Individual Income Tax Credits and Due Diligence Requirements (Course Id 2774)

• Who is this course for?
  This course is designed for CPAs, IRS Enrolled Agents, and tax professionals who prepare individual tax returns and need to understand income tax credits and compliance with due diligence requirements.

• What is this course about or what problem does it solve?
  It explains how to determine eligibility and properly claim various individual income tax credits, and outlines due diligence responsibilities for tax preparers, including penalties for noncompliance.

• How can the knowledge from this course be used?
  Tax professionals can use it to accurately apply tax credits, meet IRS documentation requirements, and avoid penalties when preparing returns that claim refundable or nonrefundable credits.

• Why is this course important to a CPA, Accountant, or IRS Enrolled Agent?
  It is critical for ensuring compliance with IRS regulations and minimizing legal and financial risk when handling credits like the EIC, AOTC, and CTC, which are common on many client tax returns.

• When is this course relevant or timely?
  With a 2026 release and February 2026 revision, it reflects the latest tax laws and due diligence rules, making it essential for current tax seasons.

• How is a course like this consumed or used?
  Participants complete the self-study text and pass a 20-question final exam with at least 70% within one year of purchase to earn 4 CPE and IRS credits.

Governments have historically used a “carrot and stick” approach to encouraging individuals and businesses to behave in ways it deems desirable: tax credits for acting as requested and tax penalties for failing to behave as required. The U.S. government similarly promotes multiple forms of socially-beneficial actions—adopting children, becoming employed, providing funds for dependents’ education, and other socially-desirable activities—by offering incentives in the form of tax credits for engaging in them. This course examines the various tax credits that may be claimed by individual taxpayers and explains how each tax credit works, its eligibility requirements, limitations, phase-outs, etc. and, for refundable tax credits, their due diligence requirements.

Of the 161,336,659 federal income tax returns received in 2023 (2022 income) by the IRS, 61,831,870 taxpayers—about 38%—claimed one or more federal income tax credits amounting to a total of $154.8 billion.¹  For a tax preparer that prepares 150 to 200 tax returns in a season, the numbers indicate that he or she is likely to encounter between 55 and 75 returns claiming income tax credits that average approximately $2,500.

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1 https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-returns-complete-report-publication-1304-basic-tables-part-1.

NASBA QAS - Text - NASBA Registry - IRS Enrolled Agents - 2774

Course Learning Objectives

• Describe and identify the requirements for claiming the various income tax credits available to individual taxpayers;
• List the due diligence requirements a tax preparer must meet when preparing a tax return claiming the Earned Income Tax Credit (EIC), American Opportunity Tax Credit (AOTC), Child Tax Credit, Additional Child Tax Credit, and Other Dependent Credit (CTC, ACTC, ODC);
• Recognize the records a tax return preparer is required to keep to support a client’s claim for the EIC, AOTC, CTC, ACTC and ODC; and
• Identify the penalties that may be imposed on a tax preparer and his or her employer for failing to comply with due diligence requirements when preparing a client’s tax return claiming the EIC, AOTC, CTC, ACTC or ODC.

Chapter 1
Federal Income Tax Credits

• Compare federal income tax credits to federal income tax deductions;
• Explain the difference between refundable, nonrefundable tax credits and partially-refundable tax credits; and
• Identify the unused federal income tax credits that may be carried forward to later years.

Chapter 2
Non-Refundable Income Tax Credits

• Identify the requirements for claiming the Child Tax Credit;
• Recognize the applicability of the Lifetime Learning Tax Credit;
• Describe the Child And Dependent Care Tax Credit;
• Identify the taxpayer contributions that qualify for the Retirement Savings Contribution Credit; and
• Describe the Home Mortgage Tax Credit and the Foreign Income Tax Credit.

Chapter 3
Partially & Fully Refundable Income Tax Credits

• Identify the income tax credits that are refundable in whole or in part;
• Calculate and describe the eligibility requirements for claiming the Additional Child Tax Credit;
• Describe the American Opportunity Tax Credit;
• Calculate and describe the eligibility requirements for claiming the Adoption Tax Credit; and
• Identify the requirements that apply to claiming the Earned Income Tax Credit.

Chapter 4
Due Diligence Requirements

• List the due diligence requirements a tax preparer must meet when preparing a tax return claiming the Earned Income Tax Credit (EIC), American Opportunity Tax Credit (AOTC), Child Tax Credit, Additional Child Tax Credit, and Other Dependent Credit (CTC, ACTC, ODC);
• Recognize the records a tax return preparer is required to keep to support a client’s claim for the EIC, AOTC, CTC, ACTC and ODC;
• Identify the penalties that may be imposed on a tax preparer for failing to comply with due diligence requirements when preparing a client’s tax return claiming the EIC, AOTC, CTC, ACTC or ODC;
• Recognize the sanctions that may be imposed on an employer whose employee fails to comply with EIC, AOTC, CTC, ACTC and ODC due diligence requirements; and
• Identify the additional requirements imposed on taxpayers claiming the EIC, AOTC, CTC, ACTC and ODC following disallowance and the exceptions to those requirements.

Course Learning Objectives

Introduction to the Course

Chapter 1 – Federal Income Tax Credits

Chapter Learning Objectives

Introduction

Tax Credits vs. Tax Deductions

All Tax Credits are Equal But Some are More Equal

Nonrefundable Federal Income Tax Credits

Partially Refundable Federal Income Tax Credits

Fully-Refundable Federal Income Tax Credits

Tax Credit Carry Forward

Adoption Tax Credit may be Carried Forward

Foreign Income Tax Credit may be Carried Back and Carried Forward

Credits for Energy Efficiency

Summary

Chapter 1 Review

Chapter 2 – Non-Refundable Income Tax Credits

Chapter Learning Objectives

Introduction

Child Tax Credit

Child Tax Credit Phaseout and Nonrefundable Amounts

Social Security Number Requirement

Credit for Other Dependents

Limits on the CTC and ODC

Claiming CTC and ODC

Lifetime Learning Credit

Eligibility to Claim a Lifetime Learning Credit

OBBBA Narrows Needed AOTC & Lifetime Learning Credit Identification Documentation

Expenses Qualifying for a Lifetime Learning Credit

Qualified Education Expenses

Eligible Educational Institution

Double Benefit Prohibited

Adjustments to Qualified Education Expenses

Tax-Free Educational Assistance

Refunds

Expenses That Do Not Qualify

Eligible Students

Claiming a Dependent’s Expenses

Expenses Paid by the Dependent

Expenses Paid by Others

Tuition Reductions

Tuition Reductions for Undergraduate Level Education

Tuition Reductions for Graduate Level Education

Figuring the Lifetime Learning Credit

Maximum Lifetime Learning Credit Subject to Income Limits/Filing Status

Lifetime Learning Credit Recapture

Child and Dependent Care Credit

OBBBA Increases Child and Dependent Care Credit & Income Limit

Eligible Care Recipients Limited to Qualifying Persons

Eligible Taxpayers

Retirement Savings Contribution Credit

Saver’s Credit Applicable to Range of Retirement Contributions

Saver’s Credit Eligibility Based on Income and Filing Status

Savers Match

OBBBA Repeals Savers Match & Increases Contribution Considered for Credit

Mortgage Interest Credit

Mortgage Interest Credit Recapture

Foreign Income Tax Credit

Energy-Related Tax Credits

Energy-Efficient Home Improvement Credit

Tax Credits for Purchase of Electric Vehicles

Summary

Chapter 2 Review

Chapter 3 – Partially & Fully Refundable Income Tax Credits

Chapter Learning Objectives

Introduction

Partially Refundable Tax Credits

Additional Child Tax Credit

American Opportunity Tax Credit

Figuring the American Opportunity Tax Credit

Maximum American Opportunity Tax Credit Subject to Income Limits/Filing Status

Refundable Part of the American Opportunity Credit

Adoption Credit

Eligible Child

Qualified Adoption Expenses

Qualified Adoption Expenses not required for Special Needs Adoptions

The Benefit

Timing of the Credit/Exclusion

Benefit Phased-Out at Higher Taxpayer MAGI

Benefit may be Carried Over

Part of Benefit Refundable

Recognizing Indian Tribal Governments for Purposes of Determining Whether a Child Has Special Needs for Purposes of The Adoption Credit

Fully Refundable Tax Credits

Earned Income Tax Credit

Adjusted Gross Income Limits

Valid Social Security Number Required

Tax Filing Status – Separated Spouses

Citizenship or Residency

EIC Rules That Apply Only if the Taxpayer Has a Qualifying Child

EIC Rules That Apply if Taxpayer Does Not Have a Qualifying Child

Premium Tax Credit

Federal Poverty Level

Amount of the Credit

Benchmark Plan

Taxpayer’s Expected Contribution

Repayment of Excess Advance Premium Tax Credit

Summary

Chapter 3 Review

Chapter 4 – Due Diligence Requirements

Chapter Learning Objectives

Introduction

Due Diligence in Tax Preparation

Have Appropriate Knowledge

Compute the Credit(s)

Prepare and Submit Form 8867, Paid Preparer’s Due Diligence Checklist

Keep Appropriate Records

Due Diligence a Legal Mandate

Credits Involving a Significant Level of Errors

Tax Credit Overpayments

Education and Compliance Actions

Paid Preparer’s Due Diligence Checklist – IRS Form 8867

Earned Income Tax Credit

Most Common EIC Errors

Claiming a Non-qualifying Child for the EIC

Married Taxpayers not Filing a Joint Return

Special Rule for Married (but Separated) Taxpayers

Incorrectly Reporting Income

Education Tax Credits

Most Common AOTC Errors

Child Tax Credit

Most Common CTC/ACTC/ODC Errors

American Opportunity Credit

Most Common AOTC Errors

Consequences of Claim Denial

Taxpayer’s Cost of Claim Denial

Claiming a Tax Credit after Disallowance

Exceptions to Filing Form 8862

Preparer’s Cost of Claim Denial

Employer’s Cost of Claim Denial

Summary

Chapter 4 Review

Glossary