New Due Diligence Requirements for Tax Preparers

 

For tax year 2020, recent legislation allows eligible taxpayers to elect to use their 2019 earned income to figure the 2020 earned income credit (EIC) or additional child tax credit (ACTC) when their 2019 earned income is more than their 2020 year earned income.  If you prepare a tax return in which the taxpayer elects to figure the EIC, ACTC, or both credits using 2019 earned income, the due diligence requirements set forth in Treasury Regulations apply to the preparer’s computation of earned income for two years.

  • The 2020 tax year to determine that earned income has decreased from 2019, and
     
  • The 2019 tax year to determine the earned income used to compute each credit claimed under the election.

Answer “Yes” to line 1 of the 2020 Form 8867 even if you used information for the 2019 tax year as a result of their taking the election. You do not have to recompute the 2019 earned income if you prepared the taxpayer’s 2019 tax return.