To help low- to moderate-income taxpayers, Congress created several refundable tax credits, such as the child tax Credit, the American opportunity tax credit, and the earned income tax credit. These credits are refundable in that they not only reduce a taxpayer’s liability but also can create a refund to the taxpayer. The credits are a form of social assistance executed through the tax code.

Recognizing the potential abuse of these credits, Congress created a due diligence mechanism in Section 6695(g) to hold taxpayers and tax preparers who file fraudulent returns accountable. Having represented tax preparers in cases brought by the IRS, I’m familiar with the repercussions for those who fail to implement the proper mechanisms to meet the due diligence requirements of Section 6695(g). These requirements mandate that:

• All taxpayers claiming the EITC must provide documentation to support their eligibility, including but not limited to proof of earned income, proof of residency in an eligible area, and documentation related to qualifying children.
• Tax preparers must document any requests, questions, and additional inquiries regarding taxpayers who claim the credit.
• IRS worksheets must be completed by tax preparers and...

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