Blog · 15 October 2026

Paid Preparer Due Diligence and Form 8867: What the 2026 Pub 4687 and Draft Checklist Mean for US CPA Firms

By Keshav Bansal, CA

Paid preparer due diligence is one of the few areas where the IRS penalizes the preparer directly, return by return. The IRS has released Publication 4687, Paid Preparer Due Diligence (Rev. 9-2026), and a draft Form 8867 (Rev. November 2026) that adds new Social Security number questions. For US CPA firms that sign returns claiming the earned income tax credit, child-related credits, the American opportunity tax credit or head of household status, now is the time to update intake and review procedures before the 2027 filing season.

What Pub 4687 covers: four tax benefits, four requirements

Pub 4687 says that if you are paid to prepare a return or refund claim claiming any of these four benefits, you must meet four specific due diligence requirements, or face penalties under IRC §6695(g):

• Earned income tax credit (EITC)
• Child tax credit, additional child tax credit and credit for other dependents (CTC/ACTC/ODC)
• American opportunity tax credit (AOTC)
• Head of household (HOH) filing status

The four requirements, which come from Treas. Reg. §1.6695-2, are: know the facts (the knowledge requirement), compute the credits based on those facts using the IRS worksheets or your own, complete Form 8867, and keep records for three years. Our ghost preparers article mentioned Pub 4687 briefly; here is how the rules work in practice.

The knowledge requirement: reasonable inquiries, documented at the time

The regulation says a preparer “may not ignore the implications of information furnished” and must make reasonable inquiries when a reasonable, well-informed preparer would conclude the information appears incorrect, inconsistent or incomplete. The preparer must also contemporaneously document those inquiries and the client’s responses. Pub 4687 gives familiar fact patterns:

• A client wants to claim a niece and nephew. Ask who the parents are, where the children lived, and whether anyone else can claim them.
• A client with two qualifying children reports $20,000 of Schedule C income and no expenses. Ask whether there is a real business and whether the numbers are right.
• A 22-year-old wants to claim sons aged 10 and 11. Ask about the relationship.
• Two clients living together with their two children each want to file as HOH. Only one can pay more than half the household costs.

Pub 4687 also makes a point that is often misunderstood. Due diligence rules do not require you to review specific client documents, but if a client gives you documents and you rely on them, you must keep copies.

What changes on draft Form 8867 (Rev. November 2026)

Form 8867, Paid Preparer’s Due Diligence Checklist, must be filed with every e-filed return or claim that includes any of the four benefits, or provided with the paper return. Pub 4687 notes that the preparer must personally complete Part VI, the eligibility certification. Comparing the draft with the current revision (Rev. November 2024) shows two new questions:

• Question 10a: “Have you determined that the taxpayer’s social security number is eligible to claim the CTC/ACTC?”
• Question 13a: “Have you determined that the taxpayer’s social security number is eligible to claim the AOTC?”

Other questions are renumbered: the inconsistent-information block becomes 4a–4c and the prior-disallowance and Form 8862 questions become 7a–7b. The AOTC question matches IRS guidance (updated October 8, 2026) that, starting with tax year 2026, the taxpayer (or a spouse, on a joint return) and any dependent student must have an SSN that is valid for employment and issued by the return due date, including extensions. The draft is not for filing and may change. As of mid-October, the IRS had not posted draft instructions for the new revision.

The penalty: $650 now, $665 for returns filed in 2027

Section 6695(g) sets a $500 penalty for each failure, indexed for inflation under §6695(h). The IRS EITC Central consequences page and the Form 8867 instructions put it at $650 per failure for a return or claim filed in 2026, or up to $2,600 when a return claims all four benefits. Rev. Proc. 2025-32 raises the amount to $665 per failure for returns or claims filed in 2027, which covers most 2026 returns your firm will prepare next season. Four failures on one return would be $2,660 by the same math, and there is no annual cap.

The regulation’s examples confirm the penalty is counted per benefit: a preparer who fails due diligence for both the CTC and the AOTC on one return faces two penalties. The IRS also lists e-file suspension, OPR discipline and injunctions. Clients may have to repay credits with interest, file Form 8862, or face a two- or ten-year ban. For the accuracy-related preparer penalties that apply on top, see our S corporation reasonable compensation and preparer penalties article.

The firm-level rule and the office-procedures defense

Under Treas. Reg. §1.6695-2(c), a firm that employs a penalized preparer is also liable if, and only if:

• principal management participated in the failure or knew of it before filing;
• the firm failed to establish reasonable and appropriate due diligence procedures; or
• the firm disregarded those procedures through willfulness, recklessness or gross indifference.

Paragraph (d) gives the individual preparer a defense if their normal office procedures are reasonably designed and routinely followed and the failure was isolated and inadvertent. That defense is not available to a firm penalized under paragraph (c).

Checklist for the 2027 filing season

1. Update intake questionnaires. Add the taxpayer’s SSN eligibility questions for CTC/ACTC and AOTC so your answers to draft questions 10a and 13a are backed up.
2. Record follow-up questions when you ask them. Note the question, who answered, when, and how it affected the return. A note added after an IRS letter arrives is not contemporaneous.
3. Write down your procedures. Include reviewer sign-off on Form 8867 and the credit worksheets. That supports the paragraph (d) defense and the firm-level rule.
4. Calendar retention. Keep Form 8867, the worksheets, the record of how, when and from whom information was obtained, and copies of documents you relied on for three years from the latest of the due date, the e-file date, the date the return was presented for signature, or the date a nonsigning preparer handed off their work.
5. Assign responsibility for delegated work. A nonsigning preparer must give the signing preparer a completed Form 8867. Make sure outsourced or junior preparers deliver it with their workpapers.
6. Watch related draft forms. Refundable-credit returns may also be affected by draft Schedule 3-A. See our draft Schedule 3-A article.

Where Tax Brew fits

Due diligence depends on organized intake notes, worksheets and source documents. Tax Brew provides tax prep support, bookkeeping and cleanup for US CPA firms, and your signing preparers keep review and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: IRS Publication 4687 (Rev. 9-2026); draft Form 8867 (Rev. November 2026) and Form 8867 (Rev. November 2024); Instructions for Form 8867 (Rev. November 2025); IRS EITC Central, “Consequences of filing EITC returns incorrectly”; IRS, “New Social Security number requirements for education tax credits” (Oct. 8, 2026); IRC §6695(g)–(h) (Cornell LII); Treas. Reg. §1.6695-2 (eCFR); Rev. Proc. 2024-40; Rev. Proc. 2025-32. Draft forms may change. General information, not tax advice.