Stop Copying Due Diligence Notes: What the IRS Really Wants to See from Tax Professionals
- Gwennetta Wright
- 7 days ago
- 2 min read
Written by Dr. Gwennetta Wright
Yes, you need to ask every client the same standard questions. But if all your Due Diligence notes sound exactly the same, that’s a red flag — and not the kind the IRS ignores.
Copy-and-paste notes tell auditors one thing: you didn’t really interview your clients. And that can cost you. Let’s talk about what the IRS actually wants to see in your files and how to write notes that protect you.
1. General Questions ≠ Good Due Diligence
Basic questions like Who lived in the home?, Who paid the bills?, or How long did the child live with you? are a great start — but they’re only the beginning.
The IRS wants to see that you went beyond the checklist. They expect you to document not just the answers but also the thought process behind them.
Good Due Diligence isn’t about yes/no answers. It’s about showing that you understand the situation and verified it properly.
2. Each Client Has a Unique Story
No two households are the same, so your notes shouldn’t be either. Your follow-up questions should depend on:
📌 The answers your client gave
📌 The documents they provided
📌 What you listed on Form 8867 as “relied upon”
A single mother with two kids and a married client filing Head of Household will have completely different circumstances — and your notes should reflect that.
When an IRS reviewer reads your file, they should be able to see the client’s story through your notes.
3. Generic Notes Can Get You Fined
If every return says:
“Client stated child lived with them all year.”
“Client paid more than half of the expenses.”
The IRS will assume you’re copy-pasting. That suggests you didn’t perform real Due Diligence or make reasonable inquiries.
Generic notes may save time now, but they can cost you later in penalties and credibility.
4. Tailor Your Inquiries Like a Pro
Here’s how to level up your Due Diligence process:
🧠 Ask clarifying questions when something doesn’t sound right.
🧾 Take detailed notes that explain the full story, not just the facts.
🔍 Document your reasoning — how you verified information and why you reached your conclusion.
Example:
“Client separated from spouse in April 2024. Lease and utility bills are in her name only. Husband resides at a separate address. Children attend school near the client’s home.”
That’s the kind of note that shows the IRS you did your job with integrity.
The IRS doesn’t just want forms — they want proof that you asked the right questions for that individual client.
When your notes are specific, detailed, and personalized, you demonstrate professionalism, compliance, and care. And if an audit ever happens, your files will speak for themselves.
Tailor your questions. Write real notes. Protect your business.
