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Return Preparer Regs to be Amended

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Proposed regulations have been published to address the expanded scope of the return preparer due diligence penalty under IRC 6695(g). Effective for tax years beginning after December 31, 2017, IRC 6695(g) imposes a $500  penalty on tax return preparers who violate the due diligence requirements. A return preparer may be liable for the penalty for failing to determine a taxpayer’s (1) eligibility to file as head of household or (2) eligibility for, or the amount of, the credit allowable by IRC 24 (the Child Tax Credit), IRC 25A(a)(1) (the Hope Scholarship Credit), or IRC 32 (the Earned Income Credit). A separate $500 penalty may be imposed for the head of household filing status determination and for each credit claimed on a return or claim for refund for which the due diligence requirements apply.

The proposed regulation includes a new example to illustrate how the penalty applies if there is a failure to satisfy the due diligence requirements regarding determining eligibility to file as head of household. Satisfying the due diligence requirements requires a tax return preparer to complete Form 8867, “Paid Preparer’s Due Diligence Checklist,” and attach it to the relevant return or claim for refund. It is anticipated that the IRS will revise Form 8867 to include the head of household filing status in time for the 2019 filing season.

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