Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 55 - Personal Income Tax
Part 4 - Tax Preparer Penalties (280-RICR-20-55-4)
Section 280-RICR-20-55-4.7 - Due Diligence Regarding Earned Income Credit

Universal Citation: 280 RI Code of Rules 20 55 4.7

Current through September 18, 2024

A. It is the responsibility of the Tax Return Preparer to be knowledgeable about the law with regard to EIC, make reasonable inquiries of the taxpayer, and review supporting documentation provided by the taxpayer to validate the assertions made in preparing a Return that claims EIC.

B. The purposes for a Tax Return Preparer to question the taxpayer regarding EIC Due Diligence are:

1. To reasonably conclude that the taxpayer is reporting the proper amount of income that contributes to their total Earned Income and AGI;

2. To reasonably conclude that no other person is eligible to claim EIC or any other child-related benefits for the dependent(s) being claimed; and

3. To reasonably conclude that the dependent(s) being claimed is actually a qualifying dependent(s) for EIC purposes.

C. Due Diligence for a Tax Return Preparer includes, but is not limited to:

1. Have reasonable knowledge or verification of the identity of the taxpayer presenting the information (such as requesting a photo ID and social security card);

2. Applying a prudent man standard to the information provided by the taxpayer;

3. Evaluating whether that information is complete and gathering any missing facts;

4. Determining if the information is consistent and recognizing contradictory statements;

5. Conducting a thorough, in-depth interview with each taxpayer each year that the taxpayer claims the EIC;

6. Asking enough questions to reasonably know the taxpayer's eligibility for EIC and the amount of credit is correct and complete; and

7. Documenting in the file any questions asked and the taxpayer's responses.

D. To meet the federal and Rhode Island Due Diligence requirements regarding the EIC, a Tax Return Preparer shall:

1. Complete the Paid Preparer's Earned Income Credit Checklist (U.S. Form 8867 for the IRS). This form must be submitted to the IRS. The Division does not require the 8867 Form to be submitted along with every EIC claim; however, a Tax Return Preparer shall have a copy of this document in his or her records for every EIC claim;

2. Complete the EIC worksheet in the U.S. Form 1040 instructions, Publication 596, Earned Income Credit, for the IRS. A Tax Return Preparer shall have a copy of this document in his or her records for every EIC claim;

3. Keep copies of any and all documentation provided by the taxpayer that was relied upon by the Tax Return Preparer to complete U.S. Form 8867 or the EIC worksheet;

4. Keep a record of when and how (including from whom) the Tax Return Preparer received the information used to prepare the Return. This includes documentation of what questions were asked by the Tax Return Preparer and the taxpayer's responses;
a. If a reasonable and well informed Tax Return Preparer would conclude that any information used to determine if the taxpayer is eligible for EIC is incorrect, inconsistent, or incomplete, the Tax Return Preparer shall ask the taxpayer additional questions, as well as maintain additional records consistent with these additional questions.

b. These records may include, but are not limited to:
(1) Verification of dependents such as copies of birth certificates, school records, medical records, court placement records, guardianship records, social security cards;

(2) Verification of filing status such as marriage license, divorce settlement, bank statements, lease and/or mortgage agreement;

(3) Verification as to whether or not the taxpayer was required to file a U.S. Form 8862 (Information to Claim Earned Income Credit After Disallowance) with the IRS;

(4) For U.S. Schedule C Filers, verification of Earned Income such as a Form 1099 Misc., business license, client and/or customer lists, taxpayer prepared records or log book of income, bank statements, and any income documents other than W-2 forms;

(5) Verification of deductions such as a mileage deduction log, business receipts, rent receipts, and client prepared records or log book of business expenses, and bank statements; and

5. Copies of documents or records required by this section to be kept on file by a Tax Return Preparer shall be produced within seventy two (72) hours upon request by the Division for said documents or records. However, additional time may be granted based on the Tax Return Preparer's written request to the Tax Administrator.

Disclaimer: These regulations may not be the most recent version. Rhode Island may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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