EIC due diligence for paid preparers

The earned income credit (EIC) is a refundable credit for workers with earned income below a limit, and it is one of the items the IRS requires paid preparers to check with extra care. The decision rule: a client’s right to the credit is decided by the rules in Publication 596, and the preparer’s own exposure is decided by the due diligence rules, which require a Form 8867, a documented interview, the computation, and retained records. This guide uses tax year 2025, with the IRS sources Publication 596 (2025) and the Instructions for Form 8867 (revised 11/2025). It is exam preparation, not tax advice.

Layer 1: does the client qualify?

Publication 596 lists the rules every claimant must meet. The ones that decide most exam scenarios:

A valid Social Security number for the taxpayer (and spouse on a joint return), issued by the due date of the return including extensions. An ITIN does not qualify.
A U.S. citizen or resident alien all year. A nonresident alien for part of the year can claim only if filing jointly under the election to be treated as a resident.
No Form 2555 (foreign earned income exclusion).
Investment income of $11,950 or less for 2025.
Earned income (wages, tips, net earnings from self-employment and similar items).
Not the dependent of another person and not the qualifying child of another person.
Earned income and adjusted gross income both below the 2025 limit for the number of qualifying children:

Qualifying children with valid SSNs	Income limit, other filers	Joint
None	$19,104	$26,214
One	$50,434	$57,554
Two	$57,310	$64,430
Three or more	$61,555	$68,675

The maximum 2025 credit shown in the Publication 596 tables is $649 with no child, $4,328 with one, $7,152 with two and $8,046 with three or more. A claimant with no child must be at least 25 and under 65 at the end of 2025 and must have lived in the United States more than half the year.

A qualifying child passes four tests: relationship, age (under 19, or under 24 and a full-time student, or permanently and totally disabled, and younger than the taxpayer or spouse), residency and joint return. If more than one person could claim the child, the tiebreaker rules decide. A married person filing separately can still claim the EIC if there is a qualifying child who lived with them more than half the year and the spouses lived apart for the last six months (or are legally separated and not sharing a home at year end), so filing status is part of the check.

Layer 2: what the preparer must do

Instructions for Form 8867 say that a paid preparer of a return claiming the EIC, the CTC/ACTC/ODC, the AOTC or head of household status must complete Form 8867 and meet the other due diligence requirements. The requirements, as the instructions summarise them:

Knowledge. Interview the taxpayer, ask adequate questions, record the questions and answers when they are asked (on the return or in notes), and review enough information to decide eligibility and figure the credit. The preparer must ask further questions when a reasonable and well-informed preparer would see that the information looks incorrect, inconsistent or incomplete, and must document those inquiries and the answers.
Form 8867. Complete it truthfully and accurately, with the actions it describes for each credit claimed. The applicable worksheet, or the preparer’s own, is used to compute the credit and is kept in the file.
Submit. File Form 8867 with the return or amended return. A signing preparer who e-files sends it electronically with the return. A nonsigning preparer gives it to the signing preparer. Several preparers can mean several Forms 8867 for one return.
Keep records. Keep five records for 3 years from the latest of the return’s due date (without extensions), the date filed, the date presented to the taxpayer for signature, or the date a nonsigning preparer handed over their part: the Form 8867, the worksheets, copies of documents the taxpayer provided, a record of how, when and from whom the information was obtained, and a record of any other information relied on, including questions and answers.

The knowledge requirement is about asking, not just recording: answers that conflict with other information in the file trigger more questions.

Layer 3: the penalty

A failure to meet these requirements is penalised under section 6695(g) and Treasury Regulations section 1.6695-2 (the instructions cite both). The amount is per failure and per credit and is adjusted for inflation each year. For a return filed in 2026 the Form 8867 instructions give $650 for each of the credits and head of household status, so a return claiming all four with every requirement missed could cost $2,600. See preparer penalties for the other section 6694 and 6695 penalties and Circular 230 basics for the professional standards behind it.

A short worked example

A client tells a preparer she earned $14,000 from self-employment with no expenses, and she claims her nephew lived with her all year. Her prior-year return, which she brought, shows a different address for her. The numbers pass the 2025 income test, but the combination looks incomplete, so the preparer must ask more: why there were no expenses, where the nephew lived, who else might claim him, and what supports the residence. Each question and answer goes into the file. If the answers do not hold up, the preparer must not claim the credit or the child. If they do hold up, Form 8867 is completed, filed with the return and kept for 3 years.

Which exams test this

Exam	How the topic appears	Where on this site
SEE Part 1	Domain 3, Deductions and Credits (17 scored questions), credits: earned income tax credit, including the paid preparer’s checklist, eligibility and disallowance	Deductions and credits explained
SEE Part 3	Domain 1, Practices and Procedures (26): due diligence requirements, and the penalty for failing preparer due diligence	Practices and procedures explained

Part 1 also lists tax payments and refundable credits among the data to collect in Domain 1. The Part 2 outline lists no EIC objective.

How exam questions are built

Whose rule is it? The question asks about the client’s eligibility (Pub. 596) or the preparer’s duty (Form 8867). The incomplete, inconsistent word usually signals the duty to inquire.
Retention. The answer is 3 years, counted from the latest of the listed dates, not from the filing date alone.
Scope. Form 8867 also covers the child tax credit family, the American opportunity credit and head of household status. An option that limits it to the EIC is wrong.
SSN versus ITIN. An ITIN does not qualify the taxpayer for the EIC.
Penalty. It is per failure, and each credit is a separate failure.

Practice questions

Question 1. A paid preparer prepares a 2025 return claiming the earned income credit and head of household status. How long must the preparer keep the Form 8867 and the supporting records?

A. 1 year from the date the return was filed
B. 3 years from the latest of the dates the instructions list
C. 6 years from the filing date
D. Only until the refund is issued

Show answer

Answer: B

Under the Form 8867 instructions the records must be kept for 3 years from the latest of the due date of the return (not counting extensions), the date filed, the date presented to the taxpayer for signature, or the date a nonsigning preparer gave the signing preparer their part. One year is too short, and the period does not depend on the amount of the credit.

Question 2. A client claims the earned income credit for a child, but the birth dates she gives suggest the child was born when she was 11 years old. Which action best meets the preparer's due diligence duty?

A. Ask further questions, document the answers and claim the credit only if they resolve the inconsistency
B. Prepare the return as given because the client signed it
C. Omit the credit without telling the client why
D. Complete Form 8867 and keep it, with no further questions