Tax Pros: Due Diligence Is Where Tax Law Meets Client Interviewing

11 minutes ago

3 min read

Knowing tax law is one thing.

Knowing what questions to ask your clients, when to ask additional questions, and what answers to document is another.

You need BOTH to understand your due diligence responsibilities.

One of the biggest misconceptions I see in the tax industry is that completing a client questionnaire or asking a few basic questions means you've satisfied your due diligence requirements.

But due diligence goes much deeper than that.

The real question is:

Are you just asking questions, or do you understand WHY you're asking them?

Understanding Tax Law Is the Foundation

Before you can determine whether a taxpayer qualifies for a credit or filing status, you must understand the eligibility requirements.

For example, when evaluating Head of Household filing status, you need to understand the rules concerning marital status, qualifying persons, household expenses, and other applicable requirements.

If you don't understand those rules, how will you know which questions to ask?

And more importantly, how will you recognize when a client's answers require additional investigation?

You cannot properly evaluate eligibility for a tax benefit if you don't understand the law governing that benefit.

Client Interviewing Is Where You Apply That Knowledge

Let's look at a common situation.

A client tells you:

"My children lived with me all year."

You document the response and move forward.

But during the interview, the client also mentions that one child stayed with a grandparent for several months.

Now you have additional information that needs to be evaluated.

Was the child's absence temporary under the applicable tax rules?

Where was the child's principal place of abode during the year?

Does the child meet the residency requirements for the credit being claimed?

These are the kinds of questions that require more than simply reading from a checklist.

Your knowledge of tax law should guide your follow-up questions.

Asking Questions Is Not the Same as Understanding the Answers

A client interview should never become an exercise in checking boxes.

You must understand what the taxpayer's answers mean in relation to the tax law.

For example:

A client says they are single. Does that automatically qualify them for Head of Household?
A client claims a dependent. Does that automatically make them eligible for the Child Tax Credit?
A client reports self-employment income. Have you evaluated the information for completeness and consistency?
A client says they paid household expenses. Have you determined whether those expenses satisfy the applicable filing status requirements?

Each situation requires an understanding of the facts and the relevant tax rules.

When information appears incorrect, inconsistent, or incomplete, or raises concerns about eligibility, paid preparers must make reasonable inquiries as required by the due diligence regulations.

Your Client Interview Notes Matter

Here's something I want tax professionals to remember.

Your notes should demonstrate more than the fact that you asked a question.

When additional inquiries are necessary, document:

What information raised the concern.
What follow-up questions you asked.
How the client responded.
What additional information you considered.
How the issue was resolved.

If the IRS examines your due diligence procedures, your records should help demonstrate how you evaluated the taxpayer's eligibility.

Remember, completing Form 8867 is only one part of the applicable paid preparer due diligence requirements.

Stop Memorizing Questions Without Understanding the Law

I've seen tax professionals invest in questionnaires, templates, and automated systems without fully understanding the tax laws those tools are designed to address.

Those resources can be valuable.

But they should support your knowledge—not replace it.

When you understand the law, you become better equipped to recognize red flags, ask meaningful questions, and document your conclusions.

A checklist tells you what to ask. Tax law helps you understand why you're asking.

And professional judgment helps you determine what to do with the answers.