The Internal Revenue Service is highlighting an online training module to help tax preparers avoid the recently increased penalty for failing to exercise due diligence when claiming the Earned Income Tax Credit.

The penalty is increasing from $100 to $500 as part of the free trade agreement with South Korea that was signed into law last month (see Trade Deals Include Bigger Penalties for Tax Preparers).

The $500 penalty can be assessed each time a preparer fails to exercise due diligence in determining the client’s eligibility for the refundable tax credit or the amount claimed. It applies to tax returns filed after Dec. 31, 2011.

To help tax preparers comply with the requirements and avoid the stiffer penalties, the IRS’s online EITC Due Diligence training module contains interactive scenarios walking preparers through examples of applying the due diligence requirements. After completing the module, there is a test.  If the preparer passes the test, he or she can print out a certificate of completion. In addition, enrolled agents can earn continuing professional education credit by completing the module and passing the test. A version in Spanish is also available.

A recent study of EITC use found that roughly half of all taxpayers with children have claimed the EITC at least once during the period from 1989 to 2006. Sixty-one percent of those claiming the EITC did so for only one or two years at a time, and only 20 percent claimed the credit for more than five consecutive years.

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