Overview

Publication 4687 can provide valuable assistance in completing the Refundable Credit Due Diligence form.

Watch the video Due Diligence Overview for more information.

Question 2

Question #2 asks if you have filled out the appropriate worksheets that go with each credit. Drake software produces the worksheets automatically, so whenever one of these credits applies the answer is automatically marked Yes.

Question 10

These questions are answered on each screen 2, using the Due Diligence tab (in Drake23). If there is not a Child Tax Credit (CTC) or Additional Child Tax Credit (ACTC), per the Form 8867 instructions, this section should be left blank, proceed to question #11.

Question 11/13

Question #13 is regarding the American Opportunity Credit and whether the taxpayer has provided substantiation of the education expenses. This question can be answered on the 8863 screen below the educational institution address fields.

Answers Required?

Only the Due Diligence questions that apply to the taxpayer are required to be answered. Some examples include:

• If question #4 is No, then skip questions 4a and 4b.

• If the there is no Schedule C on the return, skip question #8.

DD1 and DD2 screens

Due to customer request, Drake Software is keeping the due diligence screens that are more easily recognized from the Drake Tax 2015 and prior software. Continuing to provide the forms some people are more accustomed to can assist tax preparers by providing an extra level of confidence that all of the EIC due diligence requirements are being met. The DD1 screen is available to assist tax preparers in completing their due diligence requirements. As every tax return is different, tax preparers should review IRS guidelines to ensure that any and all necessary documentation requirements are being met as defined by the IRS. In Drake Tax 2023 and future, additional income tabs on the DD1 screen have been added to allow preparers to record detailed information for more than one business (Schedule C). Be sure to answer the question Does the amount of income on the return appear to be reasonable to support the taxpayer and qualifying children? on the first income tab to clear note 282. If there is only one business, be sure to enter the details on the Income tab and only use the other tabs (2nd Business Income, 3rd Business Income, 4th Business Income) if there are other businesses.

The DD2 screen can be used as a place to record notes.

Forms Required?

If one of the common refundable credits that require the Due Diligence form are present on a return, the applicable questions on the 8867 screen will need to be completed in order to e-file the return.

The ability to turn on or off the requirement for the due diligence forms to be completed can be found from the main page of the software in the Setup > Options menu under the Administrative Options tab (you have to be logged into the software as ADMIN to have this as an available option). If this option is selected, the software will require the DD1 screen to be completed when a return has an Earned Income Credit (EIC) present on the return.