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Tax Preparer Due Diligence Audits: Avoiding and Preparing for IRS Examinations, Acting on Letters 5025, 4858, 5364

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, June 9, 2022

Recorded event now available

or call 1-800-926-7926

This webinar will explain steps tax preparers can take to ensure they meet the IRS' due diligence requirements for claiming taxpayer credits and benefits, including the American Opportunity Tax Credit, Earned Income Credit, Child Tax Credit, and Head of Household Filing status. Our panel of IRS examination experts will discuss how and when to respond to IRS letters, completing Form 8867, Paid Preparer's Due Diligence Checklist, required documentation and retention, and how to handle an IRS due diligence examination.


Struggling with heavy workloads, client meetings, new legislation, and other demands of tax season, practitioners rely too heavily on their tax software to meet due diligence requirements. Even when the appropriate inquiries are made and documents reviewed, these actions may not be adequately preserved. Though most returns contain one or more of the benefits above, tax experts often do not seriously consider meeting the required compliance obligations until a Letter Number 5025, 4858, or 5364 is received from the IRS pointing out that there may be or is a problem.

Unfortunately, not meeting due diligence requirements can subject tax preparers to penalties and sanctions. As explained in Letter 5025, "You may be penalized if you don't prepare accurate returns and comply with due diligence requirements under Internal Revenue Code Sections 6695(g) and 1.6695-2(b) of the Income Tax Regulations. The penalty is $545 per failure for tax returns filed in 2022. Failure to exercise due diligence can also result in an audit, the suspension or termination of your e-filing privileges, or a referral to the IRS Criminal Investigation Division." Anyone preparing individual income tax returns needs to know how to satisfy the IRS' due diligence requirements.

Listen as our panel of seasoned IRS audit litigators explains steps tax practitioners should take to meet the due diligence requirements, including how to prepare for an IRS examination.



  1. Due diligence audits: background
  2. Due diligence compliance areas
    1. Earned Income Tax Credit (EITC)
    2. American Opportunity Tax Credit (AOTC)
    3. Child Tax Credit (CTC)
    4. Additional Child Tax Credit (ACTC)
    5. Credit for Other Dependents (ODC)
    6. Head of Household
  3. Due diligence requirements under IRC Sections 6695(g) and 1.6695-2(b)
  4. Form 8867, Paid Preparer's Due Diligence Checklist
  5. Documenting inquiries and record retention
  6. IRS Letters
    1. Letter 5025
    2. Letter 4858
    3. Letter 5364
  7. Penalties and sanctions
  8. Due diligence audit process
  9. IRS Publication 4687, Paid Preparer Due Diligence
  10. Best practices


The panel will review these and other critical issues:

  • What steps should a tax practitioner take when Letter 5025 or 4858 is received?
  • How does a tax professional document compliance with Section 6695(g) and the related regulations?
  • What specifically needs to be done to ensure the due diligence requirements for the earned income credit are met?
  • What should tax advisers do now to prepare for a potential due diligence examination?


Harris-Walton, Josie
Josie Harris-Walton, Esq.

Quintairos, Prieto, Wood & Boyer

Ms. Harris-Walton is an accomplished attorney with an illustrious reputation in tax law, Ms....  |  Read More

Tolbert, Melinda
Melinda Tolbert, EA

President and CEO
MJ Tolbert Tax Audit Group

Ms. Tolbert, who specializes in taxation, has been a successful tax practitioner for over sixteen years and recently...  |  Read More

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