Earned Income Tax Credit (EITC) Due Diligence

The Earned Income Credit (EIC) is a refundable tax credit that has a significant impact on United States revenue. It is also the source of a disproportionately large number of errors in tax returns in which a claim for it is made. In a recent year, 150.3 million individual federal tax returns were filed, and more than 27.4 million18.2% claimed the Earned Income Credit1. Based on that percentage, it would not be unexpected that, in the years ahead, approximately one taxpayer in every five will claim the EIC. Approximately 70% of federal income returns claiming the earned income credit are prepared by professional tax return preparers. This course briefly summarizes the earned income credit rules, examines the common errors committed when claiming the credit, discusses the EIC due diligence requirements imposed on professional tax return preparers, and identifies the sanctions to which preparers and their employers may be subject for a failure to meet expected due diligence requirements.

Learning Objectives

Upon completion of this course, you should be able to:

  • Recognize the earned income credit eligibility rules
  • List the common errors committed in connection with claiming the earned income credit
  • Describe the consequences for the taxpayer of the IRS disallowance of the earned income credit
  • Identify the tax return preparers earned income credit due diligence requirements
  • List the sanctions that may be applied on a tax return preparer and his or her employer for a failure to meet due diligence requirements.