Consequences of Filing EITC Returns Incorrectly

People who come to you, a tax return preparer, expect you to know the tax law and prepare an accurate return. Also, if you are paid and prepare EITC claims, you must meet EITC due diligence requirements. Refer to our EITC Due Diligence Law and Regulation for more information.

Incorrect EITC returns affect both you and your clients.

Note: You leave the IRS site for the IRC links listed below. The information is not sponsored by IRS and is provided as a public service by the Legal Information Institute of Cornell University Law School.

• If we examine your client's return and deny all or a part of EITC, your client:
  • must pay back the amount in error with interest;
  • may need to file the Form 8862, Information to Claim Earned Income Credit after Disallowance;
  • cannot claim EITC for the next two years if we find the error is because of reckless or intentional disregard of the rules; or
  • cannot claim EITC for the next ten years if we find the error is because of fraud.

• If we examine the EITC claims you prepared, and we find you did not meet all four due diligence requirements, you can get:
  • A $500 penalty for each failure to comply with EITC due diligence requirements for returns required to be filed after December 31, 2011. The penalty amount was increased from $100 to $500 by the United States-Korea Free Trade Implementation Act signed into law October 21, 2011.  The penalty amounts are covered in IRC section 6695(g).
  • An employer or employing firm may also be penalized if an employee fails to comply with the EITC due diligence requirements. (There are only specific times when an employer is subject to the due diligence penalty, see our Due Diligence FAQs for the circumstances and ways an employer can prevent penalties).
  • A minimum penalty of $1,000 if you prepare a client return and IRS finds any part of the amount of taxes owed is due to an, unreasonable position. (For reference see IRC section 6694(a))
  • A minimum penalty of $5,000 if you prepare a client return and IRS finds any part of the amount of taxes owed is due to your reckless or intentional disregard of rules or regulations. (For reference see IRC 6694(b))

If you receive a return-related penalty, you can also face:

• Disciplinary action by the IRS Office of Professional Responsibility
• Suspension or expulsion of you or your firm from IRS e-file
• Injunctions barring you from preparing tax returns or imposing conditions on the tax returns you may prepare

Additional Due Diligence Topics

• EITC Due Diligence Law and Regulation
• What is Form 8867?

 Return to Main Due Diligence Page

Last Updated 2/10/2012