How to Fill Out IRS Form 8867 (w/Examples) + FAQs

Paid tax preparers must complete and submit IRS Form 8867, the Paid Preparer’s Due Diligence Checklist, with every federal return that claims the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Credit for Other Dependents (ODC), American Opportunity Tax Credit (AOTC), or Head of Household (HOH) filing status. Skipping the form, completing it carelessly, or signing it without the required interviews and records exposes you to a $635-per-failure penalty under IRC §6695(g) for tax year 2025, plus possible suspension from e-filing and an injunction under IRC §7407.

The stakes are real, and they grow each year. The IRS reports that improper EITC payments alone topped $21.9 billion in fiscal 2023, which is why the agency audits preparers, sends Letter 4858 and Letter 5025 due diligence warnings, and visits offices in person. This guide walks you through every line of Form 8867, the four Treas. Reg. §1.6695-2 due diligence requirements, real software workflow, and state-level preparer rules in California, New York, Oregon, and Maryland.

• 📋 How to complete every line of Form 8867 for EITC, CTC/ACTC/ODC, AOTC, and HOH
• 💰 The exact penalty math when one return claims multiple credits
• 🔍 How to satisfy the knowledge, computation, retention, and submission rules
• 🧾 What documents to keep for three years and where to store them
• ⚖️ State-level due diligence rules in CA, NY, OR, and MD that go beyond federal law

What Form 8867 Is and Why the IRS Requires It

Form 8867 is the federal checklist that every paid tax preparer must sign and file when a client claims one of six tax benefits. The form proves you completed the four due diligence steps Congress wrote into IRC §6695(g) and the Treasury Department expanded under Treas. Reg. §1.6695-2. The form became mandatory for EITC returns in 2011, expanded to CTC and AOTC in 2016, added ODC and HOH in 2018, and now covers the full slate of refundable and partially refundable credits the IRS flags as high-risk.

The IRS uses Form 8867 as both a behavioral nudge and an audit tool. By forcing you to check boxes confirming you asked the right questions and kept the right notes, the agency creates a paper trail it can pull during a Tax Return Preparer Compliance audit. The plain-English consequence is simple: a missing or sloppy 8867 lets the IRS assess penalties even when the underlying credit was correctly claimed.

A common misconception is that the form only matters when the credit turns out to be wrong. That is false. The penalty applies for failing the process, not for being wrong about the credit. A preparer who calculates a perfect EITC but forgets to file Form 8867 still owes the $635 penalty per credit, per return.

The real-world example most preparers remember is the Lemonade Stand Tax Service case in 2019, where a Louisiana preparer faced a permanent injunction after the Department of Justice showed she filed thousands of EITC returns without satisfying due diligence. The court barred her from preparing returns, a result far worse than any single penalty.

Who Must File Form 8867

Any paid tax return preparer who is the signing preparer on a federal return claiming EITC, CTC, ACTC, ODC, AOTC, or HOH must complete Form 8867. The rule is in Treas. Reg. §1.6695-2(a). Volunteer VITA preparers, family members preparing returns for free, and the taxpayer themselves are not subject to the rule.

The form must be filed with the return, not kept in the file. For paper returns, attach Form 8867 to Form 1040. For e-filed returns, the tax software transmits it as part of the electronic record. Failure to submit, even when the preparer completed the checklist internally, is treated the same as never doing it.

A common mistake is assuming a non-signing reviewer or “second look” preparer must complete a separate 8867. Only the signing preparer files the form. The firm should still document review steps internally, but the IRS only collects one Form 8867 per return.

When Form 8867 Is Triggered

Form 8867 is triggered the moment a return claims any of the six benefits, even if the credit produces a $0 result on the return. For example, an EITC claim that gets phased out to zero by investment income still requires Form 8867 because the credit was claimed. The trigger is the schedule, not the dollar outcome.

The form is also required when a return claims multiple covered credits. One return claiming EITC, CTC, and AOTC requires one Form 8867 with three boxes checked, but penalties can stack at $635 per credit if due diligence fails on each. A single return with four covered items can therefore expose you to a $2,540 penalty for one client.

A frequent misconception is that amended returns escape the rule. They do not. If the Form 1040-X adds or changes a covered credit, the preparer signing the amendment must complete a new Form 8867.

The Four Due Diligence Requirements Behind the Form

Form 8867 is the documentation layer of four substantive duties found in Treas. Reg. §1.6695-2(b). Each duty stands on its own. You can complete the form perfectly and still owe a penalty if you skipped one of these four steps. The IRS audit playbook in Publication 4687 walks through how examiners test each one.

The four duties are the knowledge requirement, the computation requirement, the record retention requirement, and the submission requirement. Together they form the backbone of every preparer due diligence audit.

The Knowledge Requirement

The knowledge requirement says you must know enough tax law to apply the credit, must ask the client enough questions to confirm eligibility, and must not ignore information that would make a reasonable preparer ask follow-ups. The standard comes from Treas. Reg. §1.6695-2(b)(3) and is judged against a reasonable, well-informed tax preparer.

The consequence of failing the knowledge rule is the $635 penalty, plus potential referral to the Office of Professional Responsibility under Circular 230. A preparer who accepts a client’s claim of three children at face value, when the client is 19 years old and lives with her parents, fails this rule.

A real-world mini-scenario: Maria, a CPA in Phoenix, sees her new client list one nephew as a qualifying child for EITC. The reasonable follow-up question is “Where did the nephew live for more than half the year?” Maria writes that question and the answer in her contemporaneous notes, which she stores in her practice management software. That note becomes the audit shield.

A common misconception is that a signed client questionnaire alone satisfies the knowledge rule. It does not. The IRS expects you to react to inconsistent or incomplete answers, not just collect them.

The Computation Requirement

The computation requirement, in Treas. Reg. §1.6695-2(b)(2), says you must complete the worksheets in the Form 1040 instructions and any IRS-published worksheet for each credit, or a software equivalent that produces the same numbers. Skipping the AOTC qualified-expense worksheet, for example, is a violation even if the final credit is correct.

The plain-English consequence is that the IRS treats a missing worksheet as proof you guessed. The penalty applies even if you guessed right.

A real-world example: David, an Enrolled Agent in Tampa, uses Drake Tax to prepare a return claiming the CTC. Drake auto-generates the credit worksheet, but David must store the PDF or rely on Drake’s archive feature. If the worksheet is gone, the audit fails.

A common misconception is that handwritten math on a notepad counts as a worksheet. Examiners want to see the IRS form layout or a software replication, not free-form arithmetic.

The Record Retention Requirement

Under Treas. Reg. §1.6695-2(b)(4), you must keep five categories of records for three years from the later of the return’s due date or the date you filed it. The five categories are a copy of Form 8867, the worksheets, a record of how and when you got the information used to complete them, a record of any inquiries you made and the responses, and a copy of any document the client gave you that you relied on.

The consequence of losing records is automatic. The IRS treats missing records as a failed audit and assesses the penalty. There is no “good faith” exception when the file is empty.

A real-world example: Priya, a tax preparer in Edison, NJ, stores her 8867 records in TaxDome with three-year retention rules. When the IRS sends a Letter 5025, she pulls the file in minutes. Priya keeps her practice and her PTIN.

A common misconception is that the three-year clock starts on April 15 every year. The clock starts on the later of the due date (with extensions) or the filing date, so an October 15 e-file pushes retention to October 15 three years later.

The Submission Requirement

The submission requirement is the simplest and the most commonly missed: you must actually file Form 8867 with the return. The rule is in Treas. Reg. §1.6695-2(b)(1). Internal completion is not enough.

The consequence is that a perfectly prepared return without an attached or transmitted 8867 fails due diligence outright. Software typically catches this, but paper filers and amended returns are where preparers slip.

A real-world example: Kenji, a sole practitioner in Honolulu, paper-files a 1040-X to add an AOTC. He attaches the new education records but forgets the Form 8867. The IRS later assesses the $635 penalty even though the credit itself was valid.

A common misconception is that “the software handles it.” Software handles it only when you check the credit boxes inside the 8867 input screen. If you skip that screen, the form transmits blank or not at all.

Line-by-Line Walkthrough of Form 8867

Form 8867 is two pages divided into five parts. Part I covers due diligence questions for all credits, Part II covers EITC-specific items, Part III covers CTC/ACTC/ODC, Part IV covers AOTC, and Part V covers HOH. Part VI is the eligibility certification and signature. The current revision is dated November 2025 for use on tax-year 2025 returns.

You complete only the parts that apply to the credits claimed. A return claiming only EITC and HOH skips Parts III and IV. The signature in Part VI applies to whichever parts you completed.

Part I — Due Diligence Questions for All Credits

Line 1 asks whether you interviewed the taxpayer, asked the questions on the form, and documented responses. The only acceptable answer is Yes. A No answer means you must not file the return claiming the credit.

Line 2 confirms you completed the worksheets. Line 3 confirms the information appeared complete and correct, and that you did not know or have reason to know it was wrong. Line 4 asks if you made and documented additional inquiries when information looked inconsistent. Line 5 confirms you did not rely on documents that appeared incomplete or inaccurate.

The consequence of marking No on any line is that the credit cannot be claimed. The consequence of falsely marking Yes is a §6695(g) penalty plus possible criminal referral under IRC §7206 for false statements.

Part II — EITC-Specific Questions

Part II asks whether you completed the EIC Worksheet, reviewed Schedule EIC, and examined whether the qualifying child meets the relationship, age, residency, and joint-return tests under IRC §32(c)(3). It also asks if the taxpayer’s earned income, AGI, and investment income are within limits — for tax year 2025, the investment income cap is $11,950.

If the taxpayer is self-employed, Line 9b asks if you made reasonable inquiries to verify the income and expenses. The IRS specifically targets Schedule C EITC returns because cash businesses can be inflated to maximize the credit. Asking for bank deposits, mileage logs, and supplier invoices is the practical answer.

A real-world mini-scenario: Aisha, an AFSP preparer in Atlanta, has a client with a $14,000 Schedule C from braiding hair at home. Aisha asks for an appointment book, Cash App receipts, and a list of supplies bought at Sally Beauty. Those notes go into her file. The IRS later audits the return and her notes carry the day.

Part III — CTC, ACTC, and ODC Questions

Part III asks if each child claimed is a qualifying child under IRC §24, if the child has the required Social Security Number issued before the return’s due date, and if the taxpayer’s earned income supports the Additional Child Tax Credit under §24(d). For ODC, the form asks whether the dependent has an SSN, ITIN, or ATIN.

For tax year 2025, the CTC remains at $2,000 per qualifying child under 17, and the refundable ACTC portion is up to $1,700, indexed under the Tax Cuts and Jobs Act framework. The ODC is a $500 nonrefundable credit for dependents who do not qualify for the CTC.

A common mistake is checking the CTC box for a 17-year-old. The age cap is under 17 at the end of the tax year, full stop. The 17th birthday on December 31 disqualifies the child for CTC but may still qualify for ODC.

Part IV — AOTC Questions

Part IV asks if the student meets the four AOTC tests under IRC §25A(b): enrolled at least half-time, in the first four years of post-secondary education, pursuing a degree, and free of any felony drug conviction. It also asks if you saw Form 1098-T or other records of qualified expenses.

The IRS singles out AOTC because of the 40% refundable portion — up to $1,000 — that fraudsters target. A 1098-T alone is not enough; you need records of what was actually paid for tuition, fees, and required books.

A real-world example: Tomás, a CPA in San Antonio, has a client who brings a 1098-T showing $6,000 in Box 1 and a scholarship of $5,000 in Box 5. Tomás backs out the scholarship and claims AOTC on the $1,000 net plus $500 in receipted textbooks. He keeps the bookstore receipts in his file.

Part V — Head of Household Questions

Part V asks if the taxpayer is unmarried or considered unmarried under IRC §2(b), paid more than half the cost of keeping up a home, and had a qualifying person live with them more than half the year. The “considered unmarried” rule allows a separated spouse to file HOH if the other spouse did not live in the home for the last six months.

The consequence of a wrong HOH claim is loss of the higher standard deduction (currently $22,500 for HOH in 2025) and recapture of any credits that were calculated using HOH status.

A common misconception is that paying child support qualifies as “keeping up a home.” It does not. The cost test looks at the home where the qualifying person lives, not payments to another household.

Part VI — Eligibility Certification and Signature

Part VI is the preparer’s signed certification that all four duties were satisfied. By signing, you affirm under penalty of perjury that the answers above are true. The PTIN, name, and EIN of the preparer’s firm appear here.

The consequence of a knowingly false certification is the §6695(g) penalty plus possible referral for criminal prosecution. The IRS treats a signed Part VI as a sworn statement.

Three Common Scenarios With Consequences

Preparer Action	What the IRS Does
Files 8867 but no contemporaneous notes for a Schedule C EITC client	Assesses $635 penalty per credit and opens TRPC audit
Claims CTC for a 17-year-old by mistake	Disallows credit, recaptures from taxpayer, penalizes preparer for knowledge failure
Files paper 1040-X adding AOTC, forgets to attach 8867	Assesses $635 penalty even though credit is valid

Software Workflow Step	What Happens If Skipped
Checking the credit boxes inside the 8867 input screen	Form transmits blank, treated as not filed
Saving the auto-generated EIC worksheet PDF to client folder	Three-year retention rule fails on audit
Documenting follow-up questions in case notes	Knowledge requirement fails even if return is correct

Audit Letter Received	Required Response
Letter 4858 (educational visit)	Provide one or two sample 8867 files for review within 30 days
Letter 5025 (correspondence audit)	Mail the full 8867 file and worksheets for a named client list
Letter 5138 (in-person visit)	Schedule office visit and produce records on demand

Penalty Math When Credits Stack

The penalty under IRC §6695(g) is per failure, per credit, per return. For tax year 2025 the amount is $635, indexed each year for inflation per the annual revenue procedure. A single return claiming EITC, CTC, AOTC, and HOH carries a maximum due diligence penalty of $2,540 for that one return.

Now multiply across a practice. A preparer who files 200 EITC returns without proper retention faces $127,000 in potential penalties before any other credit is counted. The math is why the IRS uses Form 8867 as a leverage point.

A real-world example: Brandon, a small-firm owner in Detroit, fails a TRPC audit on 50 returns claiming EITC and CTC. The IRS assesses $63,500 in penalties (50 returns × 2 credits × $635). Brandon’s e-file privileges are also suspended under Rev. Proc. 2007-40.

A common misconception is that the IRS picks one penalty per return. The statute is explicit: each requirement failure on each credit is its own penalty.

Software Workflow in the Big Four Tax Programs

Drake Tax, Lacerte, ProSeries, and UltraTax CS all build Form 8867 directly into the return workflow. The form is generated automatically once a covered credit is detected, but it requires you to confirm answers on a dedicated input screen. Skipping that screen causes the form to transmit blank.

Drake uses the EIC, CTC, 8863, and HOH screens, then ties them to the 8867 input screen. Lacerte uses Screen 75. ProSeries uses the Due Diligence section in the Information Worksheet. UltraTax CS uses the 8867 tab in the Credits folder.

A real-world example: Sandra, a firm owner in Chicago, sets a Lacerte diagnostic to block e-file when Screen 75 is incomplete. Her staff cannot transmit a return until each question is answered. Sandra has not had a due diligence finding in seven years.

A common misconception is that the software’s auto-fill is a substitute for human review. Auto-fill copies the answers from the credit screens, but the knowledge and reasonable inquiry answers must be confirmed by the preparer who interviewed the client.

State-Level Preparer Due Diligence Rules

Federal Form 8867 is only the floor. Several states layer additional registration, education, and due diligence rules on top of federal law. Ignoring state rules can cost you a state license even when your federal file is clean.

California (CTEC)

California requires non-CPA, non-EA, non-attorney preparers to register with the California Tax Education Council and complete 60 hours of qualifying education plus 20 hours annually. CTEC registration must be renewed by October 31 each year, and the bond requirement is $5,000.

The consequence of preparing California returns without CTEC registration is a $5,000 penalty per violation under California Business and Professions Code §22253. California also enforces the California Earned Income Tax Credit (CalEITC), which has its own due diligence overlay.

A real-world example: Linh, an unenrolled preparer in San Jose, lets her CTEC registration lapse mid-season. The Franchise Tax Board fines her $2,500 on first offense and $5,000 per subsequent client.

New York

New York requires commercial preparers who prepare more than 10 returns a year to register annually with the New York State Department of Taxation and Finance and pay a $100 fee. New York also imposes its own due diligence rule under Tax Law §32 and a state-specific Form TR-579 e-file authorization.

The consequence of skipping New York registration is a $500 first-offense penalty and $1,000 per return thereafter. New York audits preparers separately from the IRS and shares findings with the Office of Professional Responsibility.

Oregon

Oregon is the strictest state, requiring a Licensed Tax Preparer (LTP) or Licensed Tax Consultant (LTC) credential from the Oregon Board of Tax Practitioners before any paid return can be prepared. The LTP requires 80 hours of education and a state exam. The LTC requires LTP experience plus an additional exam.

The consequence of unlicensed preparation in Oregon is a Class C misdemeanor under ORS 673.990 and civil penalties up to $5,000 per offense.

Maryland

Maryland requires registration with the Maryland Board of Individual Tax Preparers and a passing score on the Maryland exam. Renewal is every two years with 16 hours of continuing education.

The consequence of unregistered Maryland practice is a $5,000 civil penalty per violation under Maryland Business Regulation Code §21-501. Maryland also enforces the Maryland Earned Income Credit, which mirrors the federal due diligence rule for state purposes.

Mistakes to Avoid

• Failing to attach Form 8867 to a paper-filed amended return. The 1040-X creates the same trigger as the original return, and a missing 8867 is a per-credit penalty.
• Relying on a signed client questionnaire without follow-up notes. The IRS expects you to react to inconsistent answers, not just collect them.
• Storing records on a single laptop without backup. A drive failure becomes a failed audit because you cannot produce records.
• Checking the CTC box for a 17-year-old. The age test is under 17 on December 31, and the credit shifts to ODC for older dependents.
• Treating Form 1098-T as proof of qualified AOTC expenses. You need actual payment records and bookstore receipts, not just the school form.
• Skipping the 8867 input screen in software because it auto-populates. Auto-fill does not record the knowledge or reasonable-inquiry answers, which require human input.
• Forgetting that retention runs three years from the later of due date or filing date. An October extension pushes retention forward by six months.
• Ignoring CTEC, NY, OR, or MD registration when preparing returns from out of state. Many states regulate based on the taxpayer’s residence, not the preparer’s office location.
• Falsely signing Part VI without completing Parts II–V. The signature is sworn under penalty of perjury and triggers criminal exposure under IRC §7206.
• Assuming the firm owner’s PTIN protects staff preparers. Every signing preparer needs their own PTIN and their own Form 8867 signature.

Do’s and Don’ts for Preparer Due Diligence

• Do keep a contemporaneous notes field in your practice management software because the IRS values date-stamped notes over reconstructed memory.
• Do require staff to complete the 8867 input screen before e-filing because software diagnostics are your strongest internal control.
• Do train every December on annual changes to credit thresholds because the EITC, CTC, and AOTC limits change yearly.
• Do keep client documents in a three-year retention folder because IRS audits often arrive 18 to 30 months after filing.
• Do run a self-audit on 10 random files each summer because catching errors before the IRS does avoids penalties entirely.
• Don’t accept a client’s verbal claim of residency without follow-up because the residency test is the most-audited EITC element.
• Don’t prepare Schedule C EITC returns without a written interview log because cash-business audits demand a paper trail.
• Don’t sign 8867 for another preparer’s work because liability follows the signature, not the preparation.
• Don’t destroy records at the three-year mark without confirming the filing date because early destruction violates §1.6695-2(b)(4).
• Don’t rely on memory for due diligence answers because the IRS standard is contemporaneous documentation, not reconstruction.

Pros and Cons of Strict Due Diligence Workflow

• Pro: Lower penalty exposure because complete files survive any TRPC audit.
• Pro: Higher client trust because thorough interviews catch errors before filing.
• Pro: Faster audit response because organized files turn a 30-day request into a 30-minute pull.
• Pro: Better staff training because written procedures create consistent quality across the firm.
• Pro: Insurance discounts because some E&O carriers reward documented due diligence systems.
• Con: Higher per-return labor cost because interviews and documentation add 15 to 30 minutes per return.
• Con: Software costs rise because retention features in tools like TaxDome or Canopy add subscription fees.
• Con: Client friction because some taxpayers resist questions about residency or self-employment income.
• Con: Training time investment because annual updates require staff hours that cannot be billed.
• Con: Storage burden because three-year retention across hundreds of clients consumes significant cloud space.

Recap of Key Rulings and Enforcement Actions

The Department of Justice tax injunction program under IRC §7407 has produced dozens of permanent injunctions against preparers who repeatedly violated due diligence rules. In United States v. Stinson, the Eleventh Circuit upheld a permanent injunction against a Florida preparer whose firm filed thousands of EITC returns without due diligence support.

The Tax Court has consistently upheld §6695(g) penalties even when the underlying credit was correct, reinforcing that the duty is procedural. In Chief Counsel Advice 201708045, the IRS confirmed that contemporaneous documentation is the lynchpin of the knowledge requirement.

The Office of Professional Responsibility has also disciplined CPAs and EAs under Circular 230 §10.51 for due diligence failures, including censure, suspension, and disbarment from practice before the IRS.

FAQs

Is Form 8867 required for every return I prepare?

No. It is required only when the return claims EITC, CTC, ACTC, ODC, AOTC, or Head of Household filing status. Returns without those items do not need Form 8867.

Do I need to file Form 8867 with an amended return?

Yes. If the Form 1040-X adds or changes a covered credit, the signing preparer must complete and attach a new Form 8867 with the amendment.

Can I use a client questionnaire instead of asking questions in person?

Yes, but a questionnaire alone is not enough. You must react to inconsistent or incomplete answers with documented follow-up questions to satisfy the knowledge requirement.

Does the §6695(g) penalty apply if the credit ends up being correct?

Yes. The penalty is for the process failure, not the credit error. A correctly claimed credit can still trigger penalties when documentation is missing.

How long must I keep Form 8867 records?

Yes, three years is the rule. The clock starts on the later of the return’s due date (with extensions) or the actual filing date, per Treas. Reg. §1.6695-2(b)(4).

Do volunteer VITA preparers need to file Form 8867?

No. Form 8867 applies only to paid preparers. Volunteer VITA and TCE preparers follow the IRS Publication 4012 quality review process instead.

Can two preparers in the same firm both sign Form 8867 for one return?

No. Only the signing preparer files Form 8867. Internal review by other staff is good practice but not separately reported on the form.

Is the $635 penalty the same for every credit?

Yes, for tax year 2025 the penalty is $635 per failure per credit per return, indexed annually for inflation under the IRS revenue procedure schedule.

Does Form 8867 satisfy state due diligence rules in California or New York?

No. State rules in CA, NY, OR, and MD layer registration, education, and additional documentation requirements on top of federal Form 8867 obligations.

Can the IRS suspend my e-file privileges for due diligence failures?

Yes. Under Rev. Proc. 2007-40, repeated due diligence violations are grounds for suspension or expulsion from the IRS e-file program.

Do I need to keep paper copies, or are digital files acceptable?

Yes, digital files are acceptable. The IRS accepts electronic records under Rev. Proc. 97-22 as long as they are accurate, accessible, and preserved for the full retention period.

Can I rely on my software’s auto-fill to complete Form 8867?

No. Auto-fill copies credit-screen answers, but the knowledge and reasonable-inquiry questions require human input from the preparer who interviewed the client.