentation obligation the preparer must retain in the client file.

The course closes with the documentation architecture that satisfies §6695(g) if the return is audited — what the preparer must have obtained, what must be retained, and how long. Two hours of Federal Tax credit.

Learning objectives

By the end of this course, participants will be able to:

1. Identify the four preparer due diligence requirements under IRC §6695(g) and recognize their application to each of the four covered items.
2. Recognize the substantive eligibility rules for the Earned Income Tax Credit, including earned income calculation and qualifying child tests.
3. Recognize the qualifying child and qualifying relative tests under IRC §152 as they apply to the Child Tax Credit, Additional Child Tax Credit, and Credit for Other Dependents.
4. Identify the qualified education expense definition under IRC §25A and the four-year limitation on the American Opportunity Tax Credit.
5. Recognize the residency, support, and qualifying person requirements for Head of Household filing status.
6. Identify the documentation retention requirements under §6695(g) for a Form 8867 covering multiple due diligence items.

Syllabus

1. SECTION 01The §6695(g) framework

   The four due diligence requirements, how each applies separately to each of the four covered items, and the preparer penalty amount per failure.

2. SECTION 02EITC eligibility and documentation

   Earned income calculation, qualifying child tests, the investment income limitation, and the Form 8867 lines and supporting documentation specific to EITC.

3. SECTION 03CTC, ACTC, and Credit for Other Dependents

   Qualifying child tests under IRC §152, the income phase-out schedule, the refundable ACTC computation, and the Form 8867 documentation covering these items.

4. SECTION 04AOTC eligibility and documentation

   Qualified education expense definition under IRC §25A, the four-year limitation, half-time enrollment requirements, and the Form 1098-T and institutional documentation the preparer retains.

5. SECTION 05Head of Household filing status

   Residency and support tests, the qualifying person definition and its interaction with dependency rules, and the Form 8867 documentation for the filing-status determination.

6. SECTION 06Documentation retention and audit response

   What the preparer must obtain and retain under §6695(g), how long records must be kept, and what a §6695(g) audit examines when it walks into a preparer's file.

Instructor

Jennifer Harris Smith, JD, CPA. Attorney (Texas). CPA (Texas). Member of Texas Bar College. Full bio →