Step-by-Step: How to Pass an IRS Due Diligence Audit

That IRS audit letter can make any tax pro nervous. But here’s the truth: if you prepare ahead of time and follow the rules, you can pass a due diligence audit with confidence. I’ve personally been through eight audits and I’ve reduced fines of $47,000 and $6,000 down to zero.

Here’s the step-by-step process I use to protect myself and my business.

---

Step 1: Know What Due Diligence Covers

Due diligence applies to:

• Earned Income Tax Credit (EITC)

• Child Tax Credit (CTC/ACTC)

• American Opportunity Tax Credit (AOTC)

• Head of Household (HOH)

If you prepare returns with these, you must follow the rules.

Step 2: Build Audit-Proof Files

The IRS wants proof, not just papers. Make sure documents line up: names, addresses, and dates must match the tax return.

Step 3: Use Form 8867 Every Time

The Paid Preparer’s Due Diligence Checklist proves you asked the right questions. If this form is missing or incomplete, you’re automatically out of compliance.

Step 4: Take Strong Interview Notes

The IRS is looking for proof that you interviewed your client. Write down details like:

• Who lived in the household

• Who provided support

• Where dependents lived and for how long

Step 5: Train Your Team

If you have employees, one person’s mistake can cost you thousands. Create standardized due diligence systems so everyone follows the same process.

---

Passing a due diligence audit isn’t about luck. It’s about preparation and consistency. With the right forms, checklists, and notes, you can face any IRS examiner with confidence.

👉 Don’t wait until you get a letter. Get my Due Diligence resources today and protect your business: Explore Due Diligence https://www.xpertbusinesssolution.com/due-diligence