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Mastering Form 8867: A US Expat’s Guide to Maximize Tax Credits

Mastering Form 8867: A US Expat’s Guide to Maximize Tax Credits

One crucial document that requires attention when navigating the complexities of the US tax system is Form 8867.

In this guide, we'll walk you through the ins and outs of Form 8867, providing valuable insights, tips, and detailed information to help US expats maximize their eligibility for tax credits.

Understanding Form 8867

Form 8867 serves as the Paid Preparer's Due Diligence Checklist to ensure that tax return preparers gather and document the necessary information to support claims for certain tax credits. It helps prevent fraudulent claims and ensures compliance with IRS regulations.

As a US expat, familiarizing yourself with this form is essential to make the most of available tax credits.

Eligible Tax Credits

Form 8867 primarily focuses on three key tax credits:

1. Earned Income Credit (EIC)

The Earned Income Credit is designed to provide support to low-income individuals and families. It is a refundable credit, meaning it can reduce your tax liability and potentially result in a refund.

To qualify for the EIC, you must meet certain income limits and have earned income from employment or self-employment.

2. Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC)

The Child Tax Credit and Additional Child Tax Credit aim to reduce the tax burden for families with qualifying children. The CTC is a non-refundable credit, while the ACTC is refundable.

Both credits provide a significant benefit for eligible taxpayers, allowing them to claim a credit for each qualifying child under the age of 17.

3. American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit assists eligible students with educational expenses. It provides a credit for qualified tuition and related expenses incurred during the first four years of post-secondary education.

To qualify for the AOTC, the student must be pursuing a degree or recognized educational credential and meet certain income limits.

General Instructions for Form 8867

Before diving into the specific instructions for filling out Form 8867, it's important to understand the general guidelines that apply to the form.

These instructions will provide you with a solid foundation for accurately completing the form and fulfilling your due diligence requirements as a tax return preparer.

Importance of Due Diligence

Due diligence is a critical component of tax preparation, particularly when claiming refundable tax credits. It involves gathering accurate information, verifying eligibility, and maintaining meticulous records of your inquiries and the taxpayer's responses.

By following the due diligence requirements, you can confidently substantiate the credits claimed and minimize the risk of IRS penalties or audits.

Tax Return Preparer's Responsibility

As a tax return preparer, it is your responsibility to understand and comply with the due diligence requirements outlined by the IRS. This includes staying informed about the latest tax laws and regulations related to the EIC, CTC/ACTC, and AOTC, and effectively communicating with your clients to collect accurate information.

Record Retention

Apart from completing Form 8867, it is essential to maintain records related to due diligence for a minimum of three years from the tax return's due date (excluding extensions) or the filing date, whichever is later.

These records may include interview notes, supporting documents, and any other relevant information that demonstrates your compliance with the due diligence requirements.

Specific Instructions - Completing Form 8867

Form 8867 consists of six parts, each with specific lines that require information related to the taxpayer's eligibility for tax credits. Follow the detailed instructions below to accurately complete each part and line:

Part I: Identification

Line 1: Taxpayer Name and Identification Number

Enter the taxpayer's full name and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Ensure that the name and identification number match the information on the tax return.

Double-check for any errors or discrepancies.

Part II: Credit(s) Being Claimed

Line 2: Child Tax Credit (CTC)

Indicate whether the taxpayer is claiming the Child Tax Credit. If so, enter the total amount of the credit claimed.

NOTE! The Child Tax Credit is available for qualifying children under the age of 17.

Line 3: Child Tax Credit (CTC) Received in Advance

If the taxpayer received advance payments of the Child Tax Credit through programs like the Advance Child Tax Credit, enter the amount received.

This helps reconcile the advance payments with the actual credit claimed on the tax return. Refer to any relevant tax statements or forms received.

Line 4: Earned Income Credit (EIC)

Specify if the taxpayer is claiming the Earned Income Credit. If yes, provide the necessary information, including the taxpayer's earned income, filing status, and the number of qualifying children.

The Earned Income Credit is designed to assist low to moderate-income individuals and families.

Line 5: Additional Child Tax Credit (ACTC)

Indicate if the taxpayer is claiming the Additional Child Tax Credit. If applicable, enter the number of qualifying children, any unused Child Tax Credit, and the taxpayer's earned income.

The Additional Child Tax Credit may be available if the Child Tax Credit exceeds the taxpayer's tax liability.

Line 6: American Opportunity Tax Credit (AOTC)

If the taxpayer is claiming the American Opportunity Tax Credit, provide details such as the name of the educational institution, the student's enrollment status, and the eligible expenses paid.

The AOTC provides a tax credit for qualified education expenses incurred during the first four years of post-secondary education.

Part III: Preparer's Knowledge and Due Diligence

Line 7: Preparer's Knowledge Requirement

To meet the knowledge requirement, indicate whether the preparer used information that was correct or had reason to know was correct when determining the taxpayer's eligibility for the claimed credits.

This includes staying up-to-date with tax laws and regulations related to the claimed credits.

Line 8: Preparer's Due Diligence

Document the due diligence performed by the preparer to establish the taxpayer's eligibility for the claimed credits. This involves asking relevant questions and documenting the taxpayer's responses.

Ensure that all inquiries are thorough and comprehensive to determine eligibility accurately.

Part IV: Preparer's Declaration and Signature

Line 9: Preparer's Name

Enter the name of the tax return preparer who completed Form 8867. Provide your full legal name as the preparer.

Line 10: Preparer's Tax Identification Number (PTIN)

Provide the Preparer Tax Identification Number (PTIN) assigned to the tax return preparer. This unique identifier helps the IRS track and regulate tax return preparers.

Line 11: Date

Enter the date when Form 8867 was completed. This is the date when all the required information and responses have been recorded accurately.

Part V: Explanation of Any Questions Not Answered

If any questions on Form 8867 were not answered, provide an explanation for the missing information. It is important to address any omissions or unanswered questions to ensure the form is complete.

Part VI: Consent and Declaration of Taxpayer

The taxpayer must review and sign Part VI of Form 8867. This section confirms that the taxpayer has reviewed the completed form and agrees with the information provided. The taxpayer must sign and date the form to certify its accuracy.

Line 12: Taxpayer's Signature

The taxpayer must sign their name to acknowledge that they have reviewed the completed Form 8867 and that the information provided is accurate to the best of their knowledge.

Line 13: Date

Enter the date when the taxpayer signed the form. This date should be the same as or after the completion date entered on Line 11.


Form 8867 preview



Additional Tips and Reminders

  1. Accuracy: Double-check all the information entered on Form 8867 to ensure its accuracy. Mistakes or incorrect information can lead to delays in processing the tax return or potential issues with tax credits.
  2. Documentation: Keep all supporting documents and records related to the claimed credits. Retain these records for at least three years from the due date of the tax return or the filing date, whichever is later.
  3. Professional Assistance: If you have any doubts or questions while completing Form 8867, consider seeking assistance from a qualified tax pro. They can provide guidance and ensure that you meet the necessary requirements and properly claim the available tax credits.

Remember - completing Form 8867 accurately and providing the required information is crucial to determine the taxpayer's eligibility for tax credits and to comply with the IRS regulations.

By carefully following the specific instructions for each part and line, you can ensure that your tax return is prepared correctly and minimize the risk of errors or audits.

Ines Zemelman, EA
Founder of TFX