Tax Resources
 

Penalty for Filing False EIC

Taxpayers like to claim EIC or earned income tax credit if they can because EIC is a refundable tax credit. However, there is a penalty for tax preparers for filing false EIC claim so taxpreparers should be familiar with the EIC filing requirements and rules. Below are answers about what penalty is there for filing false EIC.

Is there a penalty for filing false EIC for tax preparers?

Yes. Tax preparers are subject to a penalty for filing false EIC if they do not exercise due diligence in determining their eligibility for filing EIC claim.

What is the penalty for filing false EIC?

For filing false earned income credit, the penalty is $100 for each failure to meet the EIC filing qualification requirements.

What is the obligation of the tax preparer for filing EIC?

Due diligence requires tax preparer to:

  • complete the EIC qualification checklist for the IRS tax form 8867 called the Paid Preparer's Earned Income Credit Checklist
  • request more information and ask more questions until he or she is satisfied with the information if there is a suspicion that the information is:
    • incorrect
    • inconsistent
    • incomplete
Is there a way out of the IRS penalty for filing false EIC?

If there is an error in the EIC claim but the tax preparer can demonstrate that considering all facts and circumstances, the normal office procedures are reasonably designed and routinely followed to ensure compliance with the due diligence requirements then the penalty for filing false EIC may be avoided.

What happens if I made an error claiming earned income credit last year?

For any year after 1996, according to the IRS, if the earned income credit was denied or reduced for any reason other than mathematical or clerical error, a completed IRS tax form 8862, Informaion to Claim Earned Income Credit After Disallowance must be attached to the next income tax return on which the earned income credit (EIC) is claimed.

What if the EIC claim error was intentional or reckless?

If the earned income tax credit was denied for any year after 1996 and the IRS determines that the EIC error was due to reckless or intentional disregard of the EIC tax rules and regulations, then the earned income tax credit cannot be claimed for the next two years.

What is the EIC claim error was due to fraud?

If the IRS determines that the EIC claim error was due to fraud, then the earned income tax credit cannot be claimed for the next ten years.