Understanding Form 8867, IRS Compliance Checks, and How Tax Preparer Reviews Can Slow Down Refunds
Many taxpayers assume that using a paid tax preparer makes the refund process faster and smoother. But for millions of filers who claim the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), American Opportunity Tax Credit (AOTC), or the Head of Household filing status, your tax pro is subject to strict IRS due diligence rules that can affect how quickly your return moves through processing.
If your preparer fails to follow those rules—or if the IRS is reviewing their compliance—your refund may be delayed even if your return is perfectly accurate.
This guide explains what the IRS’s due diligence rules are, why they matter, how Form 8867 fits into the process, and how these requirements can slow down your refund.
What Are the IRS Due Diligence Rules?
Tax preparers must follow federal due diligence requirements any time they help clients claim certain refundable credits or statuses. These rules are designed to prevent:
- Incorrect EITC claims
- Fraudulent dependent claims
- Improper Head of Household filings
- Inflated education credits
- Refund fraud involving refundable credits
To comply, paid preparers must complete Form 8867, ask specific questions, document answers, keep detailed records, and verify information that affects credit eligibility.
The IRS reviews preparer behavior each year, and if your preparer is under scrutiny, it can cascade into delays for their clients.
What Credits Require Due Diligence?
The IRS due diligence rules apply to returns claiming:
- Earned Income Tax Credit (EITC)
- Additional Child Tax Credit (ACTC)
- American Opportunity Tax Credit (AOTC)
- Head of Household (HoH) filing status
- Credit for Other Dependents (in some cases)
These are some of the most widely claimed credits among low- and moderate-income taxpayers, and they also represent the largest share of refundable credit fraud.
Form 8867: The Heart of IRS Due Diligence Compliance
Paid tax preparers must complete and attach Form 8867 (Paid Preparer’s Due Diligence Checklist) to your tax return.
Form 8867 requires your preparer to confirm they:
- Interviewed you thoroughly
- Asked follow-up questions
- Confirmed dependent and residency information
- Verified tax documents
- Reviewed income records
- Determined credit eligibility accurately
- Kept detailed client records for three years
If Form 8867 is incomplete or missing—even by accident—the IRS may flag the return, causing delays.
How Due Diligence Reviews Cause Refund Delays
If the IRS suspects a preparer is not following due diligence requirements, the agency may:
- Place holds on returns coming from that preparer
- Increase the scrutiny of EITC or ACTC claims
- Flag dependent or residency claims for review
- Delay the release of multiple clients’ refunds
This means your refund can be delayed even if your information is valid.
Common transcript codes associated with preparer-related delays:
- TC 570 – Refund on hold
- TC 971 – Notice issued regarding verification
- TC 810 – Refund freeze due to suspected identity or credit issues
- TC 420/424 – Return under examination or pending exam review
These codes often appear when IRS compliance units check returns filed through a preparer with questionable due diligence practices.
Why the IRS Monitors Preparer Behavior
The IRS performs due diligence reviews because:
- A large percentage of EITC errors come from preparer-filed returns
- Incorrect dependent claims can cost billions in improper payments
- Fraud rings often operate through fraudulent preparers
- Preparers may falsify income to increase refunds
- Some preparers do not document client eligibility as required
To protect the integrity of refundable credits—and the Treasury—the IRS uses enhanced screening tools, audits, and penalties for tax pros.
Penalties for Preparers Who Fail Due Diligence
Tax preparers who fail to comply with due diligence requirements face significant consequences:
- $600 penalty per return for missing or incorrect Form 8867
- Additional penalties for reckless or willful conduct
- Loss of e-file privileges
- Criminal investigation in severe cases
During these reviews, the IRS may slow or stop refunds connected to the preparer until compliance is verified.
What Taxpayers Should Do If Their Refund Is Delayed Due to Preparer Review
If you suspect your tax preparer is under IRS review—or your transcript suggests a due diligence delay—take these steps:
1. Check Your IRS Account Transcript
Look for codes like:
- TC 570
- TC 971
- TC 810
- TC 420
These indicate additional verification or holds.
2. Wait for IRS Notices
The IRS may send identity verification letters, dependent review letters, or income verification notices.
3. Contact Your Preparer
Ask if the IRS contacted them for documentation or review.
4. Respond immediately to any IRS requests
Delays worsen if you ignore notices.
5. Consider switching tax preparers for future years
If your preparer’s behavior causes repeated refund delays, it may be time to move to a more compliant professional.
How to Avoid Preparer-Related Refund Delays
Choose a tax preparer who:
- Is licensed (EA, CPA, or AFSP at minimum)
- Reviews eligibility thoroughly
- Provides a copy of Form 8867
- Asks detailed questions about your dependents
- Explains how income and residency rules work
- Does not claim credits you do not qualify for
- Refuses to base their fee on refund size
The more legitimate your preparer’s process is, the less likely you’ll face due diligence-related delays.
Final Takeaway
The IRS’s strict due diligence rules for tax preparers help reduce fraud and protect refundable credits like the EITC and ACTC. But if your preparer is under IRS scrutiny—or fails to meet these requirements—your refund may be delayed, even if your tax return is accurate.
Understanding Form 8867, the due diligence process, and related transcript codes can help you identify the cause of a delay and avoid problems during the 2026 tax season.
When you choose a preparer who follows the rules, you reduce the risk of refund holds, verification reviews, or fraud-related freezes.
