Form 8867 and the Paid Preparer Due Diligence Checklist

9/20/2026

Form 8867 is a two-page form that most preparers complete dozens or hundreds of times a season, usually by clicking through a software interview. That habit is exactly the problem. The form is not the due diligence. It is the certification that due diligence happened, and the penalty attaches to the diligence, not to the paperwork.

The rules sit in IRC section 6695(g) and Treasury Regulations section 1.6695-2. They apply to any paid preparer who determines a client's eligibility for, or the amount of, four tax benefits. They impose four distinct requirements. A failure on any one of them, for any one benefit, is a separate penalty. This post walks through what triggers the form, what each requirement actually demands, what a defensible file looks like, and where firms get caught.

What Triggers Form 8867

Form 8867, Paid Preparer's Due Diligence Checklist, is required when a paid preparer prepares a return or claim for refund that claims any of the following:

• The earned income credit (EIC)
• The child tax credit, additional child tax credit or credit for other dependents (CTC/ACTC/ODC)
• The American opportunity tax credit (AOTC)
• Head of household (HOH) filing status

Head of household is the one preparers forget. It carries no credit amount, so it does not feel like a "credit return," but the due diligence rules have covered HOH status since 2018 and the form has a dedicated part for it. A single filer with a dependent parent, a divorced client with a child for part of the year, a client who was "basically separated" in December: each of those is an HOH determination, and each one needs the same diligence as a refundable credit.

The form is completed by the preparer who determined eligibility, even if that person is not the one who signs the return. The instructions say the name and PTIN on the form belong to the preparer who determined eligibility and figured the credit.

How the form is filed

The regulation separates three situations:

• Signing preparer, e-filed return: the completed Form 8867 is filed electronically with the return.
• Signing preparer, paper return: the completed form goes to the taxpayer for inclusion with the filed return.
• Nonsigning preparer: the completed form goes to the signing preparer, on paper or electronically.

For most firms the first case is the norm, and the software attaches the form. The risk is that a form generated automatically can be complete on its face while the work behind it was never done.

The Current-Year Changes That Affect the Form

The instructions for Form 8867 (revised November 2025, for 2025 returns) carry one substantive change worth briefing every preparer on. Beginning with tax year 2025, a taxpayer claiming the CTC or ACTC must also have a valid SSN, in addition to the qualifying child's SSN. For a joint return, the instructions refer to the primary or secondary taxpayer having the required SSN. Children identified by an ITIN or adoption taxpayer identification number cannot be claimed for the CTC or ACTC.

This changes the intake questions. A household where the parent files with an ITIN and the child has an SSN used to be a CTC question about the child. It is now a question about the parent's identification number first. A preparer working from last year's mental checklist will miss it, and the knowledge requirement assumes the preparer knows the law for each benefit claimed.

The Four Due Diligence Requirements

The regulation lists four requirements. The Form 8867 instructions restate them in slightly different order and add a fifth step, completing the form truthfully and submitting it as required, but the substance is the same. Every one of them must be met for every benefit claimed.

1. Complete and submit Form 8867

The form must be completed based on information provided by the taxpayer or otherwise reasonably obtained or known by the preparer, and submitted in the manner described above.

What this means in practice: every "Yes" on the form must be true when the box is checked. Line 1 asks whether the information is for the tax year being filed. Line 3 asks whether the preparer interviewed the taxpayer and asked adequate questions. Line 4 asks whether the inquiries and responses were documented contemporaneously. If the honest answer to line 4 is "not really," checking "Yes" does not cure the failure. It adds a false certification to it.

2. Compute the credits

The preparer must complete the applicable IRS worksheet for each credit claimed, or the preparer's own worksheet that provides the same information. The worksheets for the EIC and CTC/ACTC/ODC are in the Form 1040 and Schedule 8812 instructions. The AOTC worksheet is in the Form 8863 instructions. HOH status has no computation worksheet, which is why line 2 has an "N/A" box for HOH-only returns.

Tax software generally completes these worksheets as the return is built. The diligence point is that the inputs to the worksheet must be right. A worksheet computed from an unverified Schedule C is a correctly computed wrong answer.

3. The knowledge requirement

This is the heart of the rules, and where examiners focus. The preparer must not use information that the preparer knows, or has reason to know, is incorrect. The preparer may not ignore the implications of information provided or known. And the preparer must make reasonable inquiries when a reasonable and well-informed preparer, knowledgeable in the law, would conclude the information appears incorrect, inconsistent or incomplete. Those inquiries, and the client's answers, must be documented contemporaneously.

Two points matter most.

First, the standard is objective. The question is not whether this preparer noticed the inconsistency. It is whether a reasonable, well-informed preparer would have. A new seasonal preparer who did not know the HOH cost-of-keeping-up-a-home test is held to the standard of one who did.

Second, preparers may generally rely on what clients tell them. The rules do not require auditing every client. They require following up when something does not add up. The Form 8867 instructions give an example: a 25-year-old, never-married taxpayer claims two children aged 10 and 12 and reports $12,000 of lawn care income with no expenses. The ages are inconsistent with the taxpayer's age, and the absence of any expense is inconsistent with running a lawn business. The instructions list the questions a preparer would reasonably ask: whether the children are foster or adopted, how long they lived with the taxpayer, whether another relative also lived with them, how much the taxpayer charged per lawn, what records exist of receipts, how the work was done without equipment or fuel, and how many lawns were serviced.

The same instructions give a useful counterpoint: if the preparer verified last year that the children were legally adopted, the relationship question does not need to be asked again this year. Diligence builds on prior files. It does not restart from zero every season, but the prior file has to exist to be relied on.

4. Retain the records

The preparer must keep, for three years, five categories of records:

1. A copy of the completed Form 8867.
2. The completed worksheets, or the preparer's own computation records.
3. Copies of any documents the taxpayer provided that the preparer relied on.
4. A record of how, when and from whom the information used to prepare the form and worksheets was obtained.
5. A record of any additional information relied on, including the questions asked and the taxpayer's responses.

The three years run from the latest of: the return's due date (not counting extensions); the date the return was electronically filed, for a signing preparer who e-files; the date the return was presented to the taxpayer for signature, for a signing preparer who does not e-file; or the date a nonsigning preparer submitted their portion to the signing preparer. Records may be kept on paper or electronically under Rev. Proc. 97-22 or its successors.

Items 4 and 5 are the ones most firms cannot produce. Software keeps the form and the worksheet. It does not keep a note that says "Client stated on 2/11 by phone that daughter lived with her all year; school enrollment letter received 2/14."

What a Defensible File Looks Like

The practical test is simple: could a stranger open the file two years from now and see what the preparer knew, what the preparer asked, and why the preparer concluded the client was eligible? If not, the file fails the knowledge requirement on paper, whatever actually happened in the interview.

Documents the instructions name

The Form 8867 instructions give examples of documents a preparer may rely on. None is specifically required, and the list is not exhaustive, but it shows what the IRS considers reasonable support:

Issue	Examples from the instructions
Residency of a qualifying child	School records or statement; landlord or property management statement; health care provider statement; medical records; childcare provider records; placement agency statement; social service records; place of worship statement; Indian tribal official statement
Disability of a qualifying child	Statement from a medical doctor, other health care provider or social services agency or program
Schedule C	Business license; Forms 1099; records of gross receipts; the taxpayer's summary of income; records or summary of expenses; bank statements

 

Benefit-by-benefit questions worth standardizing

Firms that do this well do not rely on each preparer's memory. They build a short question set for each benefit into the intake and require an answer to each one in the file.

EIC. Who lived in the home and for how long. Relationship and age of each child. Whether anyone else could claim the same child, and whether that person's AGI is higher. For self-employed clients, the existence of records for income and expenses, and whether the Schedule C reflects a real business. Line 8 of the form asks specifically whether the Schedule C is complete and correct for clients reporting self-employment income.

CTC/ACTC/ODC. The child's SSN and the taxpayer's SSN, now that both are required for the CTC and ACTC. Whether the child is a qualifying child for the credit, not just a dependent. For divorced or separated parents, whether a Form 8332 or similar release exists, and for the noncustodial parent, whether a later document revoked it. The instructions say a custodial parent who released the claim is not entitled to claim the child for these credits.

AOTC. The Form 1098-T, but not only the 1098-T. The instructions warn that the amounts on the form may not reflect what was actually paid in the calendar year, and the preparer must verify the qualified tuition and related expenses actually paid by or for the student. Ask for the account statement or payment records, and ask about scholarships and grants.

HOH. Whether the taxpayer was unmarried or considered unmarried on the last day of the year. Whether the taxpayer paid more than half the cost of keeping up the home. Who the qualifying person is and how long that person lived there. "Considered unmarried" is where most HOH errors live: a spouse who moved out in October does not make a client eligible.

Prior-year disallowance

Line 7 asks whether any of the credits was denied in a prior year for a reason other than a clerical or math error. If so, Form 8862 generally must be attached, or the credit will be denied. This is a direct intake question, not something to infer. Clients rarely volunteer that a credit was disallowed two years ago.

Telling the client what the IRS may ask for

Line 6 asks whether the preparer told the taxpayer that the IRS may request documentation to support eligibility and the computation. Build this into the engagement letter or the delivery letter so the conversation is evidenced in writing, not just remembered.

The Penalty, and Who Pays It

The section 6695(g) penalty is assessed per failure, per benefit, per return. The amount is adjusted for inflation each year. For returns and claims for refund filed in 2026, the IRS states the penalty is $650 per failure, so a return claiming all four benefits with no compliant diligence can carry $2,600 in penalties. Rev. Proc. 2025-32 sets the amount for returns and claims filed in 2027 at $665 per failure, with no annual cap. Check the IRS "consequences" page linked from IRS.gov/Form8867 for the figure in force when you read this.

Two features make this penalty more dangerous than the per-return figure suggests.

It multiplies. The regulation's examples show separate penalties for each benefit on the same return. A firm with a systemic gap, say no documented HOH questions at all, has a penalty exposure equal to the number of HOH returns it filed times the per-failure amount.

It can reach the firm. The regulation allows a penalty against the firm that employs the preparer if a member of principal management (or of a branch office's management) participated in or knew of the failure before the return was filed; or if the firm failed to establish reasonable and appropriate compliance procedures; or if the firm disregarded its procedures through willfulness, recklessness or gross indifference. The IRS's own EITC guidance says penalties can be assessed against an employer when an employee fails to comply.

The one exception

A preparer can avoid the penalty by showing that the failure was isolated and inadvertent, considering the facts, and that the preparer's normal office procedures are reasonably designed and routinely followed to ensure compliance. This exception does not apply to a firm penalized under the firm rule.

Read that carefully. The defense depends on written procedures that are actually followed. A firm that cannot show its procedures has no defense for any individual preparer either.

Consequences beyond the penalty

The IRS lists other consequences for preparers who file credit returns incorrectly: suspension or expulsion from IRS e-file, referral to the Office of Professional Responsibility, injunctions barring return preparation, and criminal penalties for fraudulent returns. Clients face their own exposure: a ban on claiming the credit for two years where the error is due to reckless or intentional disregard of the rules, and ten years where it is due to fraud.

If your firm wants a structured grounding in the penalty regime around preparers more broadly, the Tax Practitioner Regulations, Penalties and Security course is built around exactly those three subjects.

Building Due Diligence Into the Firm, Not the Preparer

The firm rule and the exception point the same way: due diligence is a process control. Here is what that process looks like when it works.

Write the procedure down. One document, updated each season, stating which questions are asked for each benefit, where the answers are recorded, which documents are requested in which situations, and who reviews. This is the "reasonable and appropriate compliance procedures" the firm rule refers to.

Put the questions in the intake, not the review. The knowledge requirement needs contemporaneous documentation. Questions asked for the first time at review, after the client has left, produce notes dated weeks after the interview. Design the organizer and the intake call script so the questions are asked when the client is present. Our individual tax return checklist covers the document side of that intake.

Make the notes field mandatory. If your software has a due diligence notes area, require it for every return with an 8867 benefit. If it does not, a short structured note in the client file works: date, method (in person, phone, portal), question, answer, documents received.

Review the diligence, not just the return. The reviewer should open the notes before signing off on an 8867 return. A return can compute perfectly and still fail the knowledge requirement. Our post on AI-assisted tax return review covers using tools to flag inconsistencies, but a tool can only flag what was captured.

Train seasonal staff on it first. Seasonal and first-year preparers handle a large share of EIC and HOH returns, and they are the people least likely to recognize an inconsistency. The objective standard does not lower for them. See our post on hiring seasonal tax preparers for the staffing side.

Run a retention check. Pick a sample of last season's 8867 returns and try to produce all five record categories for each. The gaps you find are the gaps an examiner would find.

Answer the IRS letter properly if it comes. The IRS runs due diligence outreach and audits of preparers, using return data to select them. A firm with written procedures and complete files answers that contact from a position of strength. A firm without them is reconstructing notes after the fact, which is not contemporaneous documentation.

A One-Page Form 8867 Checklist

Use this as the firm-level control. Every item should be answerable "yes" for every return claiming an 8867 benefit.

• The preparer who determined eligibility is named on the form with their PTIN.
• Every benefit claimed (EIC, CTC/ACTC/ODC, AOTC, HOH) has its section of the form completed.
• The applicable worksheet or equivalent computation is in the file for each credit.
• Intake questions for each benefit were asked and answered, with date and method recorded.
• Any inconsistent, incorrect or incomplete information was followed up, and the follow-up is documented.
• For the CTC/ACTC, both the child's and the taxpayer's SSN requirements were checked.
• For the AOTC, amounts actually paid were verified beyond the 1098-T.
• For HOH, marital status at year-end and cost of keeping up the home were addressed.
• Prior-year disallowance was asked about, and Form 8862 attached where required.
• The client was told the IRS may ask for supporting documentation.
• Copies of documents relied on are in the file.
• All records are retained for three years from the latest applicable date.

Getting the Team Ready

Form 8867 rewards firms that treat due diligence as part of how returns get prepared, and punishes firms that treat it as a box at the end. The regulation already tells you what a defensible process looks like: written procedures, questions asked at intake, contemporaneous notes, documents in the file, three-year retention.

For preparers and firm leaders who want a broader footing in the rules governing paid preparers, the Tax Practitioner Regulations, Penalties and Security course pairs well with a season-start diligence briefing. For the underlying individual return work, browse the 1040 training courses, and see the tax prep FAQs for common questions.

Frequently Asked Questions

What is Form 8867 used for?

Form 8867 is the Paid Preparer's Due Diligence Checklist. A paid preparer completes it for any return or claim for refund that claims the earned income credit, the child tax credit, additional child tax credit or credit for other dependents, the American opportunity tax credit, or head of household filing status. It certifies that the preparer met the due diligence requirements under section 6695(g) and Treasury Regulations section 1.6695-2. For e-filed returns, the signing preparer files it with the return. The form itself is short. The real obligation is the interview, the follow-up questions and the documentation behind each answer.

Does Form 8867 apply to head of household status even if no credit is claimed?

Yes. Head of household filing status is one of the four benefits covered by the due diligence rules, and Form 8867 has a separate part for it. If a return claims HOH status and none of the credits, the preparer still completes the form, checking "N/A" on the credit-specific lines such as the worksheet and prior-year disallowance questions. The diligence questions focus on whether the client was unmarried or considered unmarried at year-end, paid more than half the cost of keeping up the home, and had a qualifying person living there for the required period.

How much is the Form 8867 due diligence penalty?

The penalty is set per failure and adjusted for inflation each year. The IRS states it is $650 per failure for returns and claims for refund filed in 2026, which makes $2,600 possible on a single return claiming all four benefits. Rev. Proc. 2025-32 sets the amount at $665 per failure for returns and claims filed in 2027, with no annual maximum. Because the penalty applies separately to each benefit on each return, a gap in a firm's procedures can multiply quickly across a client base. Check IRS.gov/Form8867 for the current figure.

How long must I keep Form 8867 records?

Three years from the latest of: the return's due date without extensions; the date it was e-filed, if you are a signing preparer filing electronically; the date it was presented for signature, if you are a signing preparer filing on paper; or the date you gave your portion to the signing preparer, if you are a nonsigning preparer. You must keep the form, the worksheets, copies of documents relied on, a record of how, when and from whom information was obtained, and the questions asked with the client's answers. Paper or electronic storage is acceptable.

Can a firm be penalized for an employee's due diligence failure?

Yes. The regulation allows a separate penalty against the employing firm when a member of principal management, or branch management, participated in or knew of the failure before filing; when the firm did not establish reasonable and appropriate compliance procedures; or when it disregarded those procedures through willfulness, recklessness or gross indifference. Individual preparers have an exception for isolated, inadvertent failures where normal office procedures are reasonably designed and routinely followed, but that exception is not available to a firm penalized under the firm rule. Written, enforced procedures are the firm's main protection.

Can I rely on what my client tells me?

Generally, yes. The rules do not require you to audit clients or demand documents for every claim. You may rely in good faith on client information unless you know, or have reason to know, it is incorrect. When information appears incorrect, inconsistent or incomplete to a reasonable, well-informed preparer, you must ask follow-up questions and record both the questions and the answers at the time. If you verified a fact in a prior year, such as a legal adoption, you generally need not re-verify it, provided your prior file shows the verification.