Tax Pros: Whether You've Been Preparing Taxes for 2 Years or 20 Years, You Still Need to Understand Due Diligence!

2 days ago

3 min read

I don't care if you've been preparing taxes for 2 years or 20 years.

You still need to understand due diligence!

One of the biggest mistakes tax professionals can make is assuming that years of experience automatically mean they understand their IRS due diligence responsibilities.

Experience is valuable. But experience alone does not guarantee compliance.

And when it comes to IRS due diligence, what you don't know can become expensive.

Experience Does Not Replace Education

I've been in the tax industry for more than two decades, and one thing I've learned is that tax professionals must continue educating themselves.

Tax laws change. IRS procedures evolve. Client situations become more complicated.

Yet some preparers continue using the same interview questions, documentation practices, and preparation methods they've used for years.

Just because you've always done something a certain way doesn't mean you're doing it correctly.

Your years in business don't exempt you from IRS requirements.

Do You Really Understand the Four Due Diligence Requirements?

Under IRC §6695(g) and the applicable Treasury Regulations, paid preparers must satisfy specific due diligence requirements when preparing returns involving certain tax benefits.

These requirements generally include:

1. Completing Form 8867

You must properly complete and submit the Paid Preparer's Due Diligence Checklist when required.

2. Computing Applicable Credits

You must complete the required computations using the appropriate worksheets or equivalent records.

3. Meeting the Knowledge Requirement

You cannot ignore information that appears incorrect, inconsistent, or incomplete.

You must make reasonable inquiries when necessary and document the responses.

4. Maintaining Required Records

You must retain applicable due diligence records, including required forms, computations, and documentation of additional inquiries.

These responsibilities apply whether you're preparing your first tax return or your ten-thousandth.

Knowing How to Prepare a Return Is Not the Same as Understanding Due Diligence

You may know how to enter income.

You may know how to claim dependents.

You may know how to calculate tax credits.

But do you understand the legal requirements behind those entries?

For example, when a taxpayer claims Head of Household filing status, do you understand the household cost requirements?

When a grandparent claims a grandchild, do you know which qualifying child rules apply?

When a taxpayer reports self-employment income that affects EITC eligibility, do you recognize information that may require additional questions?

Due diligence requires more than knowing how to operate tax software.

It requires understanding tax law and applying that knowledge to each client's circumstances.

Don't Let Experience Create a False Sense of Security

Some tax professionals believe that because they've never received an IRS due diligence examination letter, their procedures must be correct.

That assumption can be dangerous.

Not being selected for an examination does not prove that every return you've prepared meets the requirements.

And successfully completing a previous examination does not guarantee you won't be selected again.

Your responsibility is to maintain compliant procedures regardless of whether the IRS examines your files.

Invest in Your Knowledge Before You Need It

I have personally experienced eight IRS due diligence examinations involving my tax preparation business and preparers.

Those examinations ultimately resulted in zero final penalties.

But that outcome required preparation, knowledge, documentation, and an understanding of what the IRS was reviewing.

I continue to educate myself because I understand that experience doesn't eliminate the need to keep learning.

And that's something I want every tax professional to understand.

You should never become so comfortable with your experience that you stop investing in your education.

Final Thoughts

Whether you're a new preparer or a seasoned tax professional, your due diligence responsibilities remain important.

Don't rely solely on your experience.

Don't assume your software handles everything.

Don't wait until an IRS examination letter arrives to learn what you should have been doing.

Understand the law.

Ask the right questions.

Document your work.

Continue your education.

Because the IRS doesn't measure due diligence compliance by how many years you've been preparing taxes. It evaluates whether you've met the applicable requirements.