The ABCs of due diligence - YouTube video text script

 

Hello and welcome to today's webinar, The ABCs of Due Diligence. I see it's the top of the hour. We're glad you've joined us for today.

My name is Evette Davis and I'm a Senior Tax Analyst with the Internal Revenue Service, and I will be your moderator for today's webinar, which is slated for approximately 60 minutes. Before we begin, if there's anyone in the audience that's with the media, please send an email to the address on the slide. Be sure to include your contact information and the news publication you're with. Our Media Relations and Stakeholder Liaison staff will assist you and answer any questions that you may have. As a reminder, this webinar will be recorded for future posting.

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During the presentation, we'll take a few breaks to share knowledge-based questions with you. At those times, a polling style feature will pop up on your screen with a question and multiple choice answers. Select the response you believe is correct by clicking on the radio button next to your selection and then click Submit. If you do not get the polling question, this may be because you have your pop up blocker on. So please take a moment to disable your pop up blocker now so you can answer the questions. We've included several technical documents that describe how you can disable pop up lockers based on the browser you are using. We have documents for Chrome, Firefox, Microsoft Edge, and Safari for those Mac users. You can access them by clicking on the Materials drop down arrow; again that's located on the left side of your screen.

We're going to take some time and test the polling feature. Here's your opportunity to ensure your pop up blocker is not on so you can receive the polling question throughout today's presentation. Audience this example polling question will not count towards the polling question requirements to earn CE credit. So here we go. Do you know who your local Stakeholder Liaison is? Do you know who your local Stakeholder Liaison is? A, Yes; B, no; or C, what is Stakeholder Liaison? Take a moment, read the question again and click the radio button that corresponds to your answer. Do you know your local Stakeholder Liaison? I hope you do. I want to give you a few more seconds to make your choice, make your selection. Do you know your local stakeholder liaison? A, Yes; B, no; or C, what is Stakeholder Liaison?

Okay folks, we're going to stop the polling now and let's see how the majority of you responded. Okay, I see that 50% of you responded no, you do not know your local Stakeholder Liaison. We're going to rectify that at the end of the session. Okay, so hold on for that information. We do hope that you received the polling question and you were able to submit your answer. If not, now is the time to check your pop up blocker to make sure you have it turned off. Again we've included several technical documents that describe how you can disable pop up blockers based on the browser you are using. Just click the Materials drop down arrow on the left side of your screen to download your browser document.

Again, welcome. We're so glad you joined us for today's webinar. Before we move along with our session, let me make sure you're in the right place. Today's webinar is on The ABCs of Due Diligence. This webinar is scheduled for approximately 60 minutes from the top of the hour, and for this webinar you will be receiving an invitation to take a confidential online survey to gather your feedback about this webinar. Expect an email sometime in the next week or two asking you to participate. Your feedback is vital to improving the Due Diligence webinar and we hope you'll choose to participate.

Now, let me introduce today's speaker. We are joined by Christine Bass and Kyle Hatherley. Christine is a Senior Program Analyst in Return Integrity and Compliance Services and specializes in due diligence for return preparers. She has been with the IRS for 34 years in various roles from Revenue Agent to Return Classification Specialist to Program Analysts. Additionally, we're joined by Kyle, who is also a Senior Program Analyst in Return Integrity and Compliance Services and she also specializes in due diligence for return preparers. She has been with the IRS for 14 years in various roles from Customer Service Representative to Fraud Analysts to Program analysts.

And with that, I'm going to turn it over to Christine to begin. Christine, the floor is yours.

Great. Thanks so much Evette. Good afternoon or for some of you it may be morning depending on where you're joining from. I want to thank all of you for attending this webinar. I'm hopeful by the end that you will all agree that this was very informative. Today we're going to discuss your due diligence requirements when completing and submitting tax returns for your clients claiming the Earned Income Tax Credit, the EITC, Child Tax Credit, Additional Child Tax Credit, Credit for Other Dependents, CTC, ACTC and ODC, the American Opportunity Tax Credit, AOTC, and finally Head of Household filing status, HOH. We'll also cover due diligence documentation requirements and go over the consequences for not meeting your due diligence requirements. Along the way, we'll also cover some frequently asked questions we receive about due diligence. Additionally, I'm going to share some exciting initiatives and other efforts the IRS has implemented to help you, the tax professional. Finally, I will show all of you some useful online resources available in the Tax Preparer Toolkit and on EITC Central. I hope that sounds great for you as we're going to get this presentation started.

As we get started on our journey today, I do have an open ended question for the audience and that would be how would you define due diligence in your own words? And it's okay if you're not ready to answer right now. I can't give out any gold stars anyway, but I have no doubt by the end of the seminar you will know the answer. As we go through the different topics, I would like you to keep that question in your mind and compare what you thought due diligence requirements were versus what we speak about today.

Now to begin, Treasury Regulation Section 1.6695-2 describes the four due diligence requirements a paid tax return preparer must meet when preparing a return or claim for refund claiming that Earned Income Tax Credit, Child Tax Credit, Additional Child Tax Credit and/or the Credit for Other Dependents, the American Opportunity Tax Credit and/or that Head of Household filing status. Now, I hate to be the bearer of bad news, but a paid tax return preparer can face potential penalties for not meeting the due diligence requirements. Additionally, a firm employing a preparer can also be subject to penalties for an employee's failure to follow due diligence rules.

So where does the IRS's authority to assess due diligence penalties against paid preparers come from? Well, it's under section 6695(g) of the internal Revenue Code, which provides that paid preparers who fail to comply with the due diligence requirements as specified in the regs shall pay a penalty of $500 for each failure to properly determine a client's eligibility to file as Head of Household or eligibility for or the amount of the EITC, the CTC, which includes ACTC and ODC or AOTC. So that's a total of four different tax benefits and the penalty amount adjusted for inflation is $635 per failure for returns and claims filed in 2025.

So I need to be very clear here. In 2025, if you prepare a return claiming all four of the applicable tax benefits and you fail to meet the due diligence requirements for all four of them, the IRS may assess a penalty against you of $635 per failure or $2,540 per return. As you can see, that's a big number. So let me fill you in on the specifics so you'll be ready for this tax season. Of course, the best place to start is by looking at each of the four due diligence requirements.

The first and arguably the most important one is the knowledge requirement and how is the knowledge requirement met? Well, by asking all the right questions, a paid preparer must not know or have reason to know that any information used to complete the tax return is incorrect, incomplete or inconsistent. Of course, you may be thinking, how would I know? Well, you need to make sure you ask your clients the right questions or in other words, relevant questions to establish if they are eligible to claim the credits and/or that Head of Household filing status. These questions should be asked as open ended, you do not want to put words in your client’s mouths.

What if you think the response is your clients seem not on the up and up? Well, you should rely on your education, experience and interview expertise to determine if the information your client is giving you appears to be incorrect, incomplete or inconsistent. And if it is, you must continue to ask additional questions until you are comfortable with the information provided. Equally important, you must contemporaneously document the questions asked and the answers provided. This information can be kept on paper or electronically.

Evette, it's already that time for our first poll question. This is one of our most frequently asked questions.

Yeah, Christine. All right, audience, here we go with our first polling question. As a paid tax preparer, are you required to request documentation if your client is claiming her niece, Head of Household or Earned Income Tax Credit? Is the answer A, yes, supporting documentation is always required; B, no, but you must ask additional questions if the responses do not appear to be correct, consistent and complete; or is it C, no, aunts nor uncles are never required to provide supporting documents.

Okay folks, take a moment. Think about what you already know. Think about what you heard Christine state and click the radio button that best answers the question. If you do not receive the polling question, please enter only the letter A, B or C that corresponds with your response using the Ask Question text box. And folks, please note that your response is time-stamped and you have to remember that you need to answer at least three polling questions and participate in the live broadcast from the official start time for at least 50 minutes to earn one IRS CE credit. The polling example that question we did at the beginning of this presentation does not count towards the requirement of 3. Want to make sure you have enough time to make your selection, or if you need to submit your answer using the Ask Question feature, that's fine too.

Okay, we're going to stop the polling now and let's share the correct answer on the next slide. And folks, the correct response is B, no, but you must ask additional questions if the responses do not appear to be correct, consistent and complete. And I see that 48% of you responded correctly. So Christine, can you clarify why the correct response is B?

Sure. And as Evette said, the correct response is B. The preparer must make additional inquiries if responses to probing questions do not appear to be correct, consistent and complete. The question you need to ask yourself when preparing your client's tax returns is this, can you, a professional paid tax return preparer, knowledgeable in the tax law, conclude that the information furnished to you by your client is correct, consistent and complete. If not and you feel uncomfortable about your client's responses, as I'm sure some of you here today may have done in the past, you may want to let your client know that you cannot prepare their return until you're comfortable that they are indeed entitled to the credit. As I said before, there's nowhere in the code or regulations that require documentation from the client, so we're going to discuss that a little more in the future.

Now, the next requirement after knowledge is that worksheet requirement. These two the worksheet and 8867 are done at the same time and in most cases your tax preparation software handles all the work. All you need to do is use the information you obtain from asking your clients all the right questions and applying the necessary tax laws, you will be able to compute the credit based on the facts and complete and ultimately submit that Form 8867, the paid preparer's Due Diligence Checklist.

So what do these two requirements entail? Well, the worksheet requirement relates to computing the applicable credits using the appropriate worksheets or your own similar worksheets as long as they contain the same information as the IRS worksheets. You must do this based on information obtained from your client or information you otherwise reasonably know. The worksheets are included with most professional tax preparation software.

The third due diligence requirement is to complete and submit that Form 8867, as I said, that Paid Preparer Due Diligence Checklist and this is based on information obtained from your client or you otherwise reasonably obtain or know. You must complete the form and do one of these three things; electronically submit it to the IRS with the e-filed return or claim or for a return not e-filed provide a copy of it to your client to include when mailing in their return or if you're the non-signing preparer, provide an electronic or paper copy of it to the signing preparer for inclusion with the filed return or claim.

Now, if you provide a paper Form 8867 to your client, stress to them the importance of including the form with the return package that's sent to the IRS. Also note that Form 8867 must not be sent to the IRS separately. Doing so has no effect on a potential prepare penalty assessment. We receive hundreds of these yearly after the corresponding return has been filed, and there is no way we can associate that orphaned 8867 with the parent return, so please do not send in these forms separately.

The final requirement is record retention. Simply said, keep all of your records used to determine eligibility and to compute the credit. Next slide, I'm going to go over the specifics of this requirement. So that means keep copies of that Form 8867 and the applicable credit worksheets, along with a record of how, when, and from whom you obtained the information used to prepare them. Also, keep a record of all additional inquiries you made contemporaneously to comply with the knowledge requirement, along with your client's responses and, as previously mentioned, copies of any client provided documents you relied on to determine eligibility for the tax benefits or to compute the amount of credits.

Remember to keep these records for three years from the latest date of the following that applies the due date of the return or the due date the return or claim was e-filed, the date you gave it to your client for signature if you're giving a paper return to your client or the date you gave the signing tax return preparer, the part of the return that you were responsible for if you did not sign the return. Keep these records in either paper or electronic format in a secure place.

And now, how about we check your understanding with. You guessed it, another poll question. Evette?

Great idea, Christine. Great idea. Okay, audience, here is our second poll question and it's a true or false about the knowledge requirement which Christine just talked about.

So the question states, to meet your due diligence requirements, you do not have to keep all questions and answers in your paper or electronic files. Is the answer true, a paid tax preparer is not required to keep all questions and answers in their files, or is the response false, paid tax preparers are required to keep all questions and answers in their files. Take a moment, think about what you already know and what you heard, Christine state and click the radio button that best answers the question.

And remember, folks, if you do not receive the polling question, please enter only true or false that corresponds with your response using the Ask Question text box. Your response is time-stamped. I want to give you just a few more seconds to make your selection or if you have to submit your answer using the Ask Question feature, true or false, to meet your due diligence requirements, you do not have to keep all questions and answers in your paper or electronic files.

All right, make your selection. Make sure you have enough time. Okay. All right, we're going to stop the polling now and let's share the correct answer on the next slide. And folks, the correct response is false, any questions asked and answered relied upon to determine tax benefit eligibility must be retained by you, the paid tax preparer, either electronically or on paper. And, oh, I'm so excited, I see that 87% of you responded correctly. Christine, they got it. I'll turn it back over to you to continue.

All right. A gold star for everyone. Even though I don't have any, you all get a gold star. Great. Thanks so much. All right, as I mentioned earlier, there can be consequences for not following the rules for due diligence. As a reminder, the penalty for not following the due diligence rules is $635 per failure or $2,540 per return for any returns filed in 2025. Additionally, your client's return may be subject to an audit.

So now that I've discussed your due diligence requirements as paid tax preparers, let me turn the presentation over to my colleague, Kyle Hatherley. Kyle will talk about what happens if you're not applying due diligence and the IRS has contacted you regarding the due diligence issues. Kyle, take it away.

Thank you, Christine. It is my pleasure to go over the various ways the IRS might contact you for due diligence. The IRS may send you a letter or a CP notice, which will be for the new year, fiscal year 2025. By the way, CP stands for computer paragraph. The IRS is in the process of transitioning some letters to CP notices. So the first thing is not to panic, take some deep breaths and open that envelope. Do not ignore the letter. It's important to know not all letters or notices from the IRS propose penalties or request money. We also send out educational letters or notices to paid tax return preparers. Educational letters or notices do not propose any penalties. The letters or notices remind you of your due diligence requirements. They also provide additional information that can assist on how to meet your due diligence requirements and highlight online references such as Tax Preparer Toolkit on EITC Central.

However, if we sent you an educational letter or notice and there is still an indication that the returns you are filing may have due diligence issues, we often follow up with addition letters, notices, educational phone calls or visits, client audits, or even a due diligence audit. So, if you receive one of our educational letters, what can you do to improve your due diligence? It would be a good practice to review your office procedures on a regular basis to make sure all four due diligence requirements are truly being met. Now, I'm sure you know all there is to know about the tax law, but like technology, situations can change, so does the tax law. So it is a good idea to review the tax requirements that apply to the credits to make sure the law has not changed and you should implement any additional steps to ensure your client's tax returns are accurate.

Now let's go over some of the educational letters and notices that we send out to paid tax return preparers. First, let's talk about the 5025-F which is titled, You Prepared Inaccurate Tax Returns - You Risk Penalties from an Audit. This is an educational letter sent out after the filing season. We send this to paid return preparers who prepare tax returns claiming one or more of the credits or the Head of Household filing status and our return of those -- a review of those returns indicated the preparer may not have met the due diligence requirement. The letter includes a QR code that directs preparers to the Tax Preparer Toolkit all EITC Central, which includes information for the tax preparers.

Next, let's talk about the 4858. This one is titled, You may not have met your due diligence requirements. This is an educational letter sent during the filing season when it appears that paid tax return preparers may not be meeting their due diligence required when filing their client's current tax year returns. This letter reminds paid preparers of their due diligence requirements that they may have not met those requirements for the returns they have filed. Just like other letters, you guessed it, this one also includes a QR code to direct the tax preparers to the Tax Preparer Toolkit on EITC Central for additional resources.

Next up, we have the 5364. This one is missing Form 8867. It's sent to paid preparers who do not submit their Form 8867, which is the Payee Preparer Due Diligence Checklist with the paper returns. Now, even if your client is adamant about mailing their own return, you need to ensure they include your completed Form 8867 when they mail their tax return. The IRS will send this letter when we observe that multiple paper returns are missing that required Form 8867. The letter is a reminder, and as Christine mentioned earlier, please do not send the IRS any missing Forms 8867, as we do not have a way to associate the forms with your client's original return. As you may have noticed, like the letter 5025, this letter also has a QR code that directs preparers to the Tax Preparer Toolkit on EITC Central.

Before we go to our next letter, I am positive some of your fellow tax preparers are thinking I don't have to worry about this because I only electronically file. Well, it is true you don't have to worry about receiving the letter 5364, but we will send you an electronic alert if your e-file return is missing form 8867. However, it does not affect the acceptance or processing of your client's tax return.

Next, let's talk about the letter 6595. Okay, let's take a moment to discuss the IRS phone calls. The letter 6595 is the pre-filing season phone call letter, can be sent to those preparers that might have prepared inaccurate returns when claiming tax benefits and possibly fail to meet due diligence requirements. These calls are educational but also deliver a compliance message. We are calling to help you avoid errors in preparing your client's returns as well as to avoid potential due diligence penalties. We do not ask for personal information about your clients. The IRS employee will not provide specific information about your clients nor ask you to disclose any client information. However, the IRS employee will explain that the returns submitted to the IRS are being monitored and reviewed, review the due diligence requirements and discuss possible consequences for not meeting them and offer resources on due diligence, educational products and training.

Okay, I just discussed educational letters and letters to inform you that a phone call is coming. Next, I will talk about letters that inform preparers about visits and examinations. Preparers may receive letter 6223 which is the Knock and Talk visit introduction. The main purpose of a Knock and Talk is to educate the preparer. It allows an IRS employee to discuss current due diligence laws, address potential due diligence errors, and share information on how preparers can comply with due diligence requirements in the future. Knock and Talk visits are generally made by an IRS Revenue Agent and may also include a special agent from our Criminal Investigation Division. These visits are very beneficial to the preparer as this is a free tax law training. So if you get one of these letters, please take advantage of this service.

Now let's talk about the process for a correspondence diligence examination. The IRS will mail initial contact letters that notify preparer that they have been selected for either a correspondence due diligence examination or an in office due diligence examination as part of our Paid Preparer Due Diligence Program. The letter includes a request for the preparer to call the IRS to set up an appointment. They include a telephone number and a limited period of time to make the call. The correspondence due diligence exam letter also includes Form 4564, Information Document Request, specifying what documents are needed to verify the preparer is following due diligence requirements. Now suppose the preparer decides to ignore the letter and not bother to call.

Do you think the IRS will forget about this preparer? Well, if we do not hear from the preparer to schedule the appointment, we'll try to call several times. If we do not get a response, we may propose penalties under IRRC section 6695. Keep in mind, if you are selected for a due diligence examination and decide that you want representation, you can complete Form 2848, the Power of Attorney and Declaration of Representation, and mail or fax it to the IRS by the time of the appointment.

So now let's discuss what happens next during the examination. As part of both the correspondence and the in office examination, the agent will review the documents that the preparer has or sent in for the requested client. Generally, it is a minimum of 25 client returns and the associated files. The agent will also interview the preparer over the telephone and ask general questions such as what is the length of the time and experience in the tax business? Do you have a check sheet or intake form that you can use? Do you ask additional questions or just the questions on the check sheet or intake form? Have you taken any due diligence training? Do you train the other preparers that you employ and review their work? Do you use IRS worksheets or do you have your own? When the examination is complete, the agent will conduct a closing conference where the findings of the examination will be reviewed. This can result in penalties being proposed or determination that the preparer comply with the due diligence requirements per section 6695.

Before we move on, I have a little more I want to share about the examination, the reports and the letters. If the agent determines that the preparer did not meet the due diligence requirement, the agent will provide an examination report along with Letter 1125, the transmittal of a preparer penalty report with the proposed penalties. Again, there are four different tax benefits subject to due diligence. The penalty is $635 for each failure and that is up to a total of $2,540 per tax return. If the preparer agrees to these penalties, they will sign the Form 5816 Report of Tax Preparer Penalty case and pay the whole amount or make a partial payment and request the IRS to send them a bill for the rest.

The preparer can also request an installment agreement. If the preparer does not agree with the proposed penalties, they have a bill right. Letter 1125 advises preparers they have 30 days to file an appeal which will be forwarded to the IRS Appeals office. The letter outlines what should be included in the written repeals requirements. If the preparer decides they are not going to respond or contact the IRS hoping it will go away, the IRS does not receive a response within the 30 day period, the case will be closed and the proposed penalty will be assessed.

There are other treatments that can occur. For example, there may be cases where an injunction can be ordered. The Justice Department Tax Division and the IRS under the civil injunction program may seek a court order called an injunction that bars a person or business from engaging in specific misconduct or from preparing tax returns for others. Injunctions are an important part of the IRS effort to assure honest taxpayers and tax preparers that those who can cheat will not get away with it. There may also be instances where the IRS prefers preparers that willfully file fraudulent returns to the Criminal Investigation Division or the Office of Professional Responsibility.

Okay, how about we apply what we just went over? It is time for our third poll question.

All right, Kyle, thank you so much. It certainly is time for our third polling question. Okay folks, here we go. Get your calculators out; hint, hint. The penalty amount under Internal revenue code section 6695(g) for one return or claim for refund filed in 2025 can be up to the answer A, $635; B, $500; or C, $2,540. Take a moment, think about what you just heard Kyle say and think about what you probably already know and click the radio button that best answers the question. And remember, if you do not receive the polling question, don't panic.

Please enter only the letter A, B or C that corresponds with your response using the Ask Question text box. And remember also, folks, that your response is time-stamped. I want to give you some time to make your selection or if you need to submit your answer using the Ask Question text box, you can use that feature if the polling question doesn't pop up for you or the poll doesn't pop up for you.

Okay, let's go ahead and let's stop the polling now and let's share the correct answer on the next slide. And the correct response is C, $2,540. And I see that 68% of you responded correctly. Okay, Kyle, help us out. Why is C the correct response?

Thank you. Yes. So the answer is C. Like we had mentioned before, there are four different tax benefits subject to due diligence. So that Penalty can be $635 for each, totaling $2,540.

All right, Kyle, thank you so much. I'll just go ahead and turn it back over to you.

Thank you so much. So I'm sure you are interested in some common questions we received from tax preparers when we were doing these presentations. So one main question that tax preparers ask us is, I've known my client for years, so do I still need to perform due diligence? And the answer, of course, is yes. You must make reasonable inquiries to determine your client's eligibility for the credits and the HOH filing status and document your client's responses. Even if you believe that you already know the answers and you have known these clients for years, you still need to follow your due diligence procedures.

Your client might have experienced a life event that changed the types of credits they are eligible for, but you would not know unless you ask your clients the right questions. This is especially true when it comes to qualifying children for the credit relationship does not change, but their residency might. Remember, you do not live with your clients, so you still need to perform your due diligence.

Now, here's another very common question. What documents should you pay tax preparers ask for when interviewing a client who wants to claim certain credits in the HOH filing status? And this might surprise you, but you do not necessarily have to request any documents. However, you must make reasonable inquiries if the client gives you information that appears incorrect, incomplete, or inconsistent. In some, if not most cases, it may be best practice for you to ask for certain documents. Don't forget, if your client did bring documents to support their eligibility to claim the credits or the HOH filing status, you relied on that information, you must keep a copy to comply with the record retention requirement. Some examples of supporting documents may include school records, W2s, 1099s or 1098t.

Great. So we've reached our final polling question.

Thank you, Kyle. All right. We certainly have reached our final and last polling question. Okay, folks, here we go. When is Form 8867, the paid preparer's due diligence checklist, required? Is the answer A, for a return claiming EITC, CTC, ACTC, ODC, AOTC, or HOH filing status? Is it B, when completing an electronic return per Internal Revenue Code 7896? Or is it C, for a return claiming the credit for child and dependent care expenses?

Take a moment, think about what Kyle just told us and click the radio button that best answers the question. Remember folks, if you do not receive the polling question, please enter only the letters A, B or C that corresponds with your response using the Ask Question. And again, remember your response is time-stamped and that you need to answer at least three polling questions and participate in the live broadcast from the official start time for at least 50 minutes if you want to earn that one IRS CE credit.

Okay, the polling question example, the one we did at the beginning of the presentation you remember, does not count towards the requirement of three. Just want to make sure you have enough time to make your selection or if you need to submit your answer using the Ask Question text box feature. Okay, let's go ahead and stop the polling now and most of you probably already know the correct response, but let's go on and see what the response is.

And the correct response is A for a return claiming, save with me, EITC, CTC, ACTC, ODC, AOTC, or HOH filing status is the correct response. And whoo, I knew you knew what you were doing, the correct response rate, 93% of you responded correctly. I'm still so excited about that. Kyle, this is awesome. Great job everybody. Let me turn it back over to Christine to continue the presentation.

Great. Thanks so much. You guys are superstars. So now that the due diligence portion of our presentation is complete, I want to share some ongoing efforts to help make your jobs easier. First up, I'm going to cover our Tax Professional Awareness initiative that took place in October of 2024. Then I will share information on webinars that the IRS hosts throughout the years, as well as our vast video library of helpful tax topics.

And finally, I'm going to share some information about that document upload tool, the DUT. The goal of the Tax Professional Awareness Week was to provide useful information and tools to support tax professionals during the filing season. To assist tax professionals, such as yourself, the IRS provided information on Due Diligence, Electronic Filing Identification Numbers or (EFINs), Prepare Tax Identification Numbers (PTINs), E-File E-Services, and Identity Theft.

The IRS created the Tax Professional Awareness Webpage as a central source to house key information and events that will assist you with your work. We design Tax Professional Awareness Week with you, the Tax Professional in mind and contained on that Tax Professional Awareness webpage is a curated list of important links for you. For example, if you want to check on your EFIN, find out rules about recently divorced clients, or access your TaxPro account, you can easily link them from here. We also included links to other useful documents. To ensure that we're providing you with the latest information or tools to help you with your job, we will monitor and update information on this page as needed.

Throughout the year, the IRS offers webinars on tax and IRS related topics. Many of these webinars, such as this one, offer continuing education credits. To find the current offerings, go to the IRS website and in the search box type, webinar. The IRS actually has a presence on YouTube as well. You can use this resource to learn about scams, the employee retention credit, and tax tips, to name a few items. There's also a section for you, the Tax Professional.

Next up is a newer tool that the IRS has been using and that was born out of the necessity brought on by COVID called the Document Upload Tool. For anyone who has experienced the hurry up and wait of corresponding through the mail, this new service is a dramatic improvement. You have near instant confirmation that your documentation was received. The Document Upload Tool is an efficient way for you to respond to IRS notices and letters.

And finally, here are some online educational resources. We have several designed for you, the members of the Tax Return Preparer community. As mentioned earlier in the presentation Publication 4687, Paid Preparers Due Diligence and the Tax Preparer Toolkit are helpful tools you can use to meet your due diligence responsibilities. And of course, I think the top of your list should be that Tax Preparer Toolkit on EITC Central.

So what does the online site offer you? Well, it provides information on due diligence requirements along with articles, publications and examples of the various letters and up to the minute compliance messaging, which we call hot topics. In addition, the IRS offers free online compliance education and due diligence training via the IRS Tax Prepare Toolkit. Our goal is to help you get it right and avoid any educational or compliance letters from the IRS. Evette?

Yes, okay, thank you Christine. Great, great information, great resources. And let me just put a plug in here for you all. She mentioned that the Document Upload Tool, well, we're having a webinar on January 21st folks, so go to IRS.gov do a search for webinars and sign up for the Document Upload Tool webinar, which will again take place on January 21st. We hope to see you there.

Okay, we've come to our live Q&A session and I'll be moderating this session. But before we start, I do want to thank everyone for attending today's presentation, The ABCs of Due Diligence. Earlier I mentioned we want to know what questions you have for our presenters and here's your opportunity. If you haven't input your questions, there's still time, so go ahead and click on that drop down arrow next to the Ask Question field, type in your question and remember to click send. Christine and Kyle are staying on with us to answer your questions.

One thing before we get started, folks, we may not have time to answer all the questions that you submitted, but we'll answer as many as time will allow for. So let's go ahead and jump right on in and get started so we can get to as many as possible. And Christine, I'm just going to come directly to you first. This person asks, did I hear correctly, we do not need to request documentation. I always thought we were required to ask for documentation. Can you clarify that please, Christine?

Sure. And that's a great question. And I think that's why many responded incorrectly to our first polling question, because it's something that some of the preparers think they're required to do. So, as I said, you did hear that correctly. The regulations do not require that a preparer request documentation. But if your client brought in any documentation that you relied on to compute the credits or file HOH and that could be a 1099, that could be W2s, that could be school records, if your clients brought in any of that information, you must keep a copy. Now, it may be a best practice to ask for documentation if you're unsure, but it is not required. Hopefully that will clarify it for some of them out there.

Awesome. Thank you, Christine. Okay, Kyle, let me come your way. This question is, if my client is claiming a nephew and they have court documentation to prove the nephew is in their care, do they need to keep that documentation in the file for all future years?

Yes, you should keep that document because you still need to do your due diligence every year. Generally, family relationships don't change, but their residency might. So you would still need to follow up and ask those additional questions.

Good, good, good, good, good. Okay. All right, let's play tennis here. I'm going to go back to Christine and this question states, if I get a letter offering the pre-filing season phone call and I do not respond, would that cause me to be audited?

Well, that's a great question too and the answer is no, not necessarily. But the IRS will continue to monitor returns you filed, and if they don't appear any better, you may be subject to additional treatments, which does include a due diligence examination. So, again, not necessarily, but you never know.

Never know. Okay, thank you, Christine. Let's roll right along. Okay, Kyle, back to you. Are all preparers required to take due diligence education requirements annually? Is there a mandatory requirement for due diligence education? Kyle?

So the answer for those are no. There is no requirement to take yearly due diligence classes, so it certainly isn't mandatory. However, it is still a good idea. There's a free course in a Tax Preparer Toolkit that will give you one hour of a continuing education credit.

And we love those educational credits, don't we? Okay. Thanks, Kyle. All right, Christine, back to you. For new preparers, this is a good question -- for new preparers with little experience, what is the best way to get due diligence training from the IRS?

Well, that's a great question, too. And the best way is, number one, to come to these webinars that we do every January. In addition, we have a good amount of information in the Tax Preparer Toolkit on IRS.gov and, as we mentioned earlier, that includes a free due diligence course which gives one hour of continuing education credit. Free is good.

Free is good. Thanks, Christine. Okay, Kyle, back to you. I've gotten pushback from some clients about inquiries I made to cover due diligence. Do you have any suggestions on how to ask the client in a professional way about these sensitive topics?

Yes, absolutely. You can print out and show the client the code and regulations for the section 6695(g) which you need to abide by as a tax preparer. You can remind them that they are not auditing them, but you must ask the questions and document their answers based on that IRC code.

Very good. Okay. Okay. Great job. Thank you, Kyle. All right, Christine, question for you. Who is covered by due diligence, paid tax preparers, the do it yourselfer, the volunteer. Can you clarify that for us?

Sure. And section 6695(g) applies to paid tax return preparers. Volunteers should not sign a return as a paid tax preparer if they were not paid. And of course, do it yourself people do not qualify as paid preparer, so it only applies to paid tax return preparers. We have seen this many times in a year where the preparer said, well, I wasn't paid to file that tax return preparer and file that tax return and they signed as paid preparer, so if you sign as paid prepare, you may be subject to due diligence examination or the regulation so.

Wow. Okay. Well, time flies when you're having fun. So folks, that's all the time we have for questions. I do want to thank Christine and Kyle for answering your questions and for also sharing their knowledge and expertise. But before we close the Q&A session, Christine, what key points do you want the attendees to remember from today's webinar?

Great. Well, the most important thing is due diligence is more than going over a checklist. If the information provided by your client does not seem to be correct, consistent or complete, ask more questions to clarify and record those questions and answers and you must keep that, although not required, documentation can also be requested. Remember to keep a copy of all documentation you saw and used to compute the credits or that Head of Household filing status under the record retention requirement. In addition, the IRS can reach out to tax professionals in a variety of ways, do not ignore these contacts, take action. These interactions can be educational, so please take advantage of this opportunity.

And audience, that's my time for today. I want to thank you for your participation and Evette, back to you.

Thank you, Christine. Okay audience, we are planning webinars throughout 2025. To register for an upcoming webinar, please visit irs.gov, keyword search webinars and select webinars for tax practitioners or webinars for small businesses. When appropriate, we will offer certificates and CE credits for those upcoming webinars. We invite you to Visit the IRS YouTube page at www.youtube.com/irsvideos. There you can view available recorded versions of our webinars and other key video messaging once posted. Again, continuing education credits or Certificates of Completion are not offered if you view an archived version of any of our webinars.

Another big thank you to our presenters for a great webinar. I also want to thank you, our attendees, for attending today's webinar, The ABCs of Due Diligence. Again, if you attended today's webinar for at least 50 minutes after the official start time and answered at least three polling questions during the live broadcast, you will receive a Certificate of Completion for one IRS CE credit. Remember, the polling question example will not count towards the three minimum question response requirements.

Audience, it's also important for you to know that the Certificates of Completion will be emailed to the registration email address of qualifying participants as a PDF attachment. The email will come from the email address seen on this slide, so please add this email address to your contacts to ensure you receive the email with the certificate attached.

If you qualify for IRS Continuing Education credit for this webinar and you register with a valid first, last name, and valid PTIN as it appears on your IRS PTIN account, then your CE credit will be posted in your IRS PTIN account. If you are eligible for continuing education from the California Tax Education Council, your credit will be posted to your CTEC account as well. If you qualify and have not received your certificate and/or credit by January 21, please email us at the email address listed on the slide.

If you're interested in finding your local stakeholder liaison, use the same email address listed on this slide to get that information from us and we will gladly send that information to you. We would appreciate it if you would take a few minutes just to complete a short evaluation before you exit. If you'd like to have more sessions like this one, let us know. If you have thoughts on how we can make them better, let us know that as well. If you have requests for future webinar topics or pertinent information you'd like to see in an IRS Fact Sheet, Tax Tip, or FAQ on IRS.gov then please include your suggestion in the comments section of the survey. Click the survey button on the right side of your screen to begin. If it doesn't come up, check to make sure you've disabled your pop up blocker.

Please remember also that you will receive an invitation to take a confidential online survey in addition to the one we mentioned a moment ago before you exit today's webinar. This confidential online survey is to gather your feedback about this webinar. We keep reminding you so that you don't think that the email is a scam once you receive it sometime in the next week or two. We hope you'll choose to participate as your feedback is vital to improving the Due Diligence Webinar.

It's been a pleasure to be here with you, and on behalf of the Internal Revenue Service and our presenters, we would like to thank you for attending today's webinar. It's so important for the IRS to stay connected with the tax professional community, individual taxpayers, industry associations, along with federal, state and local government organizations. You make our jobs a lot easier by sharing the information that allows for proper tax reporting.

Thanks again for your time and attendance. We hope you found the information helpful. You may exit the webinar at this time.