EITC Due Diligence Law and Regulation

Internal Revenue Code §6695 and related regulations set out the EITC Due Diligence requirements and the penalties for failure to comply with them.
Law IRC §6695(g) states: Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the credit allowable by section 32 shall pay a penalty of $500 for each such failure. IRC$§6695(h) allows a cost-of-living adjustment. The penalty for taxable years beginning in 2015 is $505.
  

Treasury Regulation Information

There are four due diligence requirements. Generally, if you prepare EITC claims, you must ask all the questions required on Form 8867, Paid Preparers' Earned Income Credit Checklist, as well as, ask additional questions when the information your client gives you seems incorrect, inconsistent or incomplete. Complete and submit the Form 8867 for all paper and electronic tax returns and for all other EITC claims. It is required for all EITC claims, the ones with a qualifying child and the ones with no qualifying child. Also, keep a copy of the completed form. Prepare and keep the worksheet showing how you computed the credit. The table below provides more information on your record-keeping requirements.
You could be penalized for each time you fail to meet all four due diligence requirements for each EITC claim.
You can find the tax preparer due diligence regulations, (Treas. Reg. §1.6695-2), on the Government Printing Office site.

The Four Due Diligence Requirements

• Complete Form 8867, Paid Preparer's Earned Income Credit Checklist, to make sure you consider all EITC eligibility criteria for each claim you prepare.
• Complete checklist based on information provided by your client(s).
• For EITC EITC returns or claims for refund filed electronically, submit Form 8867 to the IRS electronically with the return.
• For EITC returns or claims for refund not filed electronically, attach the completed form to any paper return you prepare and send to the IRS.
• For EITC returns or claims for refund you prepare but do not submit directly to the IRS, provide the completed Form 8867 to your client to send with the filed tax return or claim for refund. read more..