How Detailed Should Your Due Diligence Notes Be?

Gwennetta Wright
Jan 15
2 min read

By Dr. Gwennetta Wright, Tax Coach

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One of the biggest mistakes tax pros make with due diligence is assuming that a return is “simple.” Let me be clear, there is no such thing as a simple return when you are dealing with credits, dependents, Head of Household, Schedule C, or education credits.

Standard intake forms and Form 8867 are not enough. Your notes must show that you interviewed the client, asked follow-up questions based on their responses, and documented your process clearly.

Let’s look at a common situation — a mother claiming her dependent with only W2 income and qualifying for EITC and CTC. Many tax pros think this does not require much documentation. That assumption is exactly why so many fines happen.

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You must ask about the other parent and document why the father is not claiming the child. If there are multiple dependents with different fathers, explain each situation separately. If the children have a different last name than the taxpayer, you must note why.

If the mother is unmarried but living with a boyfriend, you need notes on his role, income, and whether he contributes to household support.

For Head of Household, if the taxpayer receives government assistance, you must document what other income or expenses show that she paid over 50 percent of household costs.

Now add Schedule C or education credits into the mix. You must ask specific business or education-related questions and document those too. A large business loss, for example, must be explained clearly, especially if it affects EITC eligibility.

The bottom line is this: Due diligence is not about checking boxes. It is about proving you did your job. The IRS wants to see your thought process, not just form responses. Every client file should reflect their unique situation.

Many tax pros are getting fined not because the return was wrong but because the documentation was weak.

Ask better questions. Write better notes. Protect yourself.

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