Why Skipping One Required Form Can Directly Reduce Your Refund

If you or your tax preparer claims certain refundable credits—such as the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), or American Opportunity Credit—the IRS requires that Form 8867, the Paid Preparer’s Due Diligence Checklist, be completed and attached to the return.

And here’s the painful part:

If Form 8867 is missing or incomplete, the IRS assesses a $500 penalty per credit — which can be taken out of the taxpayer’s refund.

This is one of the most misunderstood refund-reduction triggers, and it affects both professional preparers and individuals filing their own taxes.

What Is Form 8867?

Form 8867 is used to verify that the preparer (or self-preparer) has properly documented eligibility for:

• Earned Income Tax Credit (EITC)
• Child Tax Credit (CTC)
• Additional Child Tax Credit (ACTC)
• American Opportunity Tax Credit (AOTC)
• Head of Household filing status

The IRS uses the form to ensure that:

• The taxpayer actually qualifies
• Income and dependents are correctly reported
• The credit is not being claimed fraudulently
• Documentation exists for eligibility

The Refund-Reducing Penalty: $500 Per Credit

Many taxpayers assume the penalty is only charged to the preparer.
Not always.

If the IRS determines that due diligence was not followed, the penalty can:

• Be charged to the tax preparer
• Reduce the taxpayer’s refund
• Trigger a manual review
• Cause processing delays

Example:

A taxpayer claims EITC and ACTC.
Form 8867 is missing.

Penalty:
$500 per credit = $1,000 total
Your refund is reduced accordingly.

How the IRS Enforces the Penalty

If Form 8867 is missing or incomplete, expect:

• A TC 570 hold
• A potential CP notice requesting justification
• A backup denial of the credit(s)
• Refund delay of 4–16 weeks
• Automatic $500 penalty
• Possible TC 290 tax adjustment

This results in a smaller refund — or no refund at all.

When Self-Preparers Need Form 8867

Even if you prepare your own taxes through software:

If you claim EITC or ACTC, the system may require Form 8867 responses.

But some free software programs:

• Do not alert you properly
• Do not generate the form
• Allow submission without it
• Do not explain the penalty

Which is why so many refunds get quietly reduced after filing.

Who Gets Flagged the Most

High-risk return categories include:

• Self-employment income
• Gig work reporting
• Claims of multiple dependents
• Shared custody situations
• Switching filing statuses
• Newly claimed children
• Head of Household claims without supporting proof

These returns are often auto-screened for due diligence compliance.

How to Avoid the 8867 Penalty

To prevent refund reduction:

• Ensure your preparer completes Form 8867
• Provide documentation of dependents
• Keep records of childcare or support claims
• Confirm eligibility for EITC
• Verify income accuracy
• Understand filing status rules

If filing yourself, do not skip eligibility questions.

Warning: Ignoring 8867 Issues Can Lead to Future Bans

If the IRS believes credits were claimed improperly, they may:

• Deny credits for future years
• Require additional verification
• Demand proof before approval
• Place a “recertification requirement” on your SSN

This is especially common with EITC cases.

If You Already Filed and Forgot Form 8867

Do this immediately:

1. Check your transcript for:
   • TC 570
   • TC 971 Notice Code
   • TC 290
2. Be prepared for an IRS request for documentation
3. Respond to notices timely
4. Provide proof of eligibility

In some cases, filing a corrected return or amendment may be required.

Failing to include Form 8867 isn’t a minor oversight — it can cost you real money.

• Penalty: $500 per credit
• Refund reduced or withheld
• Possible future credit denial
• Processing delays triggered

If you or your preparer claim refundable credits:

Form 8867 is not optional — it is essential.

Your refund depends on it.