How to Make Sure Your Client Files Are Due Diligence Compliant After Tax Season

By Dr. Gwennetta Wright, Tax Coach

Once tax season ends, many tax professionals move straight into rest mode. And you deserve it. But before you completely step away, there is one important thing you should do review your client files to make sure they are due diligence compliant.

The IRS does not always review files during tax season. Many examinations happen months later. That is why post season file review is one of the smartest habits a tax professional can build.

Start by reviewing returns that included credits such as Earned Income Credit, Child Tax Credit, education credits, or Head of Household filing status. These are the areas the IRS looks at most during due diligence examinations.

Next, review your documentation. Your file should clearly show that you interviewed the client, asked qualifying questions, and documented their answers. Your notes should explain how the taxpayer qualified for the credits or filing status claimed on the return.

Then review your record retention. If you listed documents on Form 8867 Line 5, make sure those documents are actually in the file. If something is missing, now is the time to organize and correct your records while the information is still fresh.

Finally, check for inconsistencies. If something in the file does not make sense, add notes explaining the situation and how you resolved it.

Due diligence compliance is not something you think about only during tax season. It is something you maintain year round.

Taking the time to review your files now can protect your business later.

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