Form 8867 is the Paid Preparer’s Due Diligence Checklist, the IRS form a paid tax preparer must complete whenever a client’s return claims the Earned Income Credit, the Child Tax Credit family of credits, the American Opportunity Tax Credit, or Head of Household filing status. Filing the checklist is only part of the job. The form sits on top of four separate due diligence duties, and missing any of them costs the preparer $650 per failure on returns filed in 2026.
When the Form Is Required
A paid preparer must complete Form 8867 any time the return claims one or more of the following:1Not a real tag — placeholder.
- The Earned Income Credit (EIC), with or without qualifying children.
- 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.2Internal Revenue Service. About Form 8867, Paid Preparers Due Diligence Checklist
Head of Household is its own trigger. A return claiming only HOH, with none of the credits above, still requires a completed Form 8867 and full compliance with the four due diligence requirements.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025)
Who Has to Complete It
The requirement reaches only paid preparers: tax professionals at firms, independent preparers, and enrolled agents who accepted compensation for the return.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025) Taxpayers preparing their own returns are not covered, and volunteer preparers at IRS-sponsored programs such as Volunteer Income Tax Assistance (VITA) are excluded because they work unpaid.4Internal Revenue Service. Tax Preparer Due Diligence Rules
The Four Due Diligence Duties
Treasury Regulation 1.6695-2 lays out four requirements a paid preparer has to satisfy on every covered return. The Form 8867 instructions reference each one directly.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025)
Complete Form 8867 Accurately
Fill in every applicable section. The form walks through eligibility questions for each credit and for HOH, and the preparer checks boxes confirming that the required verification steps were taken. When the return is e-filed, Form 8867 is transmitted with it; on a paper return, the preparer gives the completed form to the taxpayer to attach when mailing.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025)
Meet the Knowledge Requirement
A preparer cannot simply accept whatever a client says. If information looks incorrect, incomplete, or inconsistent, the preparer must ask follow-up questions and document both the questions and the answers.5Internal Revenue Service. Due Diligence Requirements for Knowledge and Recordkeeping The benchmark is what a reasonable, well-informed preparer would do. Reported income that could not plausibly support the household claimed, or a new set of dependents from a returning client, calls for inquiry into the living arrangement and any competing claim. Residency has to be confirmed each year even for long-standing clients, because living situations change.
Compute the Credits Correctly
Each credit must be calculated with the applicable IRS worksheet or an equivalent computation. The EIC and CTC/ACTC/ODC worksheets appear in the Form 1040 or Schedule 8812 instructions; the AOTC worksheet is in the Form 8863 instructions.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025) Software handles most of the arithmetic, but the preparer still owns the inputs and the sanity check on the outputs.
Retain Records for Three Years
Everything connected to the due diligence process has to be kept for at least three years, generally measured from the return’s due date or filing date, whichever is later. The retention file must include a copy of the completed Form 8867, the credit computation worksheets, copies of any client documents used to determine eligibility, and a record of how, when, and from whom the preparer obtained the information, including notes from the client interview.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025) Electronic storage is acceptable if the system can produce legible copies on demand.6Internal Revenue Service. Rev. Proc. 97-22
Extra Scrutiny for Self-Employed EIC Claims
Schedule C income used to qualify for the EIC is one of the IRS’s top audit triggers, and the due diligence bar rises accordingly. The preparer should ask pointed questions about the nature of the business, pricing, how income is tracked, and what expenses the client incurs.3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025) A client reporting service income with no plausible expenses should be asked how the work was performed without fuel, equipment, or supplies, and asked to produce records of gross receipts, expense summaries, bank statements, or a business license. If the numbers still do not add up, the return should not be filed with the credit.
What Counts as Supporting Documentation
The IRS does not require any specific document to prove eligibility. The Form 8867 instructions list examples of records that can support a qualifying child’s residency:3Internal Revenue Service. Instructions for Form 8867 (Rev. November 2025)
- School records or enrollment statements
- Medical records or health care provider statements
- Childcare provider records
- Landlord or property management statements
- Social service records
- Statements from a place of worship or tribal official
The list is illustrative, not exhaustive, and no single item is mandatory. What matters is that the preparer has something beyond the client’s word when the facts are ambiguous or the client is new. A file with no supporting documents at all is the profile the IRS looks for.
Penalties for the Preparer
The due diligence penalty under IRC Section 6695(g) applies per failure, per return.7Office of the Law Revision Counsel. 26 USC 6695 For returns filed in calendar year 2026, the amount is $650 for each failure, with no cap.8Internal Revenue Service. Rev. Proc. 2024-40 Because the penalty attaches to each covered benefit separately, a single return that claims the EIC, CTC, and AOTC can generate $1,950 in penalties if due diligence fails on all three.
The exposure is not only financial. Under 26 USC 7407, the Department of Justice can seek a federal court injunction barring a preparer from filing any future returns after repeated Section 6695 conduct.9Office of the Law Revision Counsel. 26 USC 7407 The IRS can also suspend or expel a preparer from the e-file program.
Reasonable Cause Defense
The penalty is not automatic. If the preparer shows the failure was due to reasonable cause and not willful neglect, the penalty does not apply, but the preparer carries the burden of proof.7Office of the Law Revision Counsel. 26 USC 6695 In practice, that means showing the preparer did what a competent professional would have done and was misled by client information no reasonable inquiry would have caught. A preparer who asked the right questions, reviewed documents, and kept complete interview notes has a real argument. A preparer with thin files does not. The retention rules are, at bottom, an evidence rule.
Consequences for the Taxpayer
Preparer penalties do not shift risk away from the client. If a credit is later denied, the taxpayer owes the credit back with interest, and the IRS can add a 20% accuracy-related penalty when the error results from negligence or disregard of the rules.10Office of the Law Revision Counsel. 26 U.S. Code 6662 A denial based on reckless or intentional disregard bars the taxpayer from claiming that credit for two years. If the IRS finds the claim was fraudulent, the ban runs ten years.11Internal Revenue Service. What to Do if We Deny Your Claim for a Credit For a household that relies on the EIC or CTC, a multi-year lockout can cost thousands in future benefits on returns that would otherwise qualify.